IS THAT THE BETTER WAY?
HERE NOW IS ART LAFFER, FORMER
REAGAN ECONOMIC ADVISER AND
LAFFER ASSOCIATES CHAIRMAN.
I HAVE TO ADMIT -- OH, THERE’S
YOUR BOOK, BY THE WAY, "TAXES IS
HAVE CONSEQUENCES."
INDEED, THEY DO.
I HAVE TO MENTION THAT THE
ARTICLE WAS WRITTEN BY A MAN WHO
IS WITH AN ORGANIZATION CALLED
THE LAFFER CENTER, SO IT’S KIND
OF A RHETORICAL QUESTION.
I KNOