The U.S. Dollar Becomes a Political Tool: Why the world’s reserve currency is losing its dominance
An Interview with Dr. Arthur B. Laffer


How does a renowned economist view the challenge against the U.S. dollar? The Liberty spoke with Dr. Laffer, the father of supply-side economics.

Interviewer: Hanako Cho


Cho: China and Russia have begun to challenge the U.S. dollar. What’s your take on this issue?

Dr. Laffer: First, let me give you a little historical background on the U.S. economy.


Pre-1913: the Private Sector Issued Currency

Dr. Laffer: Before 1913, money was private in America. Banks issued their own banknotes, their own currency. The private banks in the United States, maybe other financial entities as well, minted gold coins, silver coins, copper coins. Money was basically a private entity that was privately produced just like corn, wheat and cars. Now, the federal government at the time also had a mint so they minted gold coins and silver dollar coins but so did lots of other private entities. The U.S. government was one of many minting institutions that minted coins.

The government did have a role in the monetary system prior to 1913, but that role was very limited. They defined what a dollar was, say, $1 was one-twentieth of an ounce of gold or an ounce of silver. The government also checked on bank reserves; they audited banks to make sure that they were solvent, just the way a government should do. They defined money, they minted money and did oversight and ensured transparency of private banks by auditing their reserves.

But the government did not play a major role in monetary policy or in the production of money.

In the two centuries before that, inflation was nothing. There was no inflation. There were times of financial crises, that is very true. But the financial crises were short-lived and they were over in six months. People changed ownership of assets and had new allocation of assets, but the economy started right up again. I could take you through a number of these financial crises but note that the government had very little role in either causing these crises or in curing these crises.


The Civil War, an Exceptional Period in U.S. History

Dr. Laffer: Now, there is one exceptional period in history, and that’s from 1861 until 1878. That was the period of our civil war in the United States. In 1861, Abraham Lincoln created a new currency called the “greenback.” The greenback had been fixed to the dollar, but later, the greenback became a separate currency from gold.

The North used the greenback to fund the Civil War. It was a horrible time, the worst war in U.S. history by far. More people were killed in that war than all other wars combined. It was American against American, blue versus gray. It was just a horrible period of brother fighting brother. That period lasted until the defeat of the South in 1865.

At that time, the dollar as a greenback had devalued substantially against the dollar of gold.

For the next period from 1865 until 1878, for 13 years, the federal government took the greenbacks out of circulation. And the value of the greenback rose substantially until they re-pegged the greenback to the gold in 1878 at the pre-Civil War exchange rate.

So, what happened is, the greenback devalued dramatically during the Civil War, then it appreciated substantially after the Civil War until it once again came to its old exchange rate in 1878. The greenback was once again converted back into the gold dollar.

That was the one period, a 17-year period from 1861 until 1878, where we had two currencies circulating simultaneously in the United States.

That’s one major exception the federal government got very involved in currencies. They also, by the way, got involved in an income tax during the same period. It was not a progressive income tax.


The Start of Government Intervention

Dr. Laffer: Now, let’s go to 1913. In 1913, the U.S. federal government got very involved in the U.S. economy. It did so in two ways.

One, which you and I have talked about at length, is all in my book, Taxes Have Consequences, with Brian Domitrovic and Jeanne Sinquefield. In 1913, the U.S. levied a progressive income tax. The 16th Amendment to the U.S. Constitution was passed which allowed the federal government to put in a progressive income tax; six months later after the 16th Amendment was adopted, Woodrow Wilson put in an income tax.

I won’t go any further, but that was a very major move of the income. It changed taxation, it changed government spending, and it changed the U.S. economy a huge amount. That’s all in my book.

The second thing that happened in 1913 that was very significant was the institution of the Federal Reserve Board (FRB) of the United States. For the first time, the U.S. government became massively involved in the monetary system of the U.S. The Federal Reserve was set up with all sorts of power and authorization in place.

The period from 1913 to 1933 was a period of increasing consolidation of that power. Nothing really happened dramatically; gold currency still circulated in the United States, banknotes still circulated in the United States, but now the federal government itself was issuing notes and it was becoming more and more involved in the U.S. economy.

As you know, in the last quarter of 1929, the U.S. Congress passed the Smoot-Hawley tariff. It was passed in both the House and the Senate, and in June of 1930, it was signed into law by President Herbert Hoover.

