Art Laffer on Tax Policy and the 50-Year History of the Laffer Curve

>> Jon Hartley: This is the Capitalism and Freedom in the 21st Century podcast, an official podcast with the Hoover Institution Economic Policy Working Group, where we talk about economics, markets, and public policy. I'm Jon Hartley, your host today. My guest is Arthur Laffer, a legendary economist who is the famous namesake and popularizer of the Laffer Curve, which depicts the relationship between tax rates and tax revenue.

 

On top of Art's career in academia, he's also an investor, having founded Laffer Investments and has advised countless politicians from Richard Nixon working in the Nixon administration, to Ronald Reagan working in the Reagan administration, working on Reagan's Economic Policy Advisory Board, and most recently working with President Trump, who awarded Art the Presidential Medal of freedom in 2019.

 

Welcome, Art.

>> Arthur Laffer: Thank you very much. Jon, it's so nice to see you again.

>> Jon Hartley: So great to see you as always. And I really am excited here to talk to you because I know you well and, and I really want to, I think, shine a light on, on your early life and, and all your incredible accomplishments.

 

You know, you, I'm curious, you know, how did you first get interested in economics and how did you make your way to Yale and then to Stanford to do your PhD in economics and study under the famous international economist Ron McKinnon? I've actually, I've seen your PhD dissertation here.

 

We have a room with all the PhD dissertations of past Stanford students, and I've seen yours in this room of many red books with all the dissertations. I'm curious, what was it like when you were here and how did you actually get interested in economics in the first place?

 

 

>> Arthur Laffer: Well, it was really cool. I got interested in economics. I went to the University of Munich. I took a year off from Yale, by the way. I got into Yale by privilege. My dad went there, both my brothers went there. We are a Yale family. So it was natural, just sort of inherited thing there.

 

And I took a year off at the University of Munich, where I had been a math major at Yale. And I got to Munich and they didn't have any math courses I hadn't had. So I decided to try which is macro and microeconomic. I fell in love with it, came back to Yale, changed my major, was an economist there, majored in it, cleaned up, hit the ceiling, then went to Stanford Business School.

 

You know, family's business. My dad was head of a large company in America for many years. Privileged family, all that. And I fell in love with economics. I took all these courses. I took my core exams in the econ department when I was in the business school. I was the only student to do that out of something like 200 students.

 

And I aced them. So I switched over and I got my Ph.D. in economics after my MBA and, and then I went to the University of Chicago where I took my first year as a year's leave of absence to go to Brookings Institution with Emile de Pre, who was a professor at Stanford.

 

And well, you know, it's all written in the stone from there on my career, but it's. I love Stanford, I love the business school and I love switching into the econ department. And Ron McKinnon was spectacular, as was Emile Deprez, by the way. You know, we had a big good group of international economists back then, and that's my specialty, pure trade and international money.

 

And they were really terrific. And I got my first publication in the AER before I entered graduate school in the economics department. How's that?

>> Jon Hartley: That's amazing.

>> Arthur Laffer: In fact, my first publication was in Reagan's first economic report of the governor in 1967. That's my first citation. So how's that for cool?

 

 

>> Jon Hartley: That's amazing. Okay, so I guess a few questions. So like, Ron McKinnon, for those who don't know. Ron McKinnon, you know, famous international economist, spent most of his career at Stanford. You know, I think, you know, maybe like a 50 plus year career. And he was famous for coining financial repression, focused on China a bit later.

 

I mean, I'm curious what, what it was like at that time. I, I mean, I, my sense is like, you know, Stanford's I always think of as. It's the sort of department that Ken Arrow and others built or it's kind of the environment that Ken Arrow and others built.

 

But I'm curious, what was it like, you know, at the business school at the time? What was it like doing the MBA and segueing into PhD? Strangely, I also sort of have an MBA, and finishing a PhD and all that as well. But I'm curious, what was that like in California at the time?

 

I mean, Governor Reagan in California, what was California like?

>> Arthur Laffer: Well, he wasn't quite there yet. I mean, remember I came in 63 and Reagan didn't take office until 67. So the first part was still under Edmond G. Pat Brown there. And it was a very exciting, very.

 

I don't know what it's like today in the courses, Jon. I don't. But at that time, Stanford was extraordinarily rigorous mathematics. Ron McKinnon was no BS period. He, he had me do proofs and theorems there I was worked for Moses Abramovitz. I was the proofreader for why Growth Rates Differ by Ed Denison.

 

So this is the detailed numerical stuff and detailed mathematical stuff. So we worked in statistics and math very, very heavily at that time. And I, I think it softened a great deal to be honest with you, at Stanford. But we came out of there, we were,

>> Jon Hartley: they let me in.

 

Clearly that, you know.

>> Arthur Laffer: Well, you know, it's, it's not who they let in, it's who they let out that's important. And I am sure you're going to be let out a better man and a better economist as. But that time you really had to be rigorous and McKinnon was as rigorous as anyone was.

 

Emile Desprez was the love of the century. I mean I just love that man more than anything. Ken Arrow was, was an important part of the department but he was separate. He was in Whatchamacallit Hous, Sarah House, which was where Ken Arrow and the mathematical commons. We were all in Encina hall there, the whole group of us, which you probably don't even have anymore.

 

The business school wasn't built. We were all a history corner, but it was two very different things. And I had very little interaction with Ken Arrow. A lot of interaction with McKinnon, with Emile de Pray, with Paul David Paul Holmberg. A good group of solid economists there. I just loved it.

 

Just loved it.

>> Jon Hartley: That's fantastic. And my understanding is I think some of the mathematical economics Ken Arrow sort of grew out separately. I mean we have the MSC department as well, which is all separate. So there's all these different, different groups of economic scholars or economics related scholars here and between certainly in these times we've got Hoover and we've got the Stanford Economics department.

 

There's CEPA, we've got the business school. There's also the political science departments, FSI, which is just foreign policy, and all these folks are doing economics to some degree. I'm curious. I guess HP has always I think been one of those big, I think founding sort of companies, if you will, in the area.

 

I mean, was the tech sort of, was this at the time or not?

>> Arthur Laffer: My job when I was at Stanford, I was, you know, very young. Obviously, I came and I was married. Most people were not. I had a baby, so I had a family and so I worked at night.

 

I was night watchman in Shockley Transistor and 1800 Page Mill Road which was the opening one that was before the group left and formed their new company there Before all the deserters left Shockley. So I was night watchman there. So yeah, we were really big on that. In fact, Shockley asked me to be his research assistant in the university.

 

And I told him I really didn't have time to do that. I could as night watchman, I could do all my homework there, four hours every night. And he wanted me to come in and actually be a real serious research assistant and do this genetics research. Thank God, I didn't do that just what I need is another scar on my back for whatever conservative stuff these guys do.

 

 

>> Jon Hartley: Great. Well, okay, so did you know anyone in the early, like any of the early Reagan people who are in California and advising him at that time? Do you cross paths with any of them

>> Arthur Laffer: later on? I did, very much so. You know, my godfather was Justin Dart, who was Reagan's best friend.

 

And so my relationship with Reagan was strictly familial, was privileged. Was all of that. When you're someone's best friend, you get intersect in the circles. And so when I came back to California in 76, I was immediately in the social set with Reagan. When Bob Hope died, for example, I was the escort for Dolores Hope and all of us in the Beverly Hills, Bel Air, that era, Palos Verdes, Rolling Hills, that was mine as I was the kid and all of that.

 

So that's how I really got to be superly close with Reagan and all the people around Reagan. But I knew them all really, really well and doing a lot now with it.

>> Jon Hartley: Terrific, terrific. Okay, so California, your first job coming out of Stanford was at UChicago University Chicago.

 

 

>> Arthur Laffer: First, yeah. Job, yes. But I took a leave of absence my first year out and I went to Brookings. At Brookings, And then I came back to Chicago where I'd never been before.

>> Jon Hartley: And I know you later taught it at USC and Pepperdine as well. I'm curious what was like the UChicago this would have been I guess in the late 60s, early.

 

 

>> Arthur Laffer: 60s, 70s that era, I came back for one year, my second year on the faculty, my first year in location. I was pretty lucky I got a lot of published articles in the top journals everywhere at Aerial, all of these things there. And so I think I got the fastest promotion to tenure at Chicago in their history in econ.

 

Promoted a tenure and then George Schultz in 1970 asked me to go to the White House with him as his right hand person. So I was the top staff economist in the White House from 1970 to 1972. And the first in the first year of the Office of Management and Budget.

 

It had been the Budget Bureau before. But when Schultz came over and took it over, he changed it to the Office of Management and Budget. And I was his choice. My first thing before I even got my office was to go to China with him and John Ehrlichman and made the first trip to China.

 

So I was the first American in modern times at least to go to China in October of 1970. And it was just all cool stuff. I mean, just amazing, I had no idea how cool it was until later.

>> Jon Hartley: It's amazing. And you know, I think a lot of people don't necessarily appreciate, you know, Schultz as, you know, Treasury Secretary.

 

I think he's tied with, I think, the most number of counter appointments. And

>> Arthur Laffer: yes, he was

>> Jon Hartley: obviously a big, you know, a huge influence here at Hoover. But, you know, I think that some of the things that I think people don't really appreciate, you know, this about that time and what was going on was on, on the sort of the treasury side of things was, you know, I think, you know, the creation of what was, you know, the predecessor to the G7.

 

You know, we have all these G7 meetings today. I think that was very much created out of the Schultz treasury at that time.

>> Arthur Laffer: Well, that was before Schultz treasury that I'm talking, here he was head of the Office of Management, but his first job was Secretary of Labor.

 

And then when he moved over to be head of the Office of Management and Budget, this newly created agency is when I joined him in nineteen nineteen seventy. Now at that time was just before the Camp David wage and price controls, devaluation, the dollar, the 10 import tax surcharge.

 

All the stuff you and I hate and despise and disagree with to the limit. But Nixon, I enjoyed Nixon personally very, very much. But this was George Schultz's first thing there. And then of course, what he did was he left that. He went become Secretary of the treasury.

 

And I went with him for that. I was his consultant two days a week from the University of Chicago. I went in there and I had my own little office right next to his, right across the little hall there. And it was just a cool, cool time. That's when we went off gold, when we devalued the dollar.

 

We did all the Smithsonian Accord. All of that stuff occurred in that period. And it was a very exciting period. A very, in my way, bad period in sense of economics. I mean, you know, it's when government finally monopolized money as you know, Jon, before 1913, money was private.

 

There was no government money. Now, the government did do three things. It defined what a dollar bill, a dollar was. It's 1/20 of an ounce of gold, it's 1 ounce of silver. You know, that's what they defined that. Then the government also, prior to 1913, did have a mint that minted coins.

 

If you brought in bullion, it minted coins correctly and charged a fee for it. So did a lot of other places mint coins. And the third thing the government did which was really important was that it audited banks balance sheets. So if you said your balance sheet and your income statement was such, they went in and audited it and made sure it was true.

 

And what was before 1913? There was no currency as we know it. There was banknotes which were issued by individual banks. Some sold a slight discount or premium to another bank or so, but that was the money back then. And obviously from 1790 until 1912, let's say the US had bibbles and bobbles and inflation, but there was no generalized inflation for 130 years there.

 

And then, of course, once we started the Fed, which was in 1913, the government started to monopolize money. Then Roosevelt devalued the dollar from $20.67 an ounce to $35 an ounce, ba, ba, ba, ba. Interest equalization tax, voluntary, ending up in the Smithsonian. In the next 120 years or so, we've had huge inflation, I think the price levels increased 33 fold.

 

It's just another example how government shouldn't be in the business of doing what the private sector does better. There should be no government money. There should only be private money today. And it should not be, it should not be run by Powell. I mean, what, I mean, this guy's not competent.

 

Government shouldn't run money, it should be private.

>> Jon Hartley: So I will get into my-

>> Arthur Laffer: I got you to a different field, didn't I, quickly?

>> Jon Hartley: I know. So I guess this is my, my question for you. So, you're working at UChicago. You're working at OMB. You know, you're working with Schultz, you know, going back and forth between Washington, you were there, Chicago in the late six.

 

And around that time, you're hired as an international economist.

>> Arthur Laffer: Yep.

>> Jon Hartley: And I'm sure at that time you, you, my, my guess is you're probably in the same seminars as Harry Johnson. You know, the famous

>> Arthur Laffer: Bob Mondell was the best, was the leading international economist of the world.

 

Back then. I worked with Mondel, it's the Mondel Laffer hypothesis. All the stuff we worked together. He was my primary thing, very big fan of Ron McKinnon's, both of them Canadian, both of them the same economics. He loved my training with Emile D Perry and Ron McKinnon, and we did tons and tons of work together.

 

He took-

>> Jon Hartley: All three of them were Canadian? Robert Mondell was Canadian, Harry Johnson Kane, Ron McKinnon.

>> Arthur Laffer: Yeah.

>> Jon Hartley: And some people would argue that, I mean, part. Part of what, you know, inspired the Mundell Fleming hypothesis or conjecture, you know, and trama was you, the fact that Canada was actually the first sort of break off from the Brenwood fixed exchange rate system in the 50s and to float briefly before they, they went back, almost got killed.

 

And that sort of influenced Mondel to start thinking about, you know, should we have a fixed exchange regimen? Floating exchange rate regime. Mundell and Milton Friedman had obviously this you know, very big debate in, in that time.

>> Arthur Laffer: Well, we were all, we were all fixed exchange rates.

 

We were gold, gold standard people. Mandel and I and Paul Volker in there and Milton Friedman was floating rates. And you know, just for the record, floating rates don't work. They don't work.

>> Jon Hartley: It's a debate that still goes on to, to this day.

>> Arthur Laffer: Yeah, but it shouldn't.

 

 

>> Jon Hartley: Yeah, well, I mean, you know the, the, you know, the end I guess of Bretton woods and, and the breakdown of the fixed exchange rate system. You know, it's ushered in.

>> Arthur Laffer: This fixed exchange rate system didn't break down. The fixed exchange rate system was demolished by sabotage.

 

 

>> Jon Hartley: Yeah,

>> Arthur Laffer: we had no problem with a fixed rate system for three, four centuries before 1913. It did really well and the monopoly of government and then floating rates did really badly post 1913, and it ended up squirrely as all get out. We almost went back to fixed rates with Reagan.

 

We came very close.

>> Jon Hartley: Well, there was the gold commission in a Schwartz kind of lad and there was a bit of a revisiting of some of these things.

>> Arthur Laffer: A total revisiting. And Reagan was a hard money person as was Paul Volcker. Paul Volcker was gold standard all the way.

 

 

>> Jon Hartley: He, I mean Volcker wanted zero to his, you know, for his entire life wanted a 0% inflation target.

>> Arthur Laffer: Me too. Me too. Mandel too.

>> Jon Hartley: I guess there was why 2% over long periods of time. It's a lot of inflation. But you should have 0% said was the argument, I mean, was it Friedman who was pushing back for flexible exchange rates and who won over Reagan in that?

 

 

>> Arthur Laffer: It was 100% Friedman through George Schultz that got the Camp David to go to floating, go, you know, devalue the dollar, go off gold and to have the Smithsonian Accord where you had a floating rate 100%. Milton Friedman. Now there were a lot of other economists who agreed with him, but he was the push.

 

He was the one with George, who convinced George to get in there and, and, and get the President to go along with it. And you know, I was, I differed with him on that very much so to express it. But George was the most wonderful person in the world.

 

You know, he could, you could disagree with George or whatever without being disagreeable. And as his staffer, the only thing I always wanted was that he listened to me, not that he agreed with me. I was never elected to make decisions. I'm only there as an advisor, the same way I am with Trump, the same way I was with Reagan, by the way.

 

I'm only there as a buyer. You make the decision, but as long as you listen, I'm fine with you. And that was the same thing was true with, with Nixon. I disagreed with almost everything Nixon did. Devaluation, going off cold, tax increases, you name it, wage and price controls.

 

I mean, but there wasn't a thing Nixon did that, that I did. But I like Nixon very much. Personally. I love George Schultz.

>> Jon Hartley: Yeah, I mean, Nixon arguably, I think one of the smartest presidents that, that we've had, you know, the, all sort of policies and, and other activities aside.

 

But, you know, I, I guess the Freedman argument for flexible exchange rates was, if you have PPP, if you're fixing exchange rates, then it kind of allows prices to jump out of whack. And, and I guess this. Anyway,

>> Arthur Laffer: so that's all. How do they get out of whack between Chicago and Cleveland?

 

That's a fixed rate system, isn't it? Now, how about between California and New York? Or they out of whack? California should devalue. Come on.

>> Jon Hartley: Optimal currency area.

>> Arthur Laffer: Well, you know, the optimal currency area was a, was, was the one about Canada, the West versus the East.

 

What Mondell really pushed for very much was a currency area and a common currency area, which he put to Europe. That wasn't an optimal currency area in Europe. It was the euro that he thought should be the total currency. And that then that should be juxtaposed against the dollar, maybe against the yen, whatever.

 

But Mundell was very much the fixed exchange rates. If you see his article, to mine was two arguments for fixed exchange rates. And his was the case for fixed exchange rates. We did all that stuff. Mandel was very much in that line.

>> Jon Hartley: Right. Influenced the creation of the euro.

 

I mean that, you know.

>> Arthur Laffer: Well, that is what. Getting rid of floating rates.

>> Jon Hartley: Exactly.

>> Arthur Laffer: Thank God. And he was right. He's been right on all of these things. And we're still pushing to get, get back to a Sound monetary standard. And that's why the euro, that's why Bitcoin is doing so well.

 

That's why gold is so high priced. Everyone wants to get out of government money. So they just are crap things and they want a private money system back again, one money system for the world.

>> Jon Hartley: So, I guess the question, how did you become a tax accountant of all this?

 

You know, you're international coming out of, out of graduate school, you know, obviously your money and, and all these things front and center in the late 1960s and you know, hanging out with Mondell and urban colleagues, with Mondell and all these other, you know, freedmen and so forth.

 

You know, how did was tax policy always.

>> Arthur Laffer: It's like getting a virus, it's like getting the bacteria in your system comes and eats you alive. You know. I was the chief economist at the OMB when it was formed in the White House. So there I, as far as credentialed economists, I was the ranked number one there in the White House.

 

The Council of Economic Advisors was over in the old Executive Office Building and it was. And you're immediately involved in all policy matters. And I developed a little model that are called the formal model of the economy which was published in the Journal of business in 1972 I think it was.

 

And there I did a test of the monetarist model, the Keynesian model and the efficient markets model. Back then we didn't have supply side and I got into some real deep trouble. Government spending using a seasonally unadjusted co adjusted. You can go back and look at the article there.

 

It created huge, huge kerfuffle in the world. If you go back and look at the article there, I found that government purchases of goods and services increased GDP by the amount of the increase in purchases of goods and services in the first quarter and then for the next three quarters went back down to where it otherwise would have been.

 

So it was 100% crowding out of shifting government for there. And I couldn't understand that. And government transfer payments actually reduce GDP growth. So I was struggling with this, being trained as a macroeconomist back then. I, I was struggled with this terribly and, and finally came to the conclusion it's incentives and supply.

 

If you tax people who work and you pay people who don't work. Do I need to say the next sentence to you, Jon? No. That was supply side economic Government spending reduces output, not increases it. Taxes are a disincentive to work output and employment transfer payments pay people not to work, they tax people who do work.

 

And that was the evolution of supply side economics, which is the exact opposite of Keynesian or monetarism. I am not a monetarist at all. I'm not a Keynesian. I personally believe that people don't work because their jobs. I believe that people work to get paid and they get work to get paid after tax.

 

I don't believe that people save their money because of income, incomes being higher. I believe they're save their money to make an after tax rate of return on their investments. Hello. It's an incentive based model. I believe that if you have two locations, A and B. If you raise taxes in B and you lower taxes in A, producers and manufacturers are going to move from B to A.

 

You know, people can change the location of their income, the timing of their income, the volume of their income and the composition of their income, all based on taxation. And that's came out of my paper in 1972. And I was at sixes and nines. I was completely at odds with my own concept until all of a sudden this classical model started rolling in on me and bang.

 

And then you can see all the rest from that. Mundell was right there with me the whole time. It was just a great, great fun. And that's why now I spend so much time on macro. It's just. It's just incentive economics, Jon. That's all it is. I mean, nothing more, nothing less.

 

Just like international economics.

>> Jon Hartley: Absolutely. You know, and it's fascinating. I think there's now, you know, we're 50, roughly 50 years later. You know, I think there's, you know, whole renaissance going on in, in fiscal research and, you know, a lot of work done by Valerie Ramey here and work done by John Taylor as well.

