The poor are going to get poorer a lot faster than the rich are getting poorer dr arthur laffer is known as the father of supply side economics he designed the famous laffer curve that showed that higher taxes don’t necessarily mean higher tax revenue for governments a chief economist at the office of
Management and budget in the 1970s then later an economic adviser to president reagan then president trump he was awarded the presidential medal of freedom by trump in 2019 dr arthur laffer pleasure to have you in mtd business thank you very much it’s a pleasure for me
Dr laffer a lot of one to speak with you about but first of all i think all americans are worried about inflation we see the the prices of things rising at a record rate first of all how much longer do you think this is going to run and
Number two what’s the main driver behind it in your opinion yeah let me just simply say i don’t know how long it’s going to run i don’t know whether it’s permanent or not i really don’t i can tell you all sorts of stories but you wouldn’t want to hear those
Part of the reason why it has come on to being right now it’s because of the huge drop in prices in 2020 uh when the system came in the way and you’ve got a very low base on a lot of numbers and some of those are going to reverse
Themselves in the next six months or a year so i think you’re going to see an abating of the inflation numbers but i don’t think you’re going to see prices going to fall back to where they were now a classic of this is lumber lumber prices just went way up through
The ceiling and now i think they’re back down to below their lows so you know you’ve got a lot of these type of very temporal circumstantial situations that make it look like there’s a lot of inflation the parts that worry me parts that worry me are wages do appear
To be rising and do appear to have risen and i have a very hard time believing that those prices are going to be reversed and go back so there is some inflation i think set into into motion it is not my primary worry to be honest
It’s not however it’s a worry of a lot of people and all the business people i talk with tell me that at the ground level on businesses prices are going straight up so they’re all saying that so there’s a lot of circumstantial evidence and the numbers themselves show
Up price but i’m not concerned personally it’s not my biggest concern of inflation if it were to come into being and i’m not saying it’s not going to come in if it were to come into being it would be a very serious problem we see the atlanta fed um we also have
Morgan stanley last week now today goldman sachs all slashing their third quarter um gdp forecasts a lot of people talking about stagflation you think it’s a possibility and what does it mean if we get there well let me if i can’t go through with you what the real problem
Is if if i may yeah of course the real problem is this government spending is totally out of control completely out of control uh whether you’re talking about the first three and a half billion dollars under trump and then the next three billion dollar i think we’re up to
I think 10 or 11 12 trillion dollars a very very large all of these sums are what’s called transfer payments transfer payments are when i take from someone and give it to someone else who didn’t earn it okay whether that be extended unemployment benefits increase in food stamps rent
Subsidies and all of these programs combined are all transfer payments now let me go through the the theorem of transfer payments with you because it’s really important to understand it intellectually a transfer payment is when you take from someone who has a little bit more
And you give to someone who has a little bit less all right you that’s purely and simply a transfer pain and that’s what all these 10 trillion have been that’s all it is and by the way a lot of it’s gone to business too with the forgiving of the
Loans and all that other nonsense right but when you take from someone who has a little bit more you reduce that person’s incentives to produce and that person will produce a little bit less you follow me when you give to someone who has a little bit less you provide that person with an
Alternative source of income other than working and that person too will produce a little bit less the theorem here and it’s math it’s not left-wing it’s not right-wing it’s not republican it’s not democrat liberal or conservative whenever you redistribute income you always reduce total income period
Now the lemma from this theorem which is what’s coming in right now is the more you redistribute paul the greater will be the fall in total income that’s the limit i’m not going to prove that to you but the limit function i am going to prove to you
Is if you were able to redistribute and come out of bernie sanders and elizabeth warren and all these people if you were able to redistribute income so that everyone everyone came out exactly the same all right there will be no income whatsoever let me explain it to you so you see it
In order to get everyone to come out exactly equal what you have to do is you have to tax everyone above the average income 100 of the excess and you have to subsidize everyone below the average income up to the average income so that’s everyone comes out exactly the same now
If you actually did that if you actually taxed everyone who earned above the average income 100 of the excess and if you actually subsidize everyone below the average income up to the average income i’ll stipulate today counselor everyone will come out exactly equal at zero income there will why would you work
If you don’t make any advantage whatsoever for working now this is especially prone to the lowest income group earners in the country because their jobs are not fun they really aren’t fun like yours my jobs are great fun not that i’d work for xero but you
Know i i love my job these people don’t uh so that if they can make as much money not working as they can working they’re not gonna work after not working for a year or two or three or four they lose all the requisite skills to be able to be productive in work
And then they’ve lost themselves to the society for eternity these are the poor the minorities the disenfranchised the undereducated these are the people at risk of being marginalized and thrown into the trash bin by this spending stuff for eternity they’ve lost their lives their chances of ever advancing
That to me is terrible it’s bad income redistribution all right and it’s also bad economics now we did a big uh trans we did a big transfer payment at the end of bush in 2008 trillion dollars we did a big one at the beginning of obama a trillion
Dollars a little bit over trinidad he was 2.2 trillion go back and see my pieces in the wall street journal and elsewhere on this and i said it would slow down growth the eight years of obama plus the first year or so of of trump because obviously was an extension of obama
We never had growth rates of three percent or higher not one year was it three percent given the depths of the crash in 2008 we should have had very high growth it was because of the stimulus spending that caused the growth rates to taper off and it endures to the long run
Detriment of the economy and the stimulus spending of obama and bush was baby play compared to schumer and pelosi and biden it’s baby play this is going to really damage the economy for a long way to come in real terms if you tax people who work and you pay people not to work
Don’t be surprised paul if you find a lot of people not working i’m not going way over your head on this no no but this but this is quite ironic because whether you look at the federal reserve’s mandate or a lot of the the narrative coming from the current
Administration a lot of the excuses for the current spending is jobs is to create jobs but the interesting thing is there are so many jobs available at the moment there’s never been more jobs available but it doesn’t seem anybody’s taking up on them well they don’t care that’s why
I said they’re incompetent in the job they’re doing and they shouldn’t be there shouldn’t be a fed there really shouldn’t be we should have a monetary policy someone to invest make sure banks aren’t cheating on their reserves and all the regulatory that stuff that should be done but this type
Of stuff that the fed’s doing at 5 trillion in loan rubber all this stuff is just garbage controlling interest rates the way they try to do is just nonsense they don’t know what they’re doing and they’re doing enormous damage to the long run of the u.s economy and it’s very sad
Because unfortunately these people aren’t going to bear the consequences of their own actions that’s why i want to put all government officials on commission no i do i mean why shouldn’t they bear the consequences of their silly actions i don’t mind government officials making lots and lots of money paul i really
Don’t as long as i do too but when they do when they spend other people’s money there’s no amount they all spend unless they bear consequences and they don’t bear the consequences of their actions and that’s why i really think they should be paid on commission
I feel for for somebody of of my generation we don’t know anything beyond this type of demand side stimulus that we’ve been seeing this is all we’ve ever heard of stimulate the demand side give people money and it it brings the economy back to life again is there an
Alternative well yes it’s of course how about for the people from whom you take the money that you give to other people to have demand don’t they demand less let’s imagine i take a hundred dollars from joe and i give a hundred dollars to bill it’s very true that bill will spend
More than he otherwise would have that’s very true but won’t joe spend less than he would have and won’t the two exactly offset each other and the only thing is that now joe has less income and therefore won’t work as much and bill’s getting paid off
Like a transfer and he won’t work as much either so there are no income effects there’s no increase in demand and the substitution effects make everyone produce less which is why i did the transfer theorem with you government spending is taxation and you know i try to explain maybe get it you want
Me to go one second try to explain it the way i did to my students please i used to tell my students if i ran this class the way your government runs your country what i would do is i’d flunk all the a students out and i’d give all the f students scholarships
Now before you giggle my a students happen to be a little bit smarter than my f students so once i change the rules my a students are able to get lower grades than my f students because they don’t randomly make the mistake ever of guessing a correct answer
They still get all the scholarships the f students are still flunked out just the way before i haven’t changed the distribution of grades one iota but what have i done i’ve destroyed the entire quality of the educational process redistribution destroys the economy without changing the distribution of income
The poor are going to get a lot poorer because of these policies and income growth is going to be a lot lower the rich are going to get poor and the poor are going to get poorer but the poor are going to get poorer a lot faster than the rich are getting poorer
Economic growth is the only solution for a problem of poverty and minority displacement that’s the only thing there is minimum wage of 15 now how silly is that how silly is that why not five hundred dollars an hour so no one works i mean it’s stupid it’s just stupid on
The face of it what you need to be able to do is have these people get the requisite skills to be able to earn above the minimum wage then they have the skills they can do it but you know if it makes it fifteen dollars an hour they’ll never
Get that first job paul and if they don’t get that first job after a while you know they they stay unemployed they become unemployable after being unemployable for a couple of years they become hostile and then you have to spend a fortune protecting yourself from them