The stock market collapsed. All of this is in my book, Taxes Have Consequences. We entered into the Great Depression. Then, in 1932, Herbert Hoover raised the income tax from 25% to 63% and boom, the Great Depression was on.


Seeking Refuge in Gold

Dr. Laffer: Now, what happens during the Great Depression or any other period of massive calamity and problems? People always seek refuge in secure assets. In times of crisis, people always go to secure assets. The most secure, valuable and sellable asset in the monetary system has historically been gold, sometimes silver, sometimes a couple of other things.

In ancient times, it was cattle. That’s where we get the word “fee”, which is the Anglo-Saxon word for cattle. It went to salt in the Roman times. There’s where you get the word “salary”. I could go on and on. You had “geld” which means money in German and that’s still used as “gold”. I’m sure Japan has the same etymology of those words.

From 1930 to 1931 and 1932, during the beginning of the Great Depression, the huge increase in income tax rates and the collapse of the economy, Americans immediately went to gold.

The price level in the U.S. fell sharply from 1930 to 1932 because of the Great Depression. It did not fall sharply because of something intrinsic in the economy. It fell sharply because people bought gold and went out of banks. They drew funds from the banks in paper currencies and asked for a return of gold from the banks themselves.

This led to a collapse of the banking system, and it led to the first major entrée, aperture, opportunity for the Federal Reserve to take control of money.

The only way the real value of gold can increase is if the price level falls. This is because the price of gold is the price level.

The election of 1932 pitted Frankin Delano Roosevelt against Herbert Hoover. As you know, Roosevelt won in a landslide. Hoover was defeated and the Republicans were thrown out of office.

Roosevelt took office in March of 1933. The first thing he did on monetary policy was called the Bank Holiday Act of 1933.

Now, I have talked to you about this on several occasions before but let me go through it again with you very quickly. Number one, the Bank Holiday Act prohibited all clauses of contracts, private and public, from having a gold clause. It eliminated all gold clauses in contracts, but it allowed the contracts to be enforceable in spite of the removal of the gold clause. That’s a big deal because people had a gold clause to guarantee the value of their contracts; that guarantee was now eliminated in all contracts.

Number two, the Bank Holiday Act prohibited banks from buying or selling specie—gold, or silver. If you went into a bank and demanded gold, the bank was no longer allowed to give you the gold. It did protect the banks from collapsing, but it also changed the convertibility of the dollar to gold.

Number three, it prohibited banks from buying or selling foreign exchange, whether it be marks, pound sterling, or peso. Banks could no longer buy or sell foreign exchange in terms of U.S. dollar.

And number four, it prohibited individual Americans from ever owning gold. Gold was prohibited from being owned by private American citizens under criminal penalties. Obviously, businesses like dentists that drilled teeth were allowed a certain amount of gold. If you were a business that had a gold coin and said, “This is the first dollar we earned. It’s in a little case. This is our first,” of course, that was permitted. But you were not allowed to own above $100 worth of coins.

A lot of people sent their gold and silver to Europe, but huge amounts of gold and silver were expropriated by the Fed and the Department of Currency. This is when they set up Fort Knox, which is where all the federally owned gold in the United States is supposedly held. It’s in Kentucky where I have my farm. That was the beginning. That was done in March of 1933.


The Complete Control of the Currency

Dr. Laffer: Six months later in September of 1933, the federal government and the Fed devalued the dollar from $20.67/oz of gold to $35/oz.

Gold no longer circulated privately at all. Gold was prohibited. It had been expropriated. The only thing that was allowed to be a currency were bank notes, Federal Reserve notes and treasury notes.

Now, the government took over 100% of the control of bank money in the United States.

From 1913 to 1933, private banks had been greatly diminished. And so it went. We devalued the dollar by 75% from $20.67 to $35. If you look at it the other way using the final price, it’s 60%, but it was a huge devaluation of the dollar. We devalued the dollar in terms of foreign currencies as well by the exact same amount.

This was a massive wealth tax on American citizens as described in my book, Taxes Have Consequences. They gave up their gold at $20.67/oz and then six months later it was raised in price to $35/oz. They were cheated out of about 75% of their gold wealth. That is the story: now, we finally have government-controlled money.