 

You know, just showing that fiscal multipliers are much smaller than people. I think originally

>> Arthur Laffer: they don't exist. They're negative. They're negative, Jon. They're negative. Negative. You know, have you ever heard of an. Of a person spending himself into wealth? It's stupid. Have you ever heard of an economy taxed into prosperity?

 

It makes no sense. Now, there are certain functions the government does that it does better, like military and stuff like that. We're not talking about that. We're talking about transfer payments. We're talking about that. And let me, if I Can I go through with. One second with you on the transfer theorem, because this is, this is so important, Jon.

 

You know, the transfer theorem is that all transfers are where you take income from one group and give it to another group. That's a transfer. We usually think of it in terms of from those who have a little bit more to those who have a little bit less.

 

You with me now. If you take from those who have a little bit more and give to those who have a little bit less. By taking from those who have a little bit more, you reduce their incentives to produce, and they will produce a little bit less. By giving to those who have a little bit less, you.

 

You provide them with an alternative source of income other than working, and they too will produce a little bit less. The theorem here, and it's a theorem it's not my opinion. It's not. I'm tall, I'm short, I'm Harvard, I'm. It's math. Whenever you redistribute income, you always reduce total income.

 

And that's the whole basis of stimulus spending is redistribution of income. And it doesn't work. It always reduces income.

>> Jon Hartley: I mean, my sense is that having looked at a lot of say, myself as well, and this is the arguments that, you, John Taylor and Valerie Raymond there's made is that really the challenge with transfers is that they largely get saved and they don't get spent.

 

So you know, this idea that like.

>> Arthur Laffer: People, that's, that's wrong. Let me just say the problem with transfers is they have to be taken from someone else.

>> Jon Hartley: Well, that's true too. I mean.

>> Arthur Laffer: No, no, no, that's not true. That's not true too. That is all that's true.

 

You know, by taking from people who have, you reduce their spending because they now have less than they otherwise would have had, that will destimilate the economy in the same way. The people who receive the money will spend more, the recipients of transfer payments will spend more. That's true.

 

But the payers of transferred payments will spend less. The income effects. Get your Slutsky equation out. This is where training today is. Get your damn Slutsky equation out. In a, in an economic system, these income effects always, for a transfer or a tax rate change, always. Sum to zero, always.

 

But the substitution effects don't. I had this problem with Senator Nelson in 1974 when he, when we were talking about the 600 buck tax rebate from Jerry Ford by the, that guy. And you know, I was trying to explain the substitution effects to the Senator, and I couldn't find it.

 

He said, you know, and I was on the, is testifying with Gardner Ackley, Paul McCracken and Otto Eckstein, okay? They were the three senior grown up economists who really wanted to do this transfer. And finally I said to, to the Senator, I said, sir, if those three economists are correct, that $600 stimulus will increase output, employment, production, what the hell's the matter with you?

 

Why only $600? Why not 6000-6000-0600-0006. Why not 100% of GDP? So everyone who produces and works receives nothing. And all those who don't work and don't produce, receive everything. What do you think would happen to gdp? And he goes, God,

>> Jon Hartley: probably not much.

>> Arthur Laffer: It would go to zero.

 

And that's right. And these guys just don't get, they don't understand straight up from Sikkim, a transfer system ala Keynesian is you take from someone and their spending goes down. You give to someone else, their spending goes up. That's true, that's a zero-sum game. But the substitution effects make it a huge negative sum game.

 

And that's what is. And that's why the transfer theorem is so true. Every time you transfer resources, you reduce total production. Period. Sorry, Jon.

>> Jon Hartley: No, I'm, I'm, I'm with you. I mean on incentive, the facts.

>> Arthur Laffer: Get that Cogan guy and get him on here TV with me get them all on here.

 

Let's go to, let's have a good me out there to Hoover and do a debate. And redistribution is the same silly thing. These guys at MIT Science and Piketty and Sanchez and all those, whatever, you know, everyone knows that the only way of having equality and income is when everyone's zero.

 

That's, that's the transfer theorem in the limit function. And everyone knows the data show that every time we've raised the highest tax rate on income earners. Every single time, Jon, the economy's underperformed, tax revenues from the rich have gone down and the poor have been hammered. Every time we've cut tax rates on the rich, the opposite, the economy has outperformed.

 

Tax revenues from the rich go up and the poor have been provided employment and good income earning opportunities.

>> Jon Hartley: I don't think you get much disagreement from folks. And as you point out, John Cogan has an excellent book, the High Cost of Good Intentions, which is excellent.

>> Arthur Laffer: Why don't you look at taxations?

 

Taxes have consequences. I looked at every single tax return in the US we have the data. If this is not an opinion piece, I could give a damn what your opinion or anyone else's opinion is. And you should give a damn about mine. This is about facts, not how you feel.

 

And the facts are whenever we raise tax rates on the rich, the economy underperformed. Whenever we lowered them, it outperformed. Revenues exact same, and the poor. Bingo. What more do you want?

>> Jon Hartley: So I, I just want to get a little bit into just the history of how black became famous, because I.

 

I think this is a long story, you know.

>> Arthur Laffer: Became obnoxious and then famous for being obnoxious first.

>> Jon Hartley: Wells, a lunch in 1974, Ed Atkin, Dick Cheney, Don Rumsfeld, then chiefs of staff to President Ford, Jude Wanniski, legendary Wall Street Journal journalist. I'm curious. I want to hear sort of the, I guess, the backstory, how you tell the story.

 

I mean, how long were you thinking about, you know, sort of the the LA curve, thinking about drawing the the relationship between tax revenue and tax rates? Were you planning on, was the pitch plan, was a planned thing, or was it unexpected that you were going to draw this?

 

 

>> Arthur Laffer: Let me tell I've been teaching my classes on the Cobb Douglas production function, called the CLO model, which I developed long before I told you how I was frustrated. And then I did the the model where I had six factors, six unknowns, and solve the systems there and showed all the different things there.

 

And one of the things was that if you raise tax rates on a factor of the. Production, the returns there, you reduce that factor's employment, you reduce other factors employment because they're withdrawing the complementarities out. And sometimes revenues go up and sometimes they don't. You can overtax a factor, you can undertax it.

 

It's like any product in the marketplace, if you tax something too much, you're going to get less tax from that and tax too little less and having dinner with them and they just done the whip inflation now, which was a 5% tax surcharge. Jerry Ford's brilliant, incredibly insightful idea, just stupid as it comes.

 

And I was telling my classmate, Dick Cheney was my Yale classmate and Don Rumps were one of my best friends. I said, you know, you guys, you may get 4% more revenue, you gave me 3% more revenue, but you won't get 5% more revenue. And in fact you may lose revenues, and then I went through and just did what I did for my class, which showed that you're over tax, you're gonna get less revenues, you under tax, you, you'll get less revenues, but you'll still get positive.

 

And they saw the light, I guess. And that's when was there and wrote taxes revenues in the Laffer curve. And it's all legend from there on.

>> Jon Hartley: It's amazing. So there's, I'm just curious, you know, just on the Laffer curve there's I think many debates. Nobody debates that the Laffer curve has some inverted U shape that, you know, it's, you know, a 0% tax rate, 100% tax rate, there should be zero revenue.

 

Nobody debates that. I think the debate comes in as what's the shape of the Laffer curve. And I think there's debates about at what tax rate the revenue maximizing product curve was at.

>> Arthur Laffer: Let me, let me disagree with you first. When this was done at that time, the historical Laffer curve, which was everywhere, the Laffer curve goes back a thousand years to the Mukodima and Ibn Khaldun.

 

It, all the classical economists had clearly understood it. Price theory understood it completely. The Laffer curve, I didn't invent it and I didn't name it. But at that time in macro that was not the case. They did the type of Congressional Budget Office and analysis that if you raise tax rates by 10%, revenues will go up by 10%.

 

It was all static analysis, no dynamic. And that's what I brought into the discussion there at that time. That was very big difference. John Was that at that time it was literally that if you raise tax rates, even at 110% tax rates, you still collected more revenue. There was no incentive effect of taxes on the supply of goods and services.

 

Our common friend, well, Ed Shaw put it this way. He said in the demand side models of monetarism and Keynesianism, supply is a rubber womb which accommodates unembarrassingly any fetus of aggregate demand. And this is where I got a lot of the supply side things were from Ed Shaw there at Stanford and Emile Desprez.

 

But now the debate is where is the proper point on the Laffer curve? That is correct. Everyone has completely conceded the Laffer curve. I mean, it's obvious. It's the everyone all conceded before I was born too, by the way, just for the record. Now the issue is there and what you're finding out is the more and more you look at it and the more and more people understand that it's not just output, it's tax sheltering.

 

It's changing the location of your production, changing the timing of your production, changing the composition of your production, changing the volume of production, changing how much you report tax sheltering. And all this stuff that the Laffer curves effect on revenues is getting lower and lower and lower and lower and lower and lower.

 

Property tax rates in the range of 1 to 2% are now counterproductive with regard to revenues. International taxes are counterproductive with the tax base. The larger the tax base, the more likely it is that tax revenues will be increased. The longer you're willing to wait, the more likely it is that tax revenues will be lost.

 

All of this stuff comes into now just how really dominant the prohibitive range of the Laffer curve is. I mean, just show Warren Buffett in his 2010, 2011 letter to the New York Times on his income where he paid seven and a half million dollars, $6.9 million in taxes on an income of 12 and a half billion.

 

Clearly showed that, you know, he doesn't pay taxes. I mean, it's way out there. No one in the top 300 tax fighters pay any taxes at all. They all shelter their income. I mean, clearly the Laffer curve works in all of these areas dramatically and hugely. It works in poor people.

 

I mean, everyone knows what happens, you know, when people's incomes go up and they get their, their welfare payments withdrawn. Needs test, means test, and incomes tax, it works there, too. I think what's happening in the debate is everyone's coming to realize that the prohibitive range The Laffer curve now occurs at very low rates of taxation.

 

15, 10% of taxation, I mean we were down, we went from 73% in 1921 to 25%. Then their tax revenues from the top 1% of income earners tripled clearly way in the prohibitive range. So what we're seeing in the debates now is every year it moves. Go look at Simon Bowmaker's book When the President calls and Marty Feldstein's switch in his policy when he did that 86 tax act analysis, he found how all these guys with ease just shifted their income and, and the 86 tax act paid for itself.

 

Bang, the tax cuts and jobs act paid for itself in the first two years. In the first two years before we even got legs.

>> Jon Hartley: Well, you know, it's amazing. I mean one, I think it's a great point that you make in you know, one like, you know, the Laffer curve is an object that can change over time.

 

You know, certainly if people find ways to be more mobile with their, their, either their capital or even their labor.

>> Arthur Laffer: Or even their reporting. Not even with their labor or capital. Take real things aside, just hiring a good shyster lawyer, that's all it takes.

>> Jon Hartley: Accountant lawyers are absolutely part of that.

 

You're absolutely right, behavioral response-

>> Arthur Laffer: Huge part, huge.

>> Jon Hartley: There's many-

>> Arthur Laffer: Hiring politicians.

>> Jon Hartley: Right, and so it all comes down to this object of ETI, elasticity taxable income, how's your-

>> Arthur Laffer: Taxable, it's elasticity of reported income.

>> Jon Hartley: Right.

>> Arthur Laffer: And it's reported.

>> Jon Hartley: Exactly.

>> Arthur Laffer: They make tons of unrealized capital gains increases are income.

 

Take Simon, they're clearly income, but they're not taxed and you have a step up basis at death, duh.

>> Jon Hartley: So it's not just incentive facts, it's many things that go into defining taxpayment from elasticity.

>> Arthur Laffer: Yes, exactly.

>> Jon Hartley: In the shape of a Laffa curve. And we could also even have, you know, different laughter curves for corporate income, for individual income, for you know, capital gains type income and, and obviously capital gains.

 

And I think corporations are a little bit more mobile than individual income, so I don't really-

>> Arthur Laffer: Not really, they aren't. They really aren't. You've got lawyers that can do it anywhere at any time, any place. It's really amazing.

>> Jon Hartley: Certainly for high income people that can afford that at least.

 

 

>> Arthur Laffer: Well, they're the people do it. They're the ones rates. You know, when you see a group of people hanging out with Obama, Wama don't think it's street people. People trying to explain to them what it's like being poor. These are people from Goldman Sachs who want to put in a new tax deduction there for campaign contributions.

 

And rich people can buy everything. They have the ways, they have the means, they have the ability to do all that. They can change all these things. And don't think for a moment they won't use it instantaneously. It doesn't take a long time for them to figure this out.

 

It takes one good meeting with a lawyer and. And then what you do is you hire all the IRS lawyers, which is what Morgenthau complained about. Every time they change. Trained a good tax lawyer, the private sector came in, offered him 10 times as much to come and work on their side against the tax lawyer.

 

I mean, it's just nature, and pretty girls attract guys, it doesn't take a long time.

>> Jon Hartley: Absolutely. Now, you know,

>> Arthur Laffer: I hope you're enjoying.

>> Jon Hartley: I wanna talk about the Reagan era with you.

>> Arthur Laffer: Yes, let's-

>> Jon Hartley: Let's talk about just the Reagan Air for a minute.

 

The Reagan tax legacy is a big one. The margin operating cut from, you know, the 70 range to, you know, 20,

>> Arthur Laffer: 28,

>> Jon Hartley: 28 when he left office. And I'm curious, like, what. What was the involvement of the Reagan Economic Policy Advisory Board during this time?

>> Arthur Laffer: How much?

 

 

>> Jon Hartley: Yourself there?

>> Arthur Laffer: Myself, it was a lot. You know, I'd done my thing, the complete flat tax, which I'd written, which was a complete. Just flat tax from first dollar to last dollar, no deductions, exemptions, exclusions thing. We, we got the tax cut of 1981 ERTA, which is based upon Kennedy's tax cuts of 30% across the board, which I was able to get Jack Kemp to do it because his middle name was French and he wanted the JFK the second.

 

Boy, so we did that one, that one worked. But Reagan phased it in and it caused the 81, 82 depression. But then when we got to the 86 act, which was the real one that was on the paper, I did, which was the complete flat tax, that one, we took the rate down to 28%.

 

We went from 14 tax brackets to two tax brackets. We cut the corporate rate from 46 to 34%. We did deductions, got rid of deductions, exemptions, exclusion. It was static, revenue neutral. I mean, that was the closest thing to God in heaven that ever existed. And it worked, it worked like mad.

 

That's where Marty found that all the people's responses were tax revenues and the rich went up, went up on that. Go, go ask your, your friend.

>> Jon Hartley: Yeah,

>> Arthur Laffer: yeah, sorry, go ahead.

>> Jon Hartley: No, no, I, I think, you know, I think a lot of people would agree with you that you know, that you know, in, certainly in the, you know, JFK and Reagan tax king era, we, we were on the, the right hand side of the, the Laffer curve and, and

 

 

>> Arthur Laffer: we came down. Yeah.

>> Jon Hartley: And cutting rates, I think you'd actually get a lot of agreement amongst many economists and so, it's an amazing time. But the JFK and Reagan revolution, Larry Kudlow, Brian Dimitrovic have a great book written on this and-

>> Arthur Laffer: Yes, they do.

>> Jon Hartley: And it's fascinating.

 

I want to talk a little bit. I just want to put away from presidents and federal policy for a little bit because another part of your legacy is on top of working presidents. You've had a lot of success in getting states to cut their tax rates. And, and you know, there's many states ranging from, you know, Kansas, understand Brownback.

 

There's, you know, for example, there's Tennessee where you're living now. You know, and I, I so you know, there's a lot of evidence in general, you know, that shows that, you know, states that didn't cut taxes are now losing people. There's a lot of great work that's done by, of folks, Hoover scholars, Josh Rao and co-author Ryan Shu showing their behavioral responses to stating of taxation.

 

And looking at California, how many people have left California in response to furthe state tax increases in California. And I know you're one of these people, you know, you lived in Southern California and you now live in Nashville, Tennessee, which is a zero state income tax. So you in fact you yourself are part of this trend.

 

I'm just curious sort of at a broader picture. I mean, what in your mind is the legacy of tax relief in the states in the past few decades?

>> Arthur Laffer: Well, started off with Prop 13. I was very involved in that, as you may know, with Howard Jarvis and Paul Gann.

 

And we cut the highest property tax rate in California from 2.7% effective rate to 1% in one evening a bang. I worked with Jerry Brown closely, if you could see my wall here when he came down. And I spent a lot of time with him and went up there to Sacramento the next day when it passed and worked with him on the subventions and getting it work and started all that we do.

 

ALEC American Legislative Exchange Council does the rich states, poor states, the ALEC Laffer rankings of all the states and I've worked on it. Your guys have done a great job as well. And it just super. And yeah, it's really CLEAR those, those 11 states that adopted an income tax since 1960 have really underperformed the nine states that, that don't have an income tax have way outperformed the states that have the highest income tax.

 

It's it, it. As Larry Gatlin says, it ain't rocket surgery, it's just common sense, duh. I mean, why would you go to a high tax location if you can go to a lower tax location? Now I love, love, love California. And if it hadn't been for Prop 13, California would be West Virginia.

 

Prep 13 is the only thing that keeps you guys alive. But if you look at it coming here, we have no desk tag, no state, all that stuff. I mean, it's really cool and you know, it's a great place to be. Earning income with lower tax is a lot more fun.

 

 

>> Jon Hartley: Yeah, well, I just think now in the post Covid era, you know, I feel like in the 2010s this was, you know, sort of like a big debate. And you know, there's, you know, folks like Paul Krugman who are, you know, attacking you for advising.

>> Arthur Laffer: He doesn't do data, but he doesn't do data.

 

You know, this is, this, see, this is just opinion. Krugman sits there and says, I caused the race riots in Buffalo. Okay, go for it, Paul. You know, he doesn't do data. And the data are really very clear.

>> Jon Hartley: Right.

>> Arthur Laffer: Low tax rate states outperform high tax rate states, period.

 

There are other things that matter. That's true, but that is clearly one of the biggest things that matters.

>> Jon Hartley: And I think you've, I think in many respects you've won this argument. And perhaps it hasn't been said. And you know, I just think, you know, it's really people's behavior that says it all.

 

But you know, in the post Covid era, Covid sort of gave this excuse for so many people to move and to switch states. And what's happened now is, you know, you see these, you know, significant migrations from all these states, you know, Illinois, New York, California to low income tax states.

 

The Texas is in California. You see tons of businesses moving, tons of corporations moving, tons of people, especially high income individuals who are leaving. And this is borne out in the data point folks,

>> Arthur Laffer: decades and decades and decades.

>> Jon Hartley: Right? So I think you won that argument.

 

I'm just curious, I wanna talk about just economic stimulus for a moment. And sort of speaking of COVID, I mean, you and I actually wrote a few op eds together in 2020 in national view, Fox Business.

>> Arthur Laffer: Yes, we did. We had some fun, didn't we?

>> Jon Hartley: We did.

 

We did. This was amidst the debate about what to do with COVID and and sort of stimulus or really more, I'd say, social insurance. People were not allowed to work. You know, you had these terrible lockdowns. They were being enforced by the government. There's a question of, you know, what do we do to fill the gap or to help people.

 

And I think we were on the side of arguing that it should be a thoughtful process in terms of what we do with businesses and employees and how to help those relationships. Endure sort of to offset the negative effects of the lockdown. So we argued for payroll tax cuts and negative payroll tax cuts that would be sort of superior to grants allocated by the Small Business Administration along with unemployment insurance.

 

Just because it'd be a more efficient way to keep employers in place.

>> Arthur Laffer: Exactly,

>> Jon Hartley: rather than working. Through the banking system. SBA isn't through to do it. I talked to a lot of people. We talked to a lot of people at the time. And, and you know, the problem was, you know, the IRS didn't have the capacity to do it to like turn the spigot the other way.

 

That those are the reason that I got. And so, I mean, there's some weird state capacity issue going on. I'm curious, sort of looking back five years.

>> Arthur Laffer: It's just a bad thought process. And this was Mnuchin and Larry Kudlow. I talked with the President on this a couple of days after.

 

And just the question you put it. You got to fix some of money. Which would you prefer to do to give that money to people who don't work or to cut taxes on people who do work? It's not. I've advocated along with you, I think, was the abolishment of the payroll tax for a year and a half, same a dollar amount as the stimulus spending, same amount static revenue there, which you think would have worked better paying all these people money not to work or having no payroll tax for a year and a half on people who do work.

 

 

>> Jon Hartley: Or even a wage subsidy to some degree. You know,

>> Arthur Laffer: you don't even have to do that. Just, just cut the payroll tax. That's a wage subsidy, if you want to think of it. Stop taxing wages, both employer and employee, and you'll increase employment dramatically. The wedge will be different, just reduced.

 

That's all.

>> Jon Hartley: Yeah,

>> Arthur Laffer: and that's what we should have done. We would have never had the problem in 2008 when they had the, the Great Recession, as they called it. My, my, my solution to that back then was to have a complete cessation of all federal taxes for a year and a half, same dollar amount.

 

Can you imagine? No federal taxes, no payroll taxes, no capital gains taxes, no death taxes, no income taxes, no income. All these. Get rid of all federal taxes for a year and a half, which is the exact same amount as the, as Obama Wama and Bushy Bushy spent on it, did that.

 

Can you imagine what would happen in this country if we had no federal tax at all? We, we'd be selling cars into central China you know, these guys all think that writing checks is the same thing as not collecting taxes. It's not true. It's totally different, Jon. And the Keynesians and the monetarist don't understand that.

 

They really don't. Milton Friedman, in the monetary history of the United States doesn't mention income taxes. In 1930s, we raised the highest tax rate from 25% to 63%. On January 1, 1932, we shortened the brackets. We then raised it all the way up. In 1937, we raised it to 79% then we raised it to 94% in 1944.

 

Hello. Is it going to surprise you? But where is that in the monetary history of the United States? It's not because that's not where these people were focusing on then. And that's what you and I and a bunch of others have brought back into the thing is the classical marginal rates of substitution and between labor and leisure.

 

And that's what drives the system.

>> Jon Hartley: So, I'm with you. You know, I think there is this,

>> Arthur Laffer: I know you are,

>> Jon Hartley: you know, there, there's this massive renaissance in, in fiscal research that I think shows that, you know, these fiscal multipliers, you know, are, are, are

 

 

>> Arthur Laffer: negative

>> Jon Hartley: statistically much lower, you know, close, much closer to zero.

>> Arthur Laffer: You're not going to put them, they're negative.

>> Jon Hartley: It depends on how you measure. I, I think to some, some degree.

>> Arthur Laffer: They made the mistake. If it's not negative, they made a mistake in how they measured it.

 

 

>> Jon Hartley: Well, you do have to pay it back over time. Right? So like, you know, so there might be some positive effects in this year, but you will eventually have to do this with you.

>> Arthur Laffer: I'm going to do this.

>> Jon Hartley: So I want to, my last question for you, I think is an interesting one and one I want to talk about Trump policy for a bit.

 

But you know, 2018, you wrote the book Trumponomics with Steve Moore and you know, you describe that, the Trump economic agenda, I think fairly well in that book. I'm curious, how would you. We've talked about the successes so far. I think we're on the same page with the Tax Cuts and Jobs Act.

 

And you know, we hadn't had a big corporate reform since the 1980s, since the 86 Act. And you know, in terms of the one big beautiful bill, extending many of the items from the Tax Cuts and Jobs act, making some of them permanent, full expensing permanency is terrific.

 

Josh Rao, Kevin Hassett, myself also, who are fellows wrote a paper on this when it was sort of up in the air and I think we along with many others influenced some of that debate and permanence on at least for equipment and R and D. Those are permanent structures is now fully expensed that will be, is going to have to be renewed or will expand expire in a few years.

 

So but we've got most of the Taxes and Jobs act which you obviously played a huge part in is, has been extended and many parts of it made permanent. Lots of evidence that we've shown that.

>> Arthur Laffer: It worked really well.

>> Jon Hartley: It influences capital spending capex and I think at some level, you know, it's, it's a shame that you know, we left corporate tax rates as high as we did for so many decades and it's great that we now have full expensing like permanent full expensing like some other countries do as well.

 

So all good for incentivizing corporations to purchase property, plant, equipment, you know, that, that, that, that's a boon for the economy. I'm just curious you know, what one, what remains left to be done in, in your mind one or what's sort of the next in, in economic policy and in particular as it relates to tax policy.

 

And I'm curious also like know I think it's fair to say that you know, the GOP has a lot of divided minds on, on economic policy these days. You know there's you know, what some people call the new right. There's folks like Orin Cass that very much rail against I would say your legacy, you know, the legacy of the supply siders.

 

Who talk about you know, Reagan tax cutting and you know, I guess JFK tax cutting and others. The Trump's tax cuts as well to varying degrees unfavorably, and you know they're I think maybe more focused on maybe redistribution. But you also have big proponents of tariffs. You have big proponents of, of say, you know, child tax credits, family policy.

 

You have big proponents of you know. Just. Of union policy and so forth and to really completely change the GOP's economic policy to be less focused on, I'd say growing the pie for the entire economy and to be focused in certain areas. So I'm curious what you think about that shift.

 

I think those people are ascendant in the gop. It's hard to say how much power I think they truly have, but I mean I think they've had a lot of influence on not just President Trump, but in particular, J.D. vance and I think Marco Rubio as well, I think it's fair to say.

 

I'm curious what you think about that sort of internal split within the GOP

>> Arthur Laffer: based on data. They don't make much sense at all in that stuff. I mean, I look at Trump, and I think he's probably the most transformational president in US History. I mean, I tease him about Reagan all the time.

 

I mean, I say, you know, sir, Reagan got the highest rate, down to 28%. You're stuck at 37. And he always said, but how we have fun in that stuff.

>> Jon Hartley: But he's got a portrait of Ronald Reagan in the law.

>> Arthur Laffer: Who doesn't? I mean. I think God has a portrait of Reagan in his office.

 

I mean, come on. But you know, if you look at it there, we have a couple of things to do on, on, on taxes. We, we do have a little bit to go to match Reagan low rate, broad based, flat tax. The one I did for Jerry Brown when he ran for president in 92.

 

But the one I think is the sleeper that you haven't mentioned is health care price transparency. And that is a huge one, Jon. I think if you got some of your guys to work on that, that you post transactions prices so that people can make their decisions as to what their health care they want their health care to be, you'd reduce the insurance market dramatically.

 

You would make the system really efficient. Life Expectancy in the US has been declining dramatically over the last 55 years versus the OECD. Expenses have been going up all because no one knows what, what the prices are, the transactions prices. That's a huge area and it's about 17, 18% of GDP.

 

I'm talking to the President about this. In fact, he did the executive order in his first term on that. That I think is big. And I think what he's doing is just super on that stuff. I mean, I don't know, other than creating peace for the world in Ukraine.

 

Peace for the world with the Houthis. Peace for the World and 85 other conflicts, including Prosp, charity for everyone else. Have everyone smiling and happy, having ice cream cones. I mean, this is the single most transformational administration ever. Reagan was amazing, I mean, really amazing. But Trump is just, my God, he's gonna cure everything.

 

And he is, in six months, look what he's done.

>> Jon Hartley: No, it's amazing.

