We Are the Stewards of the Economy
Post-Midterms Conversation With Dr. Laffer

This interview was conducted on November 15, 2022, by Hanako Cho.

Dr. Laffer: The outcome was very bad for Republicans. It was especially bad for President Trump. There were a couple of very good things that happened. For example, in Florida, the Republicans did very well with DeSantis winning a large percentage and the other ones doing very well as well. It was also very good in Georgia with Governor Kemp. It was also wonderful in Colorado with Jared Polis winning dramatically as a Democrat. In fact, as you may know, I do these things with ALEC, the American Legislative Exchange Council. I developed this book called Rich States, Poor States back in 1978.

We also have the governor’s report card, which is called the Laffer-ALEC governor’s evaluation, of the top 10 governors that we rated as the top 10 conservative pro-growth governors. Eight of them were up for election, and all eight won by huge percentages, including Governor Polis, Bill Lee, Abbott in Texas, Kemp, DeSantis, Kristi Noem in South Dakota. They all won by very large numbers.


The GOP Should’ve Communicated a Positive Message

Dr. Laffer: We are the stewards of the economy. We know how to make the trains run on time. We know how to get full employment. We know how to provide prosperity for people. We know how to make stock prices good. We know how to make full employment and make poverty disappear.

1. The Republicans Stand for Low-Rate, Broad-Based Flat Tax

We should sell that on a major theme, and it should put taxes as number one. Biden is awful on taxes. He wants to raise taxes on the rich. We are the party for low-rate, broad-based flat tax. All taxes are bad, but some are worse than others. We want to have the lowest rate to provide the least incentives for people to evade, avoid or otherwise not report taxable income. We want to make the broadest tax base so we give people the least number of places where they can put their income to avoid paying taxes. That’s number one.

2. The Republicans are the Party of Parsimony and Spending Restraint

Number two, we are the party of parsimony, of ‘Don’t spend too much money.’ Spending restraint is the party we should be, and none of the Republicans ran on this. We know there’s a very major role for government. They need to fund the judiciary, schools, highways and the military. There are lots of proper roles for government, but don’t spend beyond that. Don’t do the student loan forgiveness program. Don’t spend these other huge amounts of money.

But [the Republicans] didn’t run on that. Low-rate, broad-based flat tax and spending restraints are all positive signs. The Biden administration is spending money like a drunken sailor. But we didn’t run against that. We ran against election integrity and investigations of Hunter Biden. No, we need to be the party of economics.

3. Becoming the Party of Sound Money

Dr. Laffer: The third thing, we need to be the party of sound money. We need to be the party that doesn’t like inflation, knows how to bring spending down, tighten money and don’t let the Fed expand its balance sheet. We know how to create stable prices. We didn’t run on that, Hanako.

We ran against high inflation, but we didn’t run on how we can change that. We want to tell people what we’ll do to make them better, not how awful things are now. Now, go low-rate, broad-based flat tax, spending restraint, sound money, minimal regulations. We talked all over the place about oil and energy, but we need to deregulate the U.S. economy, medical transparency, oil decontrol, plus 10 other changes that need to be made.

We can make this economy better. We can make it to serve the poor, to serve the minorities, to serve the disenfranchised by creating so many jobs that even the lowest echelon of the ladder will get good, high-paying jobs. Low-rate, broad-based flat tax, spending restraints, sound money, minimal regulation and free trade, Hanako. Of course, we’re not going to sell nuclear weapons to North Korea and Kim Jong-un, but we need to trade with everyone because trade helps both parties and it makes people friendly. We can’t sit here and be anti-China and anti-Russia and anti-everyone, anti-Biden and all that. That isn’t solving a problem. That’s creating a worse problem.

We need to be the stewards of the economy with green eye shades, big thick glasses, and we need to be the people who can make the economy and we’re going to make you rich.


The Winning Message: ‘Economics Unites Republicans’

Dr. Laffer: We’re going to make sure your grandson gets a good job. We’re going to make sure that the poor family over here has a chance to lift itself out of poverty through prosperity. We’re not anti-people in any way or shape. I don’t know how many Republicans are anti-abortion, but we shouldn’t be fighting that issue. Look, that’s your choice if you are in favor of pro-choice or pro-life, but the Republican Party is about economics.

Crime is an economic issue. It causes people to lose money and it’s very anti-economic, so that’s why we’re anti-crime. These are all the things we need to be as pro. We want free trade, minimal regulations, sound money, low-rate, broad-based flat tax. That’s what unites Republicans, but that’s not how we ran them. We ran about going and doing investigations of Hunter Biden. We did investigations of the FBI, the CIA, all of these things. That’s not a winning message.

The way we should have been is the way Reagan did it: ‘It’s the economy, stupid.’ That’s what it is. That’s what Bill Clinton ran on: economics. We can make you rich. We can make your portfolio better-off. We can make your retirement better-off. We can make your whole life better-off by producing more goods, more services. We don’t care if you’re gay. We don’t care if you’re straight. We don’t care if you’re tall or short, or if you’re fat or skinny. We don’t care. Can you work? And if you can work, we will make your life better-off. We can make the grocery stores, the diapers, all of these things available to you because we’re the party of good economics.


Bill Maher and the Pro-Growth Agenda

Dr. Laffer: Do you know who Bill Maher is? He runs the Real Time with Bill Maher show, and this past weekend, his guest was Colorado Governor Jared Polis.

He was my intern in my office. I’m on all the family boards. He’s a gay Democrat, right? He has two kids, his husband is Roland, but he’s the best governor in the United States. Look at the interview with Jared Polis and Bill Maher on this week’s show. The first four minutes is Bill Maher’s monologue but then Jared is on it, and you’ll see exactly what we should be in favor of.

We should be in favor of growth. Michigan lost totally because they had a pro-choice initiative on the ballot. Well, it brought out all the people who don’t like Republicans. Why are we anti-choice? That’s not our issue. Our issue is economic growth.

We’re for freedom. Whatever race you are, whatever sexual preference you are, we want you to work. Period. We’re going to provide high-paying good jobs and productivity growth. That’s what made America number one in the world. By the way, that’s what made Japan number one in the world back in the 1980s. It’s not true anymore. We don’t want to go the Japan route of secular decline.

That’s the way the Republicans should have run and they didn’t. It’s so simple. Do you like your job, Hanako?

Cho: Yes, I do.

Dr. Laffer: Great. We’re going to make it easier for you to get a promotion and have your company expand. We’re going to cut your taxes and create economic growth. Do you like that message?

Cho: Yes, I like that.

Dr. Laffer: Let’s say your cousin doesn’t have a job. We’re going to make it so the prices are falling. We’re going to make the economy stronger by having more goods and services available. We’re here to make you richer. We’re here to make you have more goods available that you can buy. We’re here to be able to afford a good living standard for you and all the other Japanese. And we’re here to get rid of poverty.

When Trump was in, we reduced poverty to the lowest level in U.S. history. We reduced poverty in Blacks, undereducated, in the youth, all of those. We reduced the poverty level to the lowest levels ever. That’s what we should run on.


Why Does Arthur Laffer Like Donald Trump?

Dr. Laffer: Why does Arthur Laffer like Donald Trump? Do I like Donald Trump because of his conversations on TV calling people names? No. I like Donald Trump because of the tax bill. It was wonderful. I like Donald Trump because of the executive order on medical transparency. I like that. I like Donald Trump because of Operation Warp Speed, developing the vaccines in a year. I like Donald Trump by getting rid of regulations. I mean, this is why I like Donald Trump. I think that’s the most important thing ever.

Now, ask me any question you want, but I like Donald Trump because he’s good on the economy. He provides jobs. He’s a businessperson and he knows how to run an economy. That’s why I like Donald Trump. Now, I’m not into the other stuff. Does that make sense to you?

When I look at all these issues here, I’m always asked about Donald Trump. I like Donald Trump because, frankly, he did a damn good job on the economy. Even when Covid-19 came, Operation Warp Speed developed the vaccine in the shortest time period, times five years reduced.

I love it. And I’m going to work very hard to repivot the Republicans into a pro-growth economic agenda. If they want to sit there and investigate Hunter Biden and the CIA and the FBI, they’re going to lose another election, and they should. People want positive programs for economic reform. Everyone wants to be rich.


The Republican Party Will Cut Taxes and Make You Rich

Cho: 75% of the American people believe the United States is going in the wrong direction, but nonetheless, Biden seems to think nothing needs to change.

Dr. Laffer: I’m not going to talk about what Biden thinks or not. I know that the people are right about the economy going in the wrong direction. I don’t care what Biden thinks. I know how to solve those economic problems, and it’s a low-rate, broad-based, flat tax. Not more IRS agents, but less, alright? I want to make it so the IRS agents aren’t necessary because people will voluntarily pay their taxes. No tax credits, no exemptions, no exclusions, no deductions, no omissions, just a low-rate, broad-based, flat tax from the first dollar to the last dollar.

I want to not give away student loans. We want spending restraint. We don’t want to give away more money. [We need] spending restraint and sound money. What’s not to love about stable prices? We need a new Fed. We need a new treasury to provide us with sound money. And I can do that for you, Hanako. I really can.

Then we need minimal regulations. The Biden administration’s wrong on all these issues. But I don’t want to talk about Biden being wrong. I want to talk about how to make it right. They are way bad on taxes. They will spend way too much money. Obviously, from the inflation numbers, they’re horrible on stable money and sound money. They’re the worst ever on regulations. They don’t believe in free trade with anyone. They want to use sanctions. All of those, they’re wrong on.

We’re right on all of those. We’ll get rid of the minimum wage, allow the poor kids to get their first job and learn the requisite skills. We’re not in favor of capping salaries. We’re not in favor of investigations. We’re in favor of pro-growth agendas.

We are not the party of negatives. We’re going to be the party of Ronald Reagan, where the tent was lifted up and all these people could come. If you’re pro-choice and you believe in tax cuts, we’re here for you. If you like your guns, we’re here for you. If you don’t like guns, we’re here for you. We want you to become rich, whether you like guns or don’t like guns. We’re here for you if you’re tall. We’re here if you’re gay. We’re here for you if you’re Black.

We don’t care who you are as long as you like tax cuts and like working and like becoming rich. If you want to be Kanye West, that’s not us. If you like low taxes and prosperity, then that’s us. We aren’t here to do dances on roofs of buildings like AOC. We’re here to cut taxes, provide sound growth and have you get a good high-paying job.

We’re here to make your companies profitable, your investments better, your pension fund fully funded. We’re here to make you rich and prosperous and fully employed if you want to be. If you want to take a vacation, God bless you, take a vacation. If you want to spend your money on marijuana, spend it on marijuana, spend it on going to Las Vegas, drink, smoke, but work. Whatever you do with your money, that’s your choice. And whatever you do with your body, that’s your choice. But we’re going to cut taxes so you can make more money. We’ll let all of you come in if you like low taxes, spending restraint, sound money, minimal regulations and free trade. We’re in favor of you. We’re your party.


How Do We Get People Back to Work? The Success Story of North Carolina

Cho: You are very much concerned about the job participation rate dropping. How do you get people back to work?

Dr. Laffer: Cut taxes and cut welfare payments. Now, when we went into North Carolina when McCrory was the governor, we cut tax rates to match all the neighboring states. We got rid of the estate tax. We dropped the corporate income tax rate by 2.5%. We dropped all these other taxes down to make them competitive, all right? Then we went in there and reduced the eligibility for unemployment benefits, I think, from 49 weeks to 20 weeks, and some of it down to 12 weeks, and we cut benefits from $535 a week to $350 a week. You know what happened?

The economy boomed. The unemployment rate dropped dramatically. The unemployment fund went way up into surplus and the state ran a budget surplus. Growth was amazing. Don’t pay people not to work and pay them a lot if they do work.

We want everyone to want to work here. We want this to be the working production capital of the world. The reason America is a great country is because we produce more than anyone else. The reason we’re something is because we have the inventors, the entrepreneurs, the business leaders that none of the rest of the world have. Japan used to have them. Back in the early ’80s, I went down to visit Toyota and all these companies. It was amazing. The Japanese productivity and the workload, it was incredible.

