Close your eyes and imagine it's 1975. Inflation is high, jobs are scarce and the government decides the best way to stimulate the economy is to raise taxes. Nowadays, that approach doesn't seem to make much sense, but smart people once believed that the best way to help the common man was to tax him as much as possible, then turn around and dole out entitlements to keep folks afloat.

What changed this thinking was a little curved line on a piece of graph paper. During the Ford administration, a young economist named Arthur Laffer decided to prove graphically that higher taxes were bad and lower taxes were so good, they could actually boost government revenue, not shrink it. (There's an apocryphal story about him excitedly drawing a picture on the back of a cocktail napkin.)

How? Think of a pure curve, starting at zero and going to 100, with the peak of the hump somewhere in between (more on that later). At zero, if the government assessed no taxes, the government would have no revenue. But, at 100, if the government taxed all the income at a dollar-for-dollar rate, the government would have nothing either, since folks would have no incentive to work if they were handing over all their paycheck to the Feds.

Somewhere in between was the ideal rate between taxing so the government can stay in business, but not crippling regular folks. Ideally, low taxes are better, according to Laffer, since it gives more money to consumers to spend and thus stimulate the economy. In fact, the Laffer curve was the foundation of what became Supply-Side Economics.

And, for the record, Laffer never took credit for the idea, saying economists had been promoting the idea for centuries. Of course, none of them had a napkin.