Laffer Curve vs. Phillips Curve

There’s one thing about economic guru Larry Kudlow. You could never accuse him of pessimism. And, he points out, there’s every reason not to give in to the MSM drumbeat of bad news. You know the story. There’s

the insurgent-ridden reconstruction effort in Iraq, the looming Iran threat, the failed Dubai ports deal, the twin deficits, the president’s sagging poll numbers, the Jack Abrahamoff scandal, and on and on — there’s one thing they just can’t taint: This U.S. economy remains very healthy.

Now why would that be? To Kudlow, it is a tale of two curves. There’s the Laffer Curve, the notion that the economy does best when marginal tax rates are low and uniform. Then there’s the Phillips Curve, the notion that there is a tradeoff between inflation and unemployment. Senator! A question! Which one is a notion and which one is a practical guide to policymaking?

No contest. We tried an economic policy based on the Phillips Curve back in the 1970s. What was the result? We got both inflation and unemployment. But then Ronald Reagan came to power and applied the Laffer Curve. He lowered marginal tax rates—in the teeth of mocking criticism from liberals—and the result has been twenty years of prosperity.

In the months ahead... President Bush will continue to embrace the pro-growth Laffer curve. And the anti-worker Phillips curve will be pushed into the dustbin of history. In other words, economic growth principles will keep American capitalism on the prosperity path.

You can’t say fairer than that.