>> Arthur Laffer: Energy decontrol. Have you seen what the results of that have been? I mean, wow. I mean, you know, and I think the left is shifting. I think they realize, I mean, when Hillary Clinton said that if he succeeds on the Ukraine Russian war, he should get the Nobel Peace Prize, what Hillary said that about Trump?

 

How cool is that? I think the Democrats are going to be the newest, freest market. It's like all the people we got from the Eastern bloc once the wall fell down, you know, once you've lived under communism, you want free enterprise all the rest of your life. And I think all the Democrats are going to love becoming really hard Trump Republicans.

 

The Trump derangement syndrome is going to turn into the Trump love syndrome. And all of these. Gavin Newsom. My God. How can I, how can I How can I follow my inner Trump? They're all going to do that very soon. You watch the changes that these guys are making.

 

They're gonna become us, Jon.

>> Jon Hartley: We'll see how Emanuel and some of these other demonates. I'm curious, any thoughts on, on the new Right and for those that are out there who are really going after your legacy and sort of the going after the supply side legacy, there have.

 

 

>> Arthur Laffer: Been mistakes made all over the place and, you know, incentives matter. And if you look at the research there, how can you get anything more than what I did with Brian Dimitrovic and tax and Gene Sinkfield, by the way. And taxes have consequences. I mean, we've looked at every single tax return.

 

It's not a sampling problem. We know the last guy in the top 1%. We know the first guy in the bottom nine. We don't have their names, but we know how many dependents they have. We have all the data, everything there, it's all from Sias, Piketty, by the way.

 

It's all from the Institute of Inequality up at mit. They've got great data. It's just they don't know how to use it. And if you look at it, every time we've raised the highest tax rate, the economy's underperformed, tax revenues from rich have gone down and the poor have been hammered.

 

Every time we've lowered tax rates on the rich, the economy has outperformed, tax revenues from the rich have gone up and the poor have been provided opportunities and jobs and better lives. What more do you want? I mean, I've got all the other numbers in there as well.

 

I mean, I'm just talking about the, the inequality people. But who, who's against poor people having higher incomes? Who on earth is against that?

>> Jon Hartley: Absolutely. Amen. No, I couldn't agree with you more yet.

>> Arthur Laffer: And these guys are not using the data correctly. And they're just me and I,

 

 

>> Jon Hartley: they. Definitely have a different social welfare function. I think that's definitely.

>> Arthur Laffer: No, they don't know data. And so they make assumptions that by taking for the rich you can help the poor. That's. Excuse me, that's bull poop. It's not true. Whenever you try to take from the rich, you get less money.

 

You get less money, you have less to give to the poor. I would love to do a debate at Hoover if you guys wanted to sponsor it with Saez or Piketty or any of those. You just get it There, make it a Hoover Institution. We'll make, make it two hours so we can get through the one liners and the slur, you know, the slurs and the slams and the sort of, you know, virtue, virtue signaling and all that crap and get down to serious stuff.

 

What did happen with the tax cuts and Jobs Act? What happened with the Kennedy tax cuts? What happened with the Reagan tax cuts? What happened with the Trump tax cuts? What happened with the tax increases under Hoover? What happens with the tax increases under Roosevelt? What happened with all of these?

 

We have those data. Let's sit down and see what happened. What happened.

>> Jon Hartley: I couldn't agree more. Now work on-

>> Arthur Laffer: I'll come and do it, but you got to make it long enough so it's not a, you know, it's not a slogan slamming thing. I did this in UT Austin with, with, with Galbraith, Jamie Galbraith.

 

And at the end he said, I laugh or you're right. The 86 tax act was the best thing for inequality, the best thing for the economy ever. I mean, you know, they know they're wrong. They just need to be shown it and with their data.

>> Jon Hartley: I, I as an empirical economist, I, I couldn't.

 

 

>> Arthur Laffer: I know you are, you're the best. By the way.

>> Jon Hartley: That's very kind.

>> Arthur Laffer: Well, it's true. And Kevin Hass is the best. I mean you've got the greatest advisor in Kevin and you know, and Kogan too, by the way, that you've got some great people there at Hoover sponsor that debate.

 

And I'll do it, and Sayas can flop down from Berkeley. You could even bring my classmate with him, Georgie Akerloff, bring him down with him. Bring Janet down. Yellen. Let's have a serious one on one Monty Mano facts, let's see what it is. Proposition we should raise tax rates on the rich.

 

That should be the proposition. I say no, they say yes.

>> Jon Hartley: Okay, I really wanna thank you for coming on, this has been-

>> Arthur Laffer: I love it, Jon, I'm so proud of you. I can't stand it. By the way, just I've known you for a long time. We've done work together.

 

You are a great promising young man. One of my sessions with George was on the Governor's Council of Economic Advisors. And I think it was 2005. George Schultz, myself, Milton Friedman were there and I was complaining about something. I said, God Damn it, I'm 65 years old and I'm sick.

 

And George, who had this power over me that whenever he raised his voice it was like my dad, he scared the hell out of me. Arthur, stop right there. I said, I just want you to know that I still consider you a promising young man. And I looked at him and you know, I can't stop from commenting on things.

 

So I looked at him and said, and I suppose that's what Milton says to you, is it, George? He said, absolutely not. Milton never mentioned the word promising. Just great, I miss those days, I miss you guys. I miss California, but I don't miss the taxes, I don't miss the regulations.

 

I don't miss the hostility. We here in Tennessee, if you drive by someone, you know, you're driving your car and you see a car coming or a truck coming the other way, you go like that on the steering wheel, you know, in California it's the same thing, but they use a different finger.

 

You know the hostilities you have there. In a state run organization, things are just really overbearing. Not only do we have lower tax rates, more prosperity, more in migration, less out migration, better education improvements and all of that stuff which we do, we also have less anger, less hostility.

 

Low taxes solve all sorts of problems. Stable money solves all sorts of problems. Deregulation solves all sorts. Free trade solves all sorts of problems. I mean know, government cutting government spending solves all sorts of problem. Low rate, broad based, flat taxes, spending restraint, sound money, minimal regulation, free trade, and then get the hell out of the way and let the economy solve its own problems.

 

They'll do a lot better job than government people or people working in socialist organizations like Hoover. You are a socialist organization. Pay is not determined by how many students you get. Pay is not market driven. And I've never heard, I've never really believed anyone from the universe, from a university can be a conservative.

 

You can't be a conservative living in a socialist state and liking it. That's my story and I'm sticking to it. Jon, you gotta get out the private sector for a while.

>> Jon Hartley: The private sector, I agree, I've spent some time there and there's nothing like it that's more meritocratic than-

 

 

>> Arthur Laffer: And you enjoy life very much and thank you for having me, I've been waiting for your phone call to do that debate. Anyone you want, I'd be glad to do it.

>> Jon Hartley: All right, thanks so much, for coming on. This is the Capitalism and Freedom in the 21st century podcast and official podcast of the Hoover Institution Economic Policy Working Group, where we talk about economics, markets, and public policy.

 

I'm Jon, your host. Thanks so much for joining us.