That’s what America is. It’s Elon Musk. It’s Bill Gates. It’s all these other people that have created huge prosperity. And that’s not what the Republicans sold. They didn’t sell a dream. They just sold revenge. They sold anti-Biden.


Inflation Isn’t Over: The Fed’s Balance Sheet Must Shrink

Cho: The Federal Reserve is going to increase interest rates by 50 basis points. The rate of increase is very slow. What are the consequences of this?

Dr. Laffer: Well, they’re catching up to the market. That’s not the way to do it. Right now, to keep interest rates low, the Fed has to buy bonds in the open market and put them on their balance sheet. Their balance sheet is almost $9 trillion now. Now, they have resolved some of those bonds off to the market, but not many. They need to be in a position where their balance sheet shrinks and shrinks substantially. That’s not what they’re doing. We need to have tight money and expansive goods. We need more goods and less money, and that will reduce inflation.

Cho: When do you think inflation will come down?

Dr. Laffer: I don’t know, Hanako. It’s coming down now, and it’s a very favorable time period for them. They should be rejoicing and celebrating with their short-term victory.

I don’t see anything in the world today that tells me that the inflation problem is under control or will be under control anytime soon. I don’t see anything in the Fed policies and in the fiscal policy of the United States that tells me inflation is over. I don’t see that.

I know that the Fed should not have a balance sheet of the size. It should have a balance sheet of a trillion and that’s within the range it should be. That’s the size of the balance sheet it needs to keep the monetary base stable and solid. The Fed should not be doing all of these things to control interest rates. That’s not what the Fed should be doing. What the Fed has been doing is subsidizing government deficits. The deficit to the national debt-to-GDP has just gone up enormously.

I don’t even know if they’re on the right path on time. Following the policies they have; I don’t see the end of inflation. I don’t think they’re doing the right things.

I’m wrong a lot and let me just say very seriously that monetary theory, monetary practice, the role of money, banking, inflation and the goods market is very confusing and imprecise. I wish I could say that there is a very simple way you can solve it. If anyone tells you they understand inflation and monetary policy completely, you tell them they’re a bad economist. It is an area of great uncertainty and great ignorance. Maybe I’m wrong, but I don’t know of anyone who has the right answer, the simple answer that makes it easy to do.


It’s Not a Recession. It’s the Japanification of America.

Cho: How do you think the declining import from the U.S. will affect the world economy?

Dr. Laffer: We give away welfare to people to make them not work and buy more goods. But that’s what you’d expect when you’ve indulged everyone, you’ve reduced total employment by enormous amounts by paying people not to work, and they’re spending all of it. Where are the goods supposed to come from? They come from the rest of the world into the United States. Once we slow that spending, then you would expect those imports to decline, and that will have a very negative effect on the rest of the world.

Oil prices are down a lot now. Biden has sold over half of the strategic petroleum reserve, and Saudi Arabia and other OPEC countries are lowering production because of demand being just not there. I think Chinese demand is way down. I don’t know when this ends.

Right now, it looks like the war in Ukraine is hurting Russia enormously, and I think Biden is taking a lot of credit for that, probably deservedly. I think it’s very important that he meet with Xi, which he did today from China. I don’t want a war with China. China is not someone that’s fun to fight.

We need peace in this world, and we don’t need war. The only reason I support very strong defense spending is because I follow John F. Kennedy’s line that the best form of defense spending is always wasted. Whenever you find yourself in a situation where you are required to use your military hardware and prowess, that is a clear sign that you did not spend enough. Putting locks on your doors is not wasted money. That’s the way I think of defense. I think of it very much in the Reagan sense: peace through strength.

Cho: Are you expecting a global recession?

Dr. Laffer: I don’t think that’s the right word for it, Hanako. I think what we have been doing since early 2020 is spend tons of money, and all of that has caused a secular decline in the economy. It’s not a recession. We’re growing much more slowly. It’s the Japanification of America, and that terrifies me.

Now, when you grow more slowly, the first couple of years don’t matter much, but then a little bit later, it matters a little bit. The longer you go, the more damage slow growth creates. I am very worried about the Japan problem. I love Japan so much, but I don’t love it so much that I want to do what they do.

We Are the Stewards of the Economy
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