Order Description

1. What is deadweight loss and why is it important for understanding why neo-liberals (or economic conservatives) oppose taxes?
2. What is Larry Bartel’s main point in “Homer Gets a Tax Cut.”? What are the implications for political appeals and voting?

Part II: the neo-liberal perspective (40%)

Milton Friedman’s Capitalism and Freedom lays out neo-classical liberal economic arguments for limited government. Government, in Friedman’s view, should be limited to providing law and order, protection of property rights, limiting monopolies (ensuring some economic competition), providing for a stable supply of money, and a few other policy areas. Friedman argues for active monetary policy by the Treasury and Federal Reserve to ensure adequate credit for the economy. He opposes government use of fiscal policy (taxes and spending) to manage economic growth and for redistributing wealth (promoting economic equality). He argues that limited government is necessary for [economic] freedom and that economic freedom is necessary for political freedom. The questions are: 1) what are Friedman’s main points, 2) what are the positive or strengths of Friedman’s arguments, and 3) what are the weaknesses or flaws of Friedman’s argument. Good answers will draw on the readings, but don’t simply repeat Friedman’s arguments. You can ignore chapters 7, 8, and 9 but should see chapters 10 and 11 for his arguments about social welfare and alleviation of poverty.

Part III The Supply-Side Perspective (40%)

Arthur Laffer was an economist who raised the idea of the “Laffer Curve” to Nixon and later played a major role as an economic advisor for Ronald Reagan. Supply-siders argue foremost, for policies that will reduce the costs of production, and thus expand both supply and demand (by lowering prices). Regulatory policy and tax policies are central to the argument, though not the only ones. The essential argument taxes suppress individual incentive to earn more money and suppress investment and innovation. If taxes are lowered, the theory goes, then investment will increase and the economy will grow. Laffer, along with Stephen Moore and Peter Tanous, credit Kennedy and Reagan’s tax policies (lower taxes, deregulation, anti-union policies) for enabling the prosperity of the 1960s and 1990s. They argue that Obama’s policies will slow the economy. The questions for your essay include: 1) what are the central pillars of supply-side economic theory, 2) what are the advantages of pursuing these policies, according to supply-siders, and 3) what are the weaknesses or flaws of the supply-side argument.