In his OpEd, Mr. Laffer confuses causation with correlation, ignores market history, makes spurious argument, and simply make up crap as he goes along.
It is, to any thinking person, an embarrassment.
For example, Laffer pontificates that "It shouldn't surprise anyone that the nine states without an income tax are growing far faster and attracting more people than are the nine states with the highest income tax rates. People and businesses change the location of income based on incentives."
Ritholtz points out that "This is mostly true, but misleading."
First, 7 states have no income tax; the other two tax — New Hampshire and Tennessee — only tax dividends and interest income.
Many of the states without income taxes — think Texas, and Alaska — are blessed with natural resources. (Nevada’s blessing is Innumeracy). They don’t have income taxes because the lease licenses to the mining and oil industry throw off so much revenue, that these taxes are not needed. Confusing correlation for causation is a Freshman college error, and we should expect better from Laffer.
Note: 5 of the 9 have a corporate business tax: Alaska has a state corporate income tax, Florida has a corporate income tax (5%); New Hampshire has a Business Profits Tax (8.5%); South Dakota has a financial institutions income tax; Washington has a Business and Occupation Tax. Since these are the fastest growing states according to Laffer, is the lesson to other states to add a corporate tax?
Ritholtz also takes Laffer to task for giving tax cuts the entire credit for the economic expansion of the 1980's.
Reagan had the good fortune to take office at the tail end of a 16 year secular bear market, just as Paul Volcker fed the economy its distasteful medicine. Inflation was broken, and interest rates began their 25 year slide towards zero.
To ignore the reality of these factors, and credit tax cuts as the sole cause of the 1980s and 90s expansion is simply to discard reality because it does not fit your neat ideological universe. That is a surefire recipe for losing money as an investor . . .
Ritholtz finishes off by taking a swipe at the Wall Street Journal:
Indeed, I have railed in these pages against the ideological, fact-free OpEd in the WSJ — not because of the politics, but because they have been such consistent money losers. That would not matter so much if it were the NYT or the Podunk Press, but this is the Journal, for crying out loud, It is supposed to be the paper of record for investors.For an example of Arthur Laffer's forecasting ability, watch his appearance on CNBC in August 2006 where he argues with Peter Schiff. Schiff correctly predicted a severe recession within the next couple years because the U.S. economy didn't manufacture anything anymore, but relied instead on consumer spending that was ultimately fueled by foreign debt. Laffer insisted that Schiff did not understand how the Chinese were actually paying us for maintaining the banking system rather than simply lending us money. According to Laffer, Alan Greenspan's monetary policy was the product that the rest of the world was happy to pay for.
That the money losing OpEd page of the WSJ produces its most well read articles goes a long way in explaining one thing: Why 80% of money managers underperfom every year. Filling your head with Ideology, becoming a “magical thinker,” ignoring data, making up your own facts — these are a recipe for under-performing asset managers.
If I were to create a list of questions to ask potential managers of my money, one of them would be: “Do you read the WSJ OpEds?”
If the answer were yes, I would not walk but run in the opposite direction.
Of course you will never here CNBC's cheerleaders pointing out how badly Laffer missed the boat. Here's Larry Kudlow kissing Laffer's ass yesterday.