The Liberty, October 2025 Edition
One president’s bold embrace of supply-side economics lifted his country from recession. The Liberty interviewed Dr. Brian Domitrovic to learn how this became possible.

(This interview was conducted on August 25.)

Interviewer: Hanako Cho

 

Hanako Cho: I read your book with Larry Kudlow, “JFK and the Reagan Revolution,” very closely. I find it fascinating. Unless we understand history correctly, we’re going to make the same mistakes. In that sense, your way of describing everything is so important for humanity today.

Dr. Brian Domitrovic: Thank you. It was a great pleasure to write. Larry and I wrote the book, and we wanted to make a history that was relevant. What happened in the 60s with John F. Kennedy’s tax rate cuts has profound importance for American history and world history up until the present day.

Cho: Kennedy’s tax cuts seem to have been a hard-fought accomplishment. I didn’t know he had to go through so many difficulties to get it passed.

Dr. Domitrovic: When Kennedy took office, the top tax rate was 91% and he couldn’t get it cut. It was real tough. Isn’t that strange? That’s why we wrote the history [of Kennedy’s tax cuts]. He had to move heaven and earth, and when he did, the economic response was fantastic. Economic growth was huge because he did it.

It’s funny that the lessons from then weren’t heeded in the 70s, and Reagan had to cut the top tax rate from 70% to 50%. Everyone said, ‘That’s crazy.’ So it’s strange how tough it is to cut these very high tax rates.

 

Robert Mundell’s Influence on the Kennedy Tax Cuts

Dr. Domitrovic: During the 1960 presidential election, Arthur Laffer was 20 years old at Yale, not yet involved [in Kennedy’s policies]. But economist Robert Mundell was. Robert Mundell is eight years older than Arthur Laffer, so he was 28 years of age in 1960. He was working at the International Monetary Fund (IMF) and writing some papers that ended up being very influential. We know from the Kennedy Archives that Treasury Secretary Douglas Dillon was reading Mundell’s papers, and it convinced Kennedy to cut tax rates.

Mundell ended up winning the Nobel Prize in Economics in 1999 for exactly this research in 1999 that he did during the Kennedy administration. Mundell was very interested in saving the gold standard, and so was John F. Kennedy. John F. Kennedy loved the gold standard. Mundell said that if you want the economy to move while you save the monetary system, you want to have tight money at home and then tax cuts to get growth. He said you’ll save the gold standard with tight money. That policy mix ran across the desk of Douglas Dillon, and he articulated that to John F. Kennedy.

So, I think there’s a pretty clear link between that first supply-side of Robert Mundell and the final Kennedy tax policy.

 

Economic Growth: A Society Where Human Potential Thrives

Cho: President Kennedy achieved great economic growth. Your book states, “Economic growth is a sign that humanity is functioning at its highest level.” Could you please elaborate further on the significance of long-term economic growth?

Dr. Domitrovic: I think economic growth is one of the best reflections on a society. When a society is growing economically, what it means in a simple sense is that people are getting better and better at what they’re doing.

That’s a good thing. If they’re working and figuring out how to use the material of the earth better, figuring out how to cooperate with each other so that everyone is more prosperous, that means people are getting better at being human, at reaching their potential.

I think of the philosopher Aristotle’s definition of human potential, the idea that the goal of life is to reach your potential. A society that’s growing with mass prosperity where everyone’s really doing better and better every year – that means they’re fulfilling their human potential. That’s the best thing there is.

Cho: In Japan, economic growth is rarely discussed among Japanese economists anymore.

Dr. Domitrovic: It’s very disappointing to hear that Japan is growing so slowly. I mean, I wonder what happened to the old spirit that Japan had. Japan was the greatest grower of all the big countries of all, and just making incredible products, right? The Japanese completely took over the American car industry for one reason: the products were better. That’s what economic growth is: you do things better.

Cho: Honda and Toyota, for example.

Dr. Domitrovic: Yeah. The Honda and the Toyota were simply, without any question, better than the American cars. That’s why the American people love them and they say, ‘Keep bringing them in.’ That’s what economic growth is.

So when I hear that economic growth is stagnating, it’s so disappointing because reaching greater and greater potential is the definition of doing well as a person.

Now, there’s such a thing as leisure, and there’s such a thing as not being materialistic and all those sorts of things. But those can become distractions or an excuse. One of the things that economic growth does is it conserves one’s time. If you get better and better at doing something, you don’t need to devote as much time to work and producing something. So, there can be more leisure with economic growth. It’s just really all sorts of good things.

 

The End of Keynesian and Freudian Pessimism

Cho: Why can’t Keynesian people emphasize the importance of making efforts to reach higher potential for a human being?

Dr. Domitrovic: When you bring up Keynesian, Hanako, I will tell you I have a very low opinion of Keynesianism. I think Keynesianism came about culturally for a particular reason. It first arose in the 30s, and its heyday was the 50s and 60s. That’s exactly the same time as Freudianism in psychology. I see Keynesianism and Freudianism as being very similar.

Freud argued that society, as a whole, at best, can be neurotic. And with therapy, you can get it to this kind of low level, everyone sort of gets along. And if you don’t give it therapy, it’ll be psychotic. It’ll be very bad.

Keynesianism is very similar to that. Keynesianism argues that the economy needs therapy. Unless there is enlightened governments telling you what to do, the economy can’t grow.

Keynes argued that the economy can’t really grow that much. It clears well below full employment of its natural operations, and if you give it Keynesian therapy, it can grow more but the ceiling’s pretty low. I see Keynesianism as part of a mid-20th-century kind of pessimism, and I don’t think it has any part in an entrepreneurial society. An entrepreneurial society should not have Keynesianism as part of its toolkit.

Cho: Yes, It seems rather pessimistic.

Dr. Domitrovic: Like Freudianism, Keynesianism claims the economy can’t self-correct and it needs therapy on the part of experts. In psychotherapy, you sit on the couch. In Keynesianism, you ask people in the government and in academia, ‘What should we do?’ and they tell you. It’s therapy.

These big intellectual systems all have the same characteristics. Keynesianism is like Freudianism. Therefore, I think it’s not worth paying attention to anymore. The day has passed for all that stuff. Nobody pays attention to Freudianism anymore, so why should we pay attention to Keynesianism?

Cho: That’s so true. We can reach higher human potential through making our own effort. By putting our own effort voluntarily, that means we can create a much better society, I think.

Dr. Domitrovic: Absolutely. The great societies that followed John F. Kennedy that cut tax rates found the same thing. All the great East Asian societies, Japan included, the United States and Western Europe when it was doing it. When they cut tax rates and grew wonderfully, so many people did well. They didn’t necessarily tell their stories, so sometimes, we miss it. Sometimes we think too much about inequality or people who were laid off.

But the story of tens millions living prosperously, starting businesses, and succeeding in thriving societies is astonishing—it’s a historic achievement. We should be very interested in seeing that that continues to the 21st century.

Cho: On the downside, you explained in your book that as government grows larger and economic growth slows down, people’s character gradually change. In Japan, we had 35 lost years that have led some people to be different and making Japanese people really “un-Japanese.” I think that is really interesting. What are your thoughts?

Dr. Domitrovic: Yeah, that’s a very interesting way of putting it, Hanako, that this is making Japan un-Japanese. I totally sympathize with that kind of analysis. I think of the same thing with respect to the United States. If the United States isn’t growing a lot and everybody isn’t doing really well, that’s un-American.

I think the modern Japanese legacy, at least since the mid-19th century, is to grow really well. I mean, to be one of the greatest economies anyone’s ever seen, and to be on the frontier of discovering how to be even better. That is the Japanese legacy for 200 years, or 150 years, minimum. To drop that would be a tragedy of very large proportions.

I’m warning all of us that the United States is approaching its 35 years, lost years. Since 2000, the United States has grown at under 2% per year since 2000. That’s not good enough. There’s no period of American history of 25 years in which the economy has grown so slowly as 2000 to 2025. I’m afraid Japan may have pioneered the rut that the United States is now following, and it’s time for both of them to jump out of it.

 

The Democratic Party Was Once the Party of Tax Cuts

Cho: One of the things I’m really amazed in this book, “The Democratic Party was a party of tax cuts.” Today, the Democratic Party is becoming really left-wing but do you think they can go back and shift to the original position?

Dr. Domitrovic: I think they can. But it’s funny, my co-author Larry Kudlow and I get in a disagreement about this. He says, “They’ll never change.” And I say, “Sure, Larry, they’ll change.” “No, they won’t.” I think that the crucial development was the John F. Kennedy assassination. So John F. Kennedy was assassinated, and then this tax cut happened.

Had John F. Kennedy lived after 1963, let’s say he had become an old man, I don’t think there’s any chance the Democratic Party would have ever strayed from tax cuts because it would have been the most successful policy in their history. He would have been the grand old man of their party, and everyone in the Democratic Party would have been a tax-cut Democrat. So I think the assassination, that jarring event, actually kind of reshaped, put the Democratic Party on another course. They abandoned the cause of tax rate cuts.

Let me tell you about the Republicans. They were opposed to tax rate cuts the whole time, even Ronald Reagan was, all the way until about 1978 when the voters in California said, “We are cutting taxes ourselves by proposition.” They cut their property taxes. And that’s what woke Reagan up.