Gold Standard Remains on the International Scene

Dr. Laffer: From 1933 until 1971, we have a period where private money is all [issued by] the Federal Reserve. There is no gold.

But on the international scene, the United States still kept the gold standard alive through the Bretton Woods Agreement and through the use of international settlement payments. We used gold as a settlement and kept it at $35/oz. Even though it was no longer allowed in the U.S., we still had the gold standard internationally between 1933 and 1971. In 1971, the Smithsonian Accord got rid of gold totally and completely. Now you have only bank money, Federal Reserve money. That’s it.

During the period from 1933 to 1971, we had several instances where the U.S. defended the dollar.

I wrote my dissertation on one of them. The Voluntary Foreign Credit Restraint Program was my dissertation, in which I looked at the Kennedy and Johnson protection of the dollar. We used tariffs, oil quotas and all that to protect the dollar. John F. Kennedy went to France where [Chales] de Gaulle threatened to turn in all of his dollars to buy gold from the U.S.

There was a famous incident in Britain, the Kuwait Gap, where they put on capital controls all the way around except for one little country in the Middle East, Kuwait, where everything flowed through. All sorts of anomalies and interesting, fascinating stories.

But during this period, the government consolidated all of its control over money. It consolidated its control over domestic money from 1913 to 1933; it took over U.S. domestic money from 1933 to 1971. It took over all money globally, not only domestic but international money as well. The U.S. was no longer was on the gold standard. George Shultz is famously quoted as saying, “We have just raised the price of something we will neither buy nor sell.”


Government Control of Money Raises Price Levels 2300%

Dr. Laffer: Now, from 1971 to the present, we only have government money. There are a few little exceptions like baseball cards that kids use to transact, but they’re very minor. We had the Eurodollar market, which was somewhat uncontrolled, but basically, the heavy hand of government controls money on a global scale. By the way, it’s not just the U.S. It’s in other countries as well.

Now, from 1933 until today, the price level of the U.S. has gone up 23-fold. Contrast that with the previous two centuries where prices stayed completely flat.

As you know, inflation became a huge issue in the 1970s. It became a huge issue in the last two years under Joe Biden. The price level is up 16% since Biden took office.

Inflation has become a major political issue now, and I’m going to argue with you that it’s all because of the government taking control of money.

I hope I’ve explained to you carefully the history of that money, and I hope it makes sense to you that that is the history of the U.S. dollar both domestically and internationally. The consequence is a 2,300% increase in the price level as of today. And it’s ongoing, so it’s not stopping.


What is Sound Money?

Dr. Laffer: Now, pretend you’re a business or a country and you’re trying to transact with 50 countries, businesses, on a global scene. What is the currency you would like to trade with?

What you want to have with that currency is that it’s usable. It’s used a lot, not some weird thing that no one has ever heard of. It’s got to be a commonly acceptable currency.

You also want it to be stable in value. You want it to be highly transactable, highly transparent, so that you know and believe that the value of that currency a year from now, five years from now, 10 years from now, 30 years from now, will be stable in value. You and I can make long-term contracts in that currency and be relatively confident that the values of those contracts will be similar to the value of contracts we made at the time so that when a year, five years, 10 years, 30 years, does come about, nothing untoward has happened to the currency to invalidate the contract to make it really bad for one side. That’s the reason.

Now, look at what happened to the U.S. dollar from 1933 to 1971. The U.S. dollar on the global scene stayed at $35/oz, alright?

The inflation was there. You had Bretton Woods. You did have a drop in reserves and all of that but there was nothing really terrible happening. The U.S. economy was huge, and the dollar was used a lot. It was probably the most usable currency in the world. Therefore, it was adopted by the global community, and it became the dollar standard. The dollar became the reserve currency of the world.

By the way, it was also the reserve currency between 1913 and 1933, but much less so. After World War II up until 1971, the dollar was the reserve currency. It was relatively stable in value, not like it had been before, but relatively stable. Markets were well-defined without intervention. With interest rates, you could buy, borrow, and lend in dollars. Everyone could use dollars. You could walk into Germany or in any country with a wallet full of dollar bills and every country would accept it. The U.S. dollar was the reserve currency.


The Dollar’s Dominance Wavers in the ‘70s

Dr. Laffer: After 1971, things started changing. Inflation came. The U.S. economy declined. Japan, as you remember, increased dramatically in strength. There was a time when the Japanese stock market was almost the same value as the U.S. stock market.

Japan collapsed after that. You and I know why, and I’m very sorry it happened because I was very pleased with Japan’s prosperity. Japan adopted the sales tax in 1989, and then every time you did it, Japan just collapsed further and further, unfortunately, to the point where the yen was no longer a challenger to the dollar.

The British pound prior to Margaret Thatcher was a catastrophe. Germany was now a very powerful country with a very strong currency, but even the German mark was not really in a position to unseat the U.S. dollar as the reserve currency.

So, we have this situation where even though the dollar was now inflating and doing all of that stuff, the other countries like Japan and Britain faded away and did not present a challenge to the U.S. dollar.


Laffer Predicts ‘China Will Be a Disaster’ in the Next 10 Years

Dr. Laffer: China grew in real GDP terms per adult by 35-fold. It’s just amazing. The U.S. grew threefold in the same period.

In 1992, China pegged the yuan to the U.S. dollar. The way I describe it, what China did was they outsourced monetary policy to Alan Greenspan’s Federal Reserve. Inflation had been going all over the place in China, but inflation stabilized. China had the three pillars of prosperity. They had tax cuts, a huge reduction in state ownership of the means of production. They had free trade. They had sound money. China became the supply-side nation of the world, and now they were coming on the scene to challenge the U.S.

It’s only recently that China has reversed direction and is now starting a big collapse. My prediction is that in the next 10 years, China will be a disaster.

Xi Jinping does not understand free markets. And unfortunately, the one secret of China’s success is the Chinese free markets and the Chinese entrepreneurial spirit. The free enterprise of China has created this wonderful economy – and now, the government of China is coming down and crushing that.

You can see what they’re doing to Jack Ma and these other companies. It’s only the beginning. They now are a state-run enterprise and using statism and control. Their performance will diminish dramatically.

But as of today, China does have a very serious challenge to the U.S. dollar, not because the yuan is so great, but because the dollar has been so bad.

Remember, people have to want to hold the currency. And to want to hold it, they need stable prices, well-defined markets without intervention, anonymity. You need to know that you’re not being tracked by the government every time you buy or sell something.

And when you hold a $100 bill, do you know who held it before? Do you know who held it 100 years ago? No, all you know is it’s a $100 bill and it’s anonymous. And when you give it to someone else, they know it’s a $100 bill and they don’t know that you held it before. That privacy is very, very important for a money.

And the stability of value is very important for money as well as low interest rates. You want to be able to transact with it, knowing that in one year, two years, five years, or 10 years that the value of that currency will be approximately the same.


China and Russia Faces the Same Challenge as the U.S.

Dr. Laffer: Now, China and Russia are trying to work together but they’re both making the same mistake that the U.S. is making.

I don’t think the threat of the reserve currency is coming from China or Russia. I don’t think it’s coming from Japan or Britain.

I think it’s coming from cryptocurrencies. Those cryptocurrencies are very private, and they take us back to the history prior to 1913 when we had a private banking system in the United States and anonymity was there. The government defined what a dollar was—it was 1/20 of an ounce of gold, or one ounce of silver–—and that was the sole role of the government. All banking was private.

I think that right now, really the most exciting thing happening in this world today are cryptocurrencies. I’m going to suggest you look at the podcast called The ARK Podcast, run by a lady named Cathie Wood. ARK is an ETF provider in the U.S. market, and Cathie was my student at the University of Southern California. She and I have done a number of podcasts on cryptocurrencies.

Cho: The dollar’s share of the world’s foreign exchange fell from 73% in 2001 to 55% in 2020. In those 20 years, many countries reduced their foreign reserves.

Dr. Laffer: They have, and they will continue to do that. But they will have problems of finding alternatives. The yuan, the ruble, the euro, the pound and the yen all have the same inherent problems. They’re controlled by government.

As such, they will be used as a political tool in the country, and they do not serve the interests of private transactors on the global scene.

And all of these currencies are flawed. They’re very flawed. Until we go back to a private banking system in Russia, in China, in Japan, in the U.S.—a global private system—I think that you will see all government control of money diminish on the scene.

