The Lovitz Curve

Remember the Laffer Curve?

First popularized in the ’70s and ’80s, the Laffer Curve was a brilliantly simple economic graph which demonstrated that government revenue grows as taxes are increased only up to a certain point, after which revenues begin to decline as tax rates approach 100%. (See idealized Laffer Curve on the right; click to enlarge.) The high point on the curve shows the optimal tax rate for bringing in the most revenue.

The reasoning behind this is self-evident. Obviously if tax rates are 0%, then the government will collect no tax revenue; but if tax rates are 100%, then the government will almost certainly also collect no tax revenue, because there would be no motivation for anyone to work, earn or invest, since all their income would go directly to the government. A tax rate of 100% may sound tempting at first, but since it would precipitate an economic collapse, the end result would be no economic activity to tax, and thus no revenue. Therefore, the most effective tax rate is somewhere in the middle; the trick is determining exactly where.

Keep the Laffer Curve in mind as we turn our attention to the astounding recent political transformation of comedian Jon Lovitz. On April 23, a recording of a Lovitz comedy routine savagely criticizing Obama’s “bullsh*t” class warfare rhetoric went viral on the Internet, and before long Lovitz was cropping up everywhere, in great demand as the spokesman for everyone disgusted by Obama’s claims that high earners “don’t pay their fair share” in taxes. And this is coming from a self-described Democrat who voted for Obama.

Most significantly, Lovitz claims that many of his fellow Hollywood liberals agree with him but are too afraid too say it publicly.

And then it struck me. Wealthy Hollywood liberals just love to skewer evil corporate fat cats and country-club Republicans, and up until now no one had encountered a limit to their enthusiasm for leftist class warfare rhetoric. And then…Obama went too far, and suddenly it got personal.

I realized that the principles behind the Laffer Curve also apply to the economic and political relationship between Democratic politicians and the Hollywood elite. Wealthy West Coast liberals will cheer on and swoon over any politician who engages in overheated class warfare rhetoric — up until a certain point, when it suddenly dawns on them that the rhetoric is aimed directly at themselves. Then very quickly their donations, fundraisers and helpful propagandizing start to dry up as the radical rhetoric begins to threaten them personally.

Just as in a Laffer Curve, Revenue and Support from Hollywood (RASH) is at a minimum for any politician who (like President Reagan, for example) doesn’t engage in talk of class warfare and refuses to demonize the rich; but it would also be at a minimum for any politician who’s so extreme (like Lenin, for example) that he’s likely to forcibly confiscate all the money and mansions of the wealthy Hollywood hypocrites. Somewhere in the middle, there is a perfect “sweet spot” for class warfare rhetoric that ensures maximum RASH —  strong enough rhetoric to demonstrate your liberalism, but not so strong as to go “the full Vladimir.”

All this can be explained more clearly in a new graph. And so I hereby present: The Lovitz Curve:

Just as in the Laffer Curve illustration above, this is an idealized, symmetrical version of what the Lovitz Curve would look like. Yet progressive critics of the Laffer Curve claim that the point of optimal revenue is likely not at the exact middle (e.g. a 50% tax rate in that case), but most probably further off to the right of the graph, somewhere around the 70% mark. (On the right you can see what critics say a more accurate Laffer Curve would look like — click to enlarge.)

The same principle holds true for the Lovitz Curve. Hollywood liberals are much more enthused by and generous to politicians closer to the Lenin end of the scale than to anyone near the Reagan end of the scale. It’s not like they’re most enthused by perfectly centrist populists; instead, they tend to give RASH to fairly high levels of class warfare, just so long as it doesn’t get so high that it starts to become scary.

Thus, a more accurate Lovitz Curve would likely look something like this:

Socialists absolutely hate the Laffer Curve because it takes as its starting point the assumption that under real-world conditions a completely collectivist economy (in which there is no personal reward for working) will always stagnate to the point of complete paralysis. Unfortunately for the haters, the history of communist economies largely confirms Laffer’s assumption; one only need look at what happened in the Soviet Union in the ’20s and ’30s, and China in the ’50s, to see that productivity collapses and the economy implodes when you outlaw individual rewards for labor (which is what a 100% tax rate would do).

Similarly, the Lovitz Curve is going to be a rude awakening for the Obama campaign. He and his strategists had thought that they could amp up the class warfare rhetoric to the absolute maximum and still count on unquestioned support and unlimited donations from the Hollywood elite. But Jon Lovitz’s game-changing rant brought them crashing down to Earth; turns out that the wealthy liberals have acquired a taste for luxury, and their guilt-assuaging support for the proletariat has a limit. Obama unwittingly crossed that line, and he learned the hard way that the curve’s drop-off in RASH is steep and pitiless as you approach Leninhood.

And what holds true for the Hollywood elite almost certainly holds true for hypocritical wealthy liberals from San Francisco to the Hamptons. The Obama campaign may begin to see those big liberal donors suddenly making themselves scarce if he keeps demonizing the 1%.

Will Obama heed the harsh realpolitik of the Lovitz Curve? Or will he throw caution to the wind as he tries to whip up the underclass into a scapegoating frenzy?