Friday, April 04, 2008

It's curious how much the "Country Is Going in the Right Direction" curve resembles the Laffer Curve

According to the New York Times/CBS poll, the percentage of people thinking the country is going in the right direction is at an all time low since they started asking this question in the early nineties. It's especially striking because public opinion usually hits its low point only in the months and years after an economic downturn, not at the start. Good for McCain that he probably doesn't waste a lot of time looking at charts like this, or he might have nightmares.

Something struck me as familiar about that line that goes up, peaks after 9/11, and then plummets. Then I realized what it was. Do some data smoothing and round off the jagged edges, and the curve closely approximates the theoretical Laffer Curve, much beloved of certain economists who are not fond of taxes. (And a real "laugher" it was, as this was the theoretical underpinning of supply side economics and the relentless tax cutting that began under Reagan and resumed under Bush, though they no longer referred to the Laffer Curve, which had pretty much been laughed off the economic stage).

I won't speculate about any possible causal connection, but it is interesting to note that, while the real Laffer Curve is symmetrical and eventually returns to its original baseline, the "things are going to hell in a handbasket" curve just keeps falling. We need to give it a name so it can be enshrined in the annals of economic theory. Maybe we could call it the You Cannot Fool All of the People All of the Time Curve.

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