This is not a new story and i’m sorry none of you know how to go to a good university and get taught what is supply side economics people respond to incentives if you tax people who work and pay people who don’t work duh you have you ever heard of an economy
Taxed into prosperity have you ever heard about poor pan’s poor man spending himself into wealth no and you never will because it doesn’t work that way it looks like they’re going to go ahead with these stimulus packages or so-called stimulus packages let’s call them so is there a place where it can be
Spent beneficially well you know are there better places to spend the money than others yes of course you know let me go let me go to the principal of government with you just just as a government from thirty thousand feet you know what you wanna do
Is you wanna collect your all taxes are bad but some are worse than others what you wanna do is collect your revenues in the least damaging fashion all right and then what you want to do is spend the money in the most beneficial fashion and then when the damage done by the
Last dollar of taxes collected is less than the benefit done by the last dollar spent you stop already that’s the correct size of government now there are lots of things you can collect your taxes in bad ways so if you improve how you collect your taxes it’ll
Be better for the economy how you spend your money you can spend it in really bad ways as well as other ways uh you know how you spend it really matters and matters a lot so when you ask me are there better ways to spend it than this
Way or that way or the other of course there are but then of course how much you spend and how much your tax also matters how you tax the money how much your taxes spend and how you spend the money all three matter and they matter a lot now can pelosi and
Schumer and these people figure it out not a chance there’s not there’s not a chance in hell that a politically driven process trying to buy votes will generate a good outcome you know that and i know that they’re going to try to rig all these things to affect future elections whether they’re
Paying off people who don’t work or whatever it is and that’s that’s what they’re doing and they don’t bear the consequences of their actions now if you did this let me put let me ask put it this way let’s imagine that if the economy grew at three percent per annum
All the politicians congress people would get their pay all right if it grows at four percent double their pay but it’s four percent level five percent growth triple their pay all right i mean they’re doing really good now two percent growth no pay one percent growth they have to pay us
What we would have paid them a three percent growth and so on and so on they’d never vote the way they do this bill would be dead there wouldn’t be one democrat not even a marxist would go for this no one would because it’s wrong wrong wrong it’s a political hack job that’s
Being done to try to rig elections and that unfortunately is what they’re doing and they don’t bear the consequences of those actions they don’t their pay is the same no matter whether they vote for the correct way or the bad way they all get the same pay and that’s not what you want
You mentioned the obama administration and the trump administration and i think now things have got really um accelerated during the pandemic with with government spending what’s the end game or how does this play out over the next five 10 15 years you know the end game is like the
Beginning what was the beginning there is no beginning and there is no end what you are seeing is the diminution of the u.s economy as far as the eye can see unfortunately when you’re 81 when you’re my age you will not be living in the type of prosperous dominant america that
You’re living in now and it’s very very sad but you are we are tearing about the infrastructure of the us economy and making damn sure that we’re not a strong member of the world economy 20 30 years from now let me let me give you a little lesson
In a simple one in china in 1970 that’s i was the first american to go to china all right in 1970. i went with george schultz and john ehrlichman i mean yeah george and john ehrlichman and that was when we started the up opening of china at that time
I think 97 of chinese production went through state-run enterprises had no infrastructure what china has done from 1970 to today that’s 50 years 51 years all right what they’ve done is they’ve cut taxes from 97 percent through state-run enterprise i think two or three percent that’s called a tax cut
In 1992 they uh they outsource their monetary policy to alan greenspan that’s creating a sound money as you know they’ve opened up their trade they’re now one of the biggest trading nations in the world so they did tax cuts sound money and free trade the three pillars of supply-side economics you with me
From 1970 to the present china has grown at i think something like 7.2 percent per annum compounded annually which if you take that over 51 years that’s an increase in chinese real gdp of 33 fold 33 fold take 1.075 to the 51st power and you get about 33 all right
Now take a look at the us over the same period during this same period the us has grown threefold you know take that now we’re going to lower our growth rates quite dramatically with these silly policies and once you get that out there there’s no getting it back it’s it’s like the
Genie in the bottle it’s you know and china will keep on going so you tell me what you think is going to happen you tell me what you think your children your grandchildren your great-grandchildren are going to be facing when you’ve got silly people like this not understanding how to create prosperity
You create prosperity by making by taking government hands off the economy by letting people produce their own benefit and for the owned benefit of everyone else it’s what adam smith called the invisible hand when i do the invisible hand i keep my hands below the screen okay but it’s it’s there and it’s
The way it works and unfortunately they’re going the wrong way and there’s no justification for the way they’re going we’ve had experiments in this sand thousands of times in history and i went through the very simple theory of redistribution with you it’s basic economics and it’s true people like doing things they find
Attractive and they dislike doing things they find unattractive and taxes makes things more unattractive and subsidies make things more attractive so if you make all the bad things more attractive you make all the good things less attractive i mean why do we tax speeders on the freeway to get them to stop speeding
Why do we tax cigarettes to get people to stop smoking all right i mean that’s why we do it in the same breath why do we tax people who earn income why do we tax people who employ other people payroll taxes why do we tax companies that make great
Products at low cost and have lots of profits why do we tax them we don’t tax them to get them to stop earning income we don’t tax them to stop employing other people we don’t tax them to stop making great products at low cost no we don’t
But do not for a moment think that the same consequences don’t occur as occurs with taxes on speeders and taxes on cigarettes it does and you will destroy incomes you will destroy employment and you will destroy profits and good products and that’s exactly what america is in the throes of doing right now
And you better get someone to change it pretty quick paul because if you don’t you’re going to bear the consequences people deserve the governments they get it ain’t my problem anymore i’m 81. it’s your problem paul and it’s your viewers problem you mentioned the three pillars that
China implemented over the past 50 years what’s the equivalent that happened here in america in those three spaces well we had we have cut our highest taxes in 1950 i think our highest tax rate was uh 91 today the highest tax rate 37 we did pretty well
Uh we have contained inflation i don’t remember what inflation was like when we came into office with reagan in 1981 the i mean the prime interest rate in america was 21 and a half percent it’s not that now we got it way down we brought it down inflation way down all that stuff
We’ve uh we’ve deregulated the economy before airlines were totally regulated now the fares are half of what they were and they’re much safer much better trucks we’ve done that as well uh in 1957 i think only two states were right to work states that was arkansas and florida and back
Then by the way florida was arkansas just sort of the record all right now over half the states in the united states are our right to work states uh if you look at the uh death death tax in states i think in 1976 there was only one state in the united states that
Didn’t have a death tax and that was nevada now i think 38 or 40 states have gotten rid of their death tax and i could go on and on and on how we’ve really made the economy much much much better over this period and now we’re reversing it all
And it’s reversed all in the worst of pandering to trying to buy votes you know you want to play in this game it’s a serious game in this world and i’m very very glad i lived in an america that we were on the ascendancy it was truth beauty in the american way
And that’s a really and i just hope you can recl you can reclaim that ground that high ground for this country going forward paul is this what it will take will it take a grassroots um effort from people do people in washington listen to the people on the ground or what’s it going
To take for people to to realize this why should they listen if their pay doesn’t change yeah why if their pay is the same why should they listen you know it’s fun spending other people’s money it really is you imagine it you know it’s fun they’re not held accountable
Now how you change it that’s your problem grassroots everything there are lots of ways they’ve changed it historically very rarely does it work out for the good you know almost every revolution fought on planet earth has been to change the distribution of income and i don’t think any revolution is ever
Effectively changed the distribution of income but what they’ve all succeeded in doing is destroying the entire volume of income that’s what they’ve all done trying to change the distribution of income they succeed in destroying income but have had no effect on the distribution of income people who can’t earn
Income in this society today will probably not be able to earn income in a society 20 years from now if you go through this welfare system they won’t be able to and sooner or later the thing clogs like arterial sclerosis and just shuts down the whole system
And you can see it happening in europe you can see it happening all over the world but you know the thing is it never happened to us but now it appears to be happening to us and please take the message if you believe me take the message to the troops of the
Planet and it doesn’t have to be people love working it’s really fun working it’s great working it’s great and you’ll never get a good high paying job unless you have the low paying job first and then you’ll work your way up kennedy put it so beautifully and i’m a
Kennedy democrat as you probably know from the 60s i’m a reagan republican and i’m a trump republican all right but kennedy said it’s so beautiful he said the best form of welfare is still a good high-paying job no american is ever made better off by trying to pull a fellow american down
And we’re all made better off paul whenever any one of us is made better off now as a kennedy democrat went to work with ronald reagan we convinced him of this line he was really on board with this loved it and you know we then use the third line of that speech
A rising tide it raises all boats a growth economy helps the poor and the rich it helps everyone and whenever you go into a society hating one group versus another group you’re going to screw up the whole thing and you’re not going to make your group better believe me hate’s not a good
Model in politics doesn’t work how the narratives have changed dr arthur laffer really appreciate it thank you my pleasure paul thank you
