“This thinking is like bloodletting in the middle ages. Take out a pint of blood. The patient gets sicker, so the reason must be that we didn’t take out enough blood.”
Safe to say Art Laffer doesn’t like the stimulus. The “father of supply side economics,” and developer of the Laffer curve (hero to the right and conservative nut bag to the left) was straight with attendees at ASPPA’s 401(k) Summit in San Diego this week, albeit with a sense of humor. He recently moved from California to Nashville, Tenn. after the Governator went to the “dark side,” and Tennessee has no income tax. He posed a simple question to summit attendees: If you raise taxes in Point A and lower taxes in Point B, what happens? Producers, businesses and generators of capital will pack up and move to Point B.
“Am I over your head with this?” he asked. “No? Well apparently I was over the head of the California legislature.”
[Editor's note: As if to specifically reinforce Laffer's point, a great editorial on the backwards thinking of California's leaders appeared recently in the San Diego Union Tribune. It can be found here.]
Then he got serious, noting clients need advisors now more than ever. “It’s an old adage, but true. You make money in bad times, you collect in good times.”
As for the aforementioned stimulus? He doesn’t like it, and here’s why: In February 2008, a $160 billion stimulus package was passed by Congress. Larry Summers noted at the time that if you receive money unexpectedly, you’ll most likely spend it. It will cascade through the economy, create jobs and benefit us all through the multiplier effect. Of course, the economy has completely tanked since then. Summers justifies it by saying, “Yes, but think of what would have happened had we done nothing.”