Sunday, February 06, 2005

Arthur Laffer Interview

In the Pittsburgh Tribune-Review,Bill Steigerwald has a really interesting interview with Arthur Laffer; Link. Some samples:
Q: What do you think of President Bush's Social Security reform plan?

A: I think it's terrific. It's a continuation of the policies started by Reagan and worked in by Clinton as well, of moving from a defined benefit program to a defined contribution plan, which is the way it's got to go.

Q: Does it go far enough for your taste?

A: It goes plenty far for my taste, although it has to go further later on. But these things are gradual in a democracy, and this administration is taking one step further. ... People must be responsible for their own retirement. You can have a welfare system on top of that for people who don't make it. (...)

Q: The biggest economic issue of the moment?

A: I like low, flat-rate taxes. I like sound money. I like free trade. And I like minimal regulation for serving social purposes. That's it.

Q: Is that a definition of supply-side economics?

A: (It's) the supply-side definition in each of the major areas of macroeconomics. There are four areas: fiscal policy, monetary policy, trade policy and a sort of catchall, incomes policy. Those are all the indirect ways government affects business -- regulations, restrictions, minimum wage, wage and prices, etc.

Q: What's something that's true about economics right now that every layperson should know about?

A: If you tax people who work and you pay people who don't work, do not be surprised if you find a lot of people choosing not to work. (...)

A: I'm really impressed with the public. The electorate really sees through all this crap. They understand free trade. They understand low, flat-rate taxes. They understand sound money. The electorate is really cool. I'm superbly impressed by democracy -- and I'm not natively that way inclined, just so you know.

It is hard to think of another economist who has had a greater impact on the American economy over the last 25 years. That curve he drew on the back of an envelope in 1979 helped give President Reagan the ammunition he needed to push through the tax cuts he already wanted, but may have had trouble passing without the supply-side theorists.

It is just about impossible to get younger people to understand how bad the American economy was in 1979. Tell them about double-digit inflation, double-digit interest rates and stagnant real GDP, and their eyes will gloss over. They have no experience with which to compare. They have only known a robust economy, and that is because of Ronald Reagan and Arthur Laffer.


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