Jewish World Review Feb 14, 2005/ 5 Adar I, 5765
It's a great world or what... 10 minutes with economist Arthur Laffer
Last time I talked to economist Arthur Laffer was in 1979 when I interviewed him at the University of Southern California in Los Angeles. In those miserable economic times, before he was dubbed "The Father of Supply-Side Economics," Laffer was considered a kook by the liberal econ-establishment for pushing his idea that by cutting taxes governments can simultaneously stimulate economic growth and put more tax revenue into their coffers. Today his famous "Laffer Curve" is no longer ridiculed, and the former member of President Reagan's Economic Policy Advisory Board is famed for sparking a worldwide tax-cutting revolution. I talked to him Thursday by telephone from his home in San Diego:
Q: What do you think of President Bush's Social Security reform plan?
A: I think it's terrific. It's a continuation of the policies started by Reagan and worked in by Clinton as well, of moving from a defined benefit program to a defined contribution plan, which is the way it's got to go.
Q: Does it go far enough for your taste?
A: It goes plenty far for my taste, although it has to go further later on. But these things are gradual in a democracy, and this administration is taking one step further. ...
People must be responsible for their own retirement. You can have a welfare system on top of that for people who don't make it.
Q: What grade do you give Bush on economics?
A: I'm really shocked by it. As you probably know, I was not a fan of his father's. I voted for Clinton twice. I really thought Bush (the elder) and Bob Dole were tax collectors for the welfare state. The reason I voted for Bush W. was more Al Gore than it was Bush. And now I am just totally a fan. This guy is just incredibly good at economics.
Q: You are not concerned about the big deficits or the former steel tariffs?
A: Oh, the steel tariffs (were) terrible. They're embarrassing. By putting on steel tariffs, what you do is cause U.S. companies that buy steel to pay higher prices for lower-quality steel. Now you tell me what happens to the American automobile industry and the other products that use steel as an import? I was born and raised in Youngstown, and I know steel pretty well. It does not help America, it doesn't help steel, and it doesn't help Youngstown. It hurts everyone.
Q: How do you define your politics?
A: I'm pro-growth. I'm Democrat when Democrats are into pro-growth, and I'm Republican when they are. I vote the issues really hard-core, and they're all economic issues. That doesn't mean that I don't have strong views on social issues. That's just not where government is involved in my life.
Q: The biggest economic issue of the moment?
A: I like low, flat-rate taxes. I like sound money. I like free trade. And I like minimal regulation for serving social purposes. That's it.
Q: Is that a definition of supply-side economics?
A: (It's) the supply-side definition in each of the major areas of macroeconomics. There are four areas: fiscal policy, monetary policy, trade policy and a sort of catchall, incomes policy. Those are all the indirect ways government affects business regulations, restrictions, minimum wage, wage and prices, etc.
Q: What's something that's true about economics right now that every layperson should know about?
A: If you tax people who work and you pay people who don't work, do not be surprised if you find a lot of people choosing not to work.
Q: What's the most prevalent and most dangerous economic myth that the public believes that needs to be debunked?
A: Bottom line, I think the public's got it.
A: I'm really impressed with the public. The electorate really sees through all this crap. They understand free trade. They understand low, flat-rate taxes. They understand sound money. The electorate is really cool. I'm superbly impressed by democracy and I'm not natively that way inclined, just so you know.
Q: I was going to ask you whether the public and its leaders were getting smarter in economics. I guess you answered it.
A: They've been great. Look at what's happening. Since that '79 interview we had, OK, let's take a look at what happened to marginal tax rates. The highest rate has gone from what 70 percent down to what, 35 percent? What's happened to inflation? What's happened to regulation restrictions? What's happened to America and the world? What's happened to the stock market? What's happened to everything you and I believe in? Do you remember what unemployment rates looked like back in 1979? Do you remember what the prime was when Ronald Reagan came into office on Jan. 20, 1981? It was 21 percent.
Q: This is a happy economist. It's not dismal at all, is it?
A: I cannot believe how wonderful it is. When (Nobel Prize-winning economist) Bob Mundell and I sat there at the University of Chicago in 1967, '68 and '69, we dreamt of a world. That world is now. Can you imagine a world with no inflation? Everything that's happened. It's absolutely spectacular. I'm just so happy about what's happened to this world. Don't you feel that way?
Q: I'm a libertarian, and I'll probably never be satisfied. But I think in economics a lot of people have gotten a lot smarter over the last 20 or 30 years.
A: If you looked at (House Minority Leader) Nancy Pelosi and you looked at (Senate Minority Leader) Harry Reid Wednesday night, they looked really, really uncomfortable. They were running everything in 1979. They had the president, the Senate, the Supreme Court, the Fed chairman. They had every damn position in the world. They had everything the states, the houses, the governors. It was a Fabian redistributionist nightmare. Now it's really beautiful. I'm an old man, and old men are supposed to be curmudgeons and hate the modern day and love the ancient. But the truth of the matter is, we've won.
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JWR contributor Bill Steigerwald is an associate editor and columnist at the Pittsburgh Tribune-Review. Comment by clicking here.
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© 2005, Bill Steigerwald