R Davis spends a whole lot of words (and numbers) explaining why Arthur Laffer’s latest WSJ editorial is false and ridiculous, but those who think about data — at all — really only need to read one line. Laffer’s key error — which a high-school statistics student could spot — is to:
compare growth in GDP rates with government spending as a percent of GDP. He is testing for a relationship between two variables but expressing one of them (spending) in terms of the other (GDP).
So when Estonia or Ireland’s GDP drops, its government spending/GDP increases.
This is obvious proof that higher government spending causes lower GDP.
It’s hard to imagine that a well-educated person could not be aware of how specious this argument is. But I’m guessing that he really and truly does not realize it.
Cross-posted at Asymptosis.