I think the Democratic Party can come around. I mean, let’s say the Democratic Party is the party of the working class, the average people. Every working-class person knows where jobs come from. They know it comes from employers who have a lot of money, who are ready to hire. And they understand that low tax rates on employers, which means the owners of the company, have to be low. I think the Democratic workers understand that. That’s why there are so many kind of Trump Democrats and Reagan Democrats because the Democratic Party isn’t coming through with tax rate cuts at the top.

Yeah, I think the Democrats can come around.

 

Kennedy Stood Firm Amid Keynesian Advisors

Cho: President Kennedy has a talent of not being swayed by the opinion of Keynesian people even when he was surrounded by so many Keynesian experts like those from the Council of Economic Advisers (CEA). Why was he able to do that?

Dr. Domitrovic: That’s a very good question, Hanako. My own interpretation is that it had something to do with social class. I think Kennedy’s wealth played a significant role. In the 1950s, Fortune magazine listed the wealthiest families, and Kennedy’s father, Joseph Kennedy, was among the top 10 in the United States. So was Treasury Secretary Douglas Dillon, a very rich man.

People from this social class—even Harvard graduates like Dillon or Kennedy, who also attended Princeton and Stanford—I don’t think those very successful, self-made people took expertise terribly seriously, even from the top universities. They were very confident about how they had succeeded, and they weren’t inclined to believe that the students of the book, professors, could concoct correct policy.

In short, I think these self-made business people, very rich, did not have a particular susceptibility to academic analysis.

So, Keynesian economists like CEA Chairman Walter Heller, Paul Samuelson and James Tobin advising Kennedy and later claiming they “changed Kennedy’s mind” and that they “educated the president” and he did what he was told is not what happened.

John F. Kennedy huddled with the rich people in his cabinet, Douglas Dillon, above all, and they realized how to get this country moving again. “You lower tax rates on the highest earners.”

And that’s not what his advisors said, who were Keynesian, who were from the academy, but it’s what people he knew from his own very high echelon, rich set, knew. I think John F. Kennedy was not prepared to outsource his policy to academics. No, he was too smart and too embedded in rich, wealthy society to do that.

I think Kennedy and Dillon understood better than the average congressman what it meant to face very high tax rates. Dillon, who understood the implications of high tax rates, knew the wealthy had all their money in tax shelters which created neither wealth nor jobs and benefited neither Americans nor the global economy.

In contrast, Dwight Eisenhower and Richard Nixon who were not from money were not enthusiastic about tax cuts. I don’t think they understood as well as the super-rich how much these very high tax rates were impeding economic growth.

That’s something John F. Kennedy understood. He said, “When you face a tax frontier, when you face a marginal tax rate of 50, 60, 90 percent, even 30 percent for lower earners, they’re less interested in doing work.” Kennedy understood incentive economics.

He also had run in his campaign in 1960 on the premise that America had to get moving again. “I’ll get America moving again. Let’s get America moving again.” That was his campaign slogan throughout 1960. And you got to have a policy for that. He identified, “Oh, the tax rate cuts, that’ll get America moving.” He was right.

 

Keynesians Claim Credit

Cho: Why do all these academia want to take credit for Kennedy’s tax cuts?

Dr. Domitrovic: That’s a good question. First of all, academics have a preference for speaking and writing, whereas businessmen do not. Academics speak and write, they talk. Businessmen don’t talk. Academics have a natural penchant just to say things, whereas businessmen don’t have a natural penchant to say things. Douglas Dillon rarely talked about the Kennedy tax cut ever afterwards. He lived for another 40 years.

Academics are always trying to identify the credit they’re supposed to be given, like “I wrote this book. It was the most important one.” They don’t have a bottom line like business does of “How much money did you make?” So credit is in prestige. It’s the currency of the academic system.

But I don’t think we should look at their claims about having influenced the Kennedy tax policy as valid, but as part of the penchant that academics have for talking about their accomplishments.

Cho: This seems to maneuver the history of a very important period, isn’t it?

Dr. Domitrovic: Yes, I’m disappointed with how academia has handled the Kennedy tax cuts.

Yeah, I’m disappointed in how academics have covered the Kennedy tax cut, including the academics who were part of the Kennedy administration: Walter Heller, Paul Samuelson and James Tobin. They claimed credit for that policy that they did not deserve.

I should point out, there was one very prominent academic, a Harvard Law School professor in the Kennedy administration, who was responsible for the Kennedy tax cuts. And that was Stanley Surrey, who was the most important tax lawyer in the United States. He was a very important faculty member at Harvard Law School. He designed the whole tax cut himself under Douglas Dillon. Never talked about it for the rest of his life. He didn’t claim credit. He just did the action. Everyone else claimed credit and didn’t do anything. As Kennedy said, “Victory has a thousand fathers.”