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Laffer: Witnessing the End of Prosperity

Monday, 27 Oct 2008 10:18 AM

Economist Arthur Laffer, a principal advocate of supply-side economics under Ronald Reagan, says "we are witnessing the end of prosperity."

Writing in The Wall Street Journal, Laffer makes this dire forecast:

"Twenty-five years down the line, what this administration and Congress have done will be viewed much in much the same light as what Herbert Hoover did in the years 1929 through 1932," Laffer predicts.

He cites the various reasons for this current financial crisis, which will be the worst since the Great Depression, according to leading economists. Among them, Laffer says, are a number of economic decisions that were made in a panic.

That includes the handling of the Fannie Mae and Freddie Mac debacle; the passage of Sarbanes-Oxley legislation in the wake of the Enron scandal; and Ben Bernanke's "bungling of monetary policy."

The government bailouts designed to resolve the crisis are not a zero-sum game, Laffer suggests.

"Whenever the government bails someone out of trouble, they always put someone [else] into trouble. ... Every $100 billion in bailout requires at least $130 billion in taxes."

The additional $30 billion is the cost of getting government involved, Laffer calculates.

The stock market, says Laffer, now reflects expectations of future, after-tax profitability, including the additional cost to taxpayers of the bailout.

Long term, however, other economists and money managers say the outlook is bright.

Jeremy Grantham, a founder of money management firm GMO, says investments made now will yield profits down the road. He also acknowledges that stock prices could go lower. Yet, he says he's still buying "slowly and carefully."

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Economist Arthur Laffer, a principal advocate of supply-side economics under Ronald Reagan, says "we are witnessing the end of prosperity."Writing in The Wall Street Journal, Laffer makes this dire forecast:"Twenty-five years down the line, what this administration and...
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2008-18-27
 

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