The dollar is, as you say, diminishing in its share of world trade. That diminution will continue on.

The U.S. economy is not the same as it was. In 2001 after Bill Clinton, it was huge. Then we got Bush. We got Obama. We got Biden. We had moment of wonderfulness there with Trump but then it disappeared with the pandemic. We have done nothing but decline since 2000. We’ve talked about this. We’re not declining as fast as Japan, Europe, China, Russia, Britain, and Chile. We are the tallest midget, but we are shrinking. It’s senescence. That is not conducive to a good currency. My view is all of these machinations that you see right now are inner currency machinations.

The real challenge to the reserve currency is cryptocurrency.

And that’s the challenge to all government currencies.

You want to think in terms of what’s coming in the future, not what the battles are today. The little battles today are, “Are you going to do it in yuan?” “Are you going to do it in dollars?” “Are you going to do it in euros?” “Are you going to do it in rubles?” But those are the battles today, the skirmishes on a low level. The real battle is the private monies are taking over government monies.

That is a wonderful thing. That is not bad. When you look at your Japan’s government, when you look at my government, when you look at Russia’s government, when you look at China’s government, when you look at Britain’s government, when you look at euro governments, they are all terrible. They’re all doing very bad policies: more tax, more spending, more regulations, more trade sanctions. All of those have killed the economy.

Private sector expansion is the wonderful thing that you and I are now seeing, okay?

You’re getting at some of the most important issues of the planet. I know you want to be current, “Should it be the yuan or the ruble or that?” but those are sideshows to the big things going on. We are in a classic struggle as a global economy between private sector and the public sector.

And I will tell you, without equivocation, the private sector is going to win.

Why is it going to win? Because it’s the right answer.


On Free Trade

Dr. Laffer: Now, let me go on to sanctions. At the time of the Nixon deal for Saudi Arabian oil, we needed Saudi Arabia. They needed us. We traded a lot.

Of course, Saudi Arabia moving to the yuan, or the ruble is very possible. It’s also possible they move to the euro, even the yuan.

Is it the right thing to put sanctions on these countries? The answer really simply is “no”.

Trade is not a political weapon; nor is monetary policy a political weapon; nor are taxes a political weapon; nor is government spending a political weapon. These are economic policies that create prosperity.


Trading With Europe Brought American Prosperity

Dr. Laffer: Now, let me just do two things on trade with you. It’s really important to understand these two because it’s our whole history of the United States.

The United States was funded by Europe, primarily Britain and the Netherlands, for 230 years from 1640 until 1870. They provided America with the wherewithal to increase our output, employment, production and productivity. America ran trade deficits with these countries, year in, year out.

Europe sent their capital here – to give the labor of America and the land of America the capital to have us be the greatest example of prosperity, free market, democratic economic capitalism the world has ever seen. The U.S. trade deficit is one and the same in accounting as the U.S. capital surplus.

All of the savings of Europe came to the U.S. to provide them with higher returns and to provide us with higher returns. It was a win-win. It was a win for Europe because they got higher returns on their capital. It was a win-win for the U.S. because we got higher wages on our labor and our land.

We became the stellar economic example of prosperity the world has ever seen.

Now, there were a couple of years there when the U.S. did not have a trade deficit but a capital surplus: the Revolutionary War.

For some reason, Britain did not want to give us the capital to grow. But that lasted only a couple of years. Once the Revolution was over, they then once again reinvested in the United States of the War of 1812 when Britain tried to re-come in and burn down the capital, which they did do. They came into Louisiana to take over America again in 1812. That period, we did not have a trade deficit with them, and the capital did not come for a year or two. In 1842 to 1844, the big collapse of the canal bonds, there were two years there that we did not run a trade deficit. Those were all politically motivated periods, but throughout that whole period, Europe was the saver, the U.S. was the investor with high returns on capital, high returns on labor. The U.S. became the most prosperous nation on the earth in that period because of foreign capital inflows.


Why Trade?

1. Capital Seeks Out the Highest Returns

Dr. Laffer: The U.S. trade deficit is the U.S. capital surplus. Now that’s the macroeconomic reason for trade. You don’t want to mess with that.

That’s done by free markets to provide prosperity, where capital seeks out the highest returns, whether it be in this country or in some other country, and the other countries attract the capital to get the highest returns.

