Johann Hari: Why are we silent as Cameron preaches voodoo economics?

The political H-bomb of Expensaggeddon has confirmed the belief that our politicians are a homogeneous class of crooks only interested in themselves. The gaps between the parties look increasingly like a fatuous blur, designed to cover the looting of the tax-payer. And it's true those gaps are way too narrow, clustering the parties well to the right of public opinion, where they are largely accountable to the rich rather than us. But these differences are, in reality, still wide enough to determine whether millions of us will keep our jobs and our homes. And nobody is telling you how. The dry rot is not only running through Margaret Moran's second home. No. It now runs right through our coverage of politics – and especially of the man most likely to be the next Prime Minister.

A series of disturbing facts have leeched out about David Cameron over the past fortnight – but they have been virtually unreported. The Tory leader has started advocating a form of economics so extreme it was derided even by the first George Bush as "voodoo economics", and revealed he is so out of touch with ordinary people he doesn't even know how many houses he owns. We failed for years to expose the MPs' expenses scam. Isn't it time for journalists to pull the news agenda out of Douglas Hogg's moat and start exposing the facts about Cameron that will affect us even more bitterly than the stench from the Fees Office?

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Let's start with a tiny story, that points to a bigger untold tale. A few days ago, the Leader of the Opposition was asked how many homes he owns. "I own a house in North Kensington and... in the constituency in Oxfordshire and that is, as far as I know, all I have," he said. He then started to get confused, said he might own four homes after all, and pleaded: "Do not make me sound like a prat for not knowing how many houses I've got." Imagine if Neil Kinnock said this in 1991. Do you think you might have heard?

The fact that David and Samantha Cameron are worth an almost-entirely-inherited £30m, according to financial expert Philip Beresford, isn't in itself damning. Franklin Roosevelt was very rich, but became a great crusader for the poor. But Cameron is advocating policies that will benefit his tiny class of super-rich Trustafarians at the expense of the rest of us. He is committed to spending billions on a massive tax cut for the richest inheritees, paid for by the bottom 94% of us – and now he has announced his enthusiasm for a bogus economic theory that will justify shovelling far more of our money their way.

Although you wouldn't know itDavid Cameron's economic philosophy was already surprisingly far outside the political mainstream before his latest revelation. President Barack Obama explained why in a recent speech , where he was arguing against the Republican hard right who take the same line. He said: "Economists on both the left and right agree that the last thing a government should do in the middle of a recession is to cut back on spending. You see, when this recession began, many families sat around their kitchen table and tried to figure out where they could cut back.

"That is a completely responsible and understandable reaction. But if every family in America cuts back, then no one is spending any money, which means there are more layoffs, and the economy gets even worse. That's why the government has to step in and temporarily boost spending in order to stimulate demand."

Cameron is almost alone in the democratic world in disagreeing and demanding immediate cuts in public spending as the global economy grinds to a halt. When I asked this year's Nobel Prize-winning economist Paul Krugman whether this would make the recession worse, he replied: "Yes. For sure," and then added that Cameron's policies were "pure Herbert Hoover."

This is serious enough – although hardly anyone knows it. But then, two weeks ago, Cameron went even further. He was asked about whether the government's proposals to increase taxes on the richest one percent would raise more money for the Treasury. He replied: "It's a very difficult calculation about where we are on the Laffer Curve... We have to put this [top rate of tax] in a queue of things we would want to get rid of... and I'm always interested in topping up my study of Laffer."

To most people, this sounds like gibberish. Who is this "Laffer" who Cameron is turning to as the measure of whether tax policy works?

Arthur Laffer is an economist who was fired from the Nixon administration in disgrace and went on to invent a false economic theory. He was picked out by the Watergate-wet Richard Nixon when he made a prediction about economic growth that was way ahead of every other economist. Nixon put it into every speech – until it was revealed that, while other economists had used thousands of variables to arrived at their predictions, Laffer had used just four – and got it totally wrong. He was fired, and that should have been the end of him.

But Laffer was befriended by Dick Cheney, and in 1974 they invented an economic theory on the back of a cocktail napkin – literally. Laffer claimed that cutting taxes on the rich was always right, because when you cut their taxes the rich had extra incentives, so they worked harder, and paid the money back (and more) in extra revenue.

To illustrate this, he drew a diagram. As the writer Jonathan Chait explains in his The Big Con: The True Story of How Washington Got Hoodwinked and Hijacked by Crackpot Economics: "He pulled out a cocktail napkin and drew a parabola-shaped curve on it. The premise of the curve was simple. If the government sets a tax rate of zero, it will receive no revenue. And if the government sets a tax rate of 100 percent, the government will also receive zero tax revenue, because nobody will have an incentives. Between these two points – zero taxes and zero revenue – Laffer's curve drew an arc. The arc suggested that at higher levels of taxation, reducing the tax rate would actually produce more revenue for the government."

It was a magic formula – you can cut taxes for the rich and you won't lose a penny in tax revenues! There's no business cycle – only marginal tax rates make the economic weather. Cut! Cut!

There's just one problem. It's a fantasy. Look at the facts in Laffer's own country. From 1947 to 1964, the top rate of tax in the US was 91 percent. Using the Laffer Curve, the economy should have been in the tank – but in fact it was enjoying the longest sustained boom of the twentieth century. In the 1980s, Reagan slashed the top rate – but there was a severe recession in 1982, and the growth that followed was merely an average recovery. Then in 1993, Clinton increased the top rate of tax from 31 to 39.6%, and Laffer predicted an economic collapse. In fact, there was the next long boom.

And so it goes on. Chait puts it well: "It is impossible to see how events could have turned out worse for them, short of God appearing on Earth to denounced the Laffer Curve as an abomination."

Why would Cameron want to surf the Laffer Curve now, when it is discredited except among the fringes of the Republican Party and the Spectator right? Because it sets up a logic where there should be more tax cuts for his own tiny bloated over-class – the only people he has ever known. (Remember: this is a man who said his wife is "highly unconventional" because "she went to a day school.")

If you bother to read Cameron's statements, it's clear how he will pay for these cuts for himself and his friends – by slashing the few redistributive programmes for the poor built up over the past decade, like the Educational Maintenance Allowance for poor kids to stay on to sixth form which his team derides as a "bribe", or the tax credits which his frontbench openly compares to the disastrous nationalised industries of the 1970s, or the SureStart centres which he has described as "a microcosm of government failure." They belong to a world he has never seen, or shown any interest in.

But little of this is explained to the British people. Instead, the public is presented with a picture of Cameron as an ordinary bloke who will govern in the interests of us all. Yesterday, his call for minor constitutional tinkering was reported as it was a big-picture solution to our busted political system – even though Cameron scorned the reform that matters most: proportional representation.

The fact that Labour is lying by the roadside barely twitching is no excuse for the failure to inform us about what the alternative will mean. As one political journalist recently said sardonically that if Cameron announced the slaying of the first born, he would be applauded for having a great policy for second children. When are we going to start seeing through him?

j.hari@independent.co.uk

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