So therefore, capital is a global phenomenon; it goes anywhere it can to get the returns, which is the best returns for savers. It’s the best returns for investors. It’s the most wonderful thing.

Politics should play no role in that position of capital. It’s beneficial for the net trade good as capital moves from country to the other.


2. The Comparative Advantage Principle

Dr. Laffer: The second thing about trade that is so important is, the actual trade of goods is also extremely beneficial to countries. There are some things the U.S. makes more efficiently than foreigners do, and there are some things foreigners make more efficiently than the U.S. does. We and they would be foolish in the extreme if we didn’t sell them those products we make more efficiently than they do in exchange for those products they make more efficiently than we do, alright?

It’s called the gains from trade. It’s called “comparative advantage.” It’s all of the economics of David Ricardo and all of his successors that have pointed out the gains. It’s a win-win-win-win situation.

It’s different from capital flowing from one country to the other. This is no capital. This is just exports matching imports. That’s all it is, but the gains from trade are hugely important. They are important for the private sector, for the economies.

These are not political weapons, and they should never be used as such.

You saw what happened when we put in the Smoot-Hawley Tariff of 1929, 1930. The market collapsed the U.S. and it led precisely to World War II. It led precisely to that. They had a world collapse. We collapsed every economy because of our tariffs. All of the collapse that occurred caused poverty, despair in the other countries, antagonism, hostility. Bang! We were in World War II. It’s a direct link.

This is not the area where government should be doing things. Government has plenty of tools for international policy. They have the state department, they have a defense department. They can bomb other countries. Don’t use trade.

We have trade policy here, which is the sine qua non of prosperity in two senses: the shift of total resources, which is the Sidney Alexander model, and then you have the David Ricardo model, which is the gains from trade.

My view is that there is nothing worse than government interfering in the international flow of capital by the Sidney Alexander transfer of total resources, savings, and investment, and by the trade in goods and services, which is comparative advantage to the gains from trade, David Ricardo. Those are the two really beneficial aspects of trade.

China would never have become the growth country it was if it weren’t for the trade policies of China and free trade. Likewise, the U.S. would never have become what it was. It’s just amazing what it did.

I’ve written so many papers on the recovery of Japan after World War II. They had this hugely educated labor force and skilled labor force. They ran these massive trade deficits. The U.S. capitalized Japan, and Japan started being comparative. Little plastic toys at first where they had the comparative advantage but to become the industrial might.

This is what trade can do.

Trade leads to prosperity for all people. It’s good for Japan. It’s good for the U.S. It’s good for China. It’s good for Russia.

Now, I am not suggesting that we trade nuclear weapons with North Korea. Obviously, there are certain things that are out of bounds on free trade. But free trade is simply the single most important thing for peace and prosperity.


Trade Brings Peace to the World

Dr. Laffer: We put sanctions on Cuba in 1959. You see how they’ve worked? Cuba still hates us. All it’s done is created enemies.

We need to be able to trade with countries, Hanako. We sit down with Japanese and with Chinese and with all sorts of different people. They have different standards than we do, and we have different standards than they do, and we sit down. You are friends with these people because you have a common economic interest, and that common economic interest gets to a common friendship and friendship leads to open discussion, sending birthday cards, anniversaries.

“Hi, how are you? We love you. You’re a great friend. And by the way, there’s something your country is doing that doesn’t seem right to me.” “Oh, really? What is that?” It’s not a belligerence; it’s two friends discussing a problem together rather than two enemies.

That is the way of bringing peace to the world.

There’s nothing like free market, democratic economic capital, supply-side economics, low-rate broad-based flat tax, spending restraint, sound money, free trade, minimal regulations. That is the only way we’re going to have peace and prosperity on this planet. I’m telling you that, Hanako. I don’t know if you believe me or not, but frankly, that is the only way we’re going to get the world’s communities living together peacefully.

There is a natural tendency for people to be suspicious of different people. You’re Japanese. I’m American. You have different habits, different things. There’s a natural suspicion there. It’s always been black people are different than white people. Tall people are different from short people. Fat people are different than skinny people. Old people are different than you. There are always these different categories of humans.

The only thing that unites us all together is economics.

Did you have some rice today at lunch?

Cho: Yes, yes I did.

Dr. Laffer: Where was that rice grown? Was it grown by a black man in Louisiana? Was it grown by a Chinese man in China? Was it grown by someone in Thailand or maybe someone in the United States in the Central Valley? Do you know?

Cho: No.

Dr. Laffer: Do you care?

Cho: I don’t care.

Dr. Laffer: No, no. For God’s sake, economics is the great equalizer of everyone. We’re all the same. Do you produce good rice cheaply? If you do, I’ll buy it from you.

I don’t care if you’re tall, short, fat, young, male, female, Chinese or Taiwanese, or whatever you are. Economics is the great peacemaker. Economics is the great “levelizer.” Economics makes us all humans. All of us are humans. All of a sudden, these differences that I see when I look at you, “Oh my god, Hanako, you’re Japanese,” that disappears. All of a sudden, we become members of the human race. And free market economics is the only path to prosperity and peace for this planet.

I hope you’ll forgive me for lecturing you, but I’ve worked on this all of my life and all I do is I deal with people who want to use government as a weapon against other people. They want to do it against poor Black people in America, which they’ve succeeded in doing. They’ve guaranteed that Black people will stay poor because of economic policies. They want to use it against foreigners. They want to use it against rich people.

Government should never become a weapon against different groups in society. Government should always be the levelizer, should always be the adjudicator of everyone has human rights. And it is “free market, democratic economic supply” and capitalism that will guarantee all of this.

Sanctions are the worst thing that was ever invented. We do need taxes and we do need sanctions on nuclear weapons to other countries. You do not want to give Kim Jong-un new hydrogen bombs. But very little, we want to trade as much as we can with North Korea, with China, as much as we can with Russia and Iran in products that are not military products so that we can become friends with them. Our people can mix with their people. We can have dinner together and talk about children together. We can talk about ideas and literature and work out problems together as friends, not shoot and kill each other.

I’m going to use this speech that John F. Kennedy made, because as you know, I’m a Kennedy Democrat and a Reagan Republican. I believe in limited government and freedom for individuals. John F. Kennedy put it this way: no American is ever made better off by pulling a fellow American down, and we are all made better off if any one of us is better off. A rising tide raises all boats. That’s the model I’ve always been since I was a little baby. I’m trying to lecture to this world that friendship is much more valuable than hostility, than enemyship.

Free trade is far better than trade sanctions. Low broad-based flat taxes are much better than discriminatory taxes. Government should restrain spending but spend on activities. There’s a very major role for government, but there’s a specific role for government. It’s not bigger than that. It’s not smaller than that. Of course, we know we need regulations, but we need limited regulations, so it doesn’t go beyond the specific purpose at hand and create lateral damage.

The same thing with trade. Trade is”not ’ political weapon. Trade is a means to achieving prosperity and peace. And if you mess with trade, you create poverty and war, and it happens every single time.


The Whole Dream of Supply-side Economics: ‘Peaceful Prosperity’ ‘Peace Through Strength’

Dr. Laffer: There is nothing that has been more important to me than to bring the light to the world of what works. How do we get peaceful prosperity? Peace is really important on it and prosperity is really important as well. My dream has always been the whole dream of supply-side economics is peace through strength and peace through prosperity. That is really what we need.

The questions you’re asking and the mission that you have in Japan is absolutely the Lord’s work. It is what we’re trying to do all over the planet, whether it be in Pakistan with Imran Khan, whether it be in whatever.

We have a mission. The band Queen had a song – one man, one goal, one mission, one worldwide vision. That’s what you and I are partnering to do in this world. We do it with smiles and friendship and love, not with hate and bitterness. People do not respond well to threats. They don’t like being threatened. They don’t like being yelled at. They don’t like being told what they must do. If you’ve got any children, you know that. The last thing you want to do is use your hand as a fist. Your hand is for loving, not for hitting. That’s the whole mission of this world. And thank you for being you.

Cho: Thank you so much.

Dr. Laffer: Thank you for what you do on these missions. I hope to heck you and I and the rest of us in this mission and this world can succeed in creating peace and prosperity through free markets, through democratic economic capitalism – through love, not through hate. I’ve lectured you enough. You know these messages, but this is the message I want to carry to you, Hanako. Thank you.

The U.S. Dollar Becomes a Political Tool: Why the world’s reserve currency is losing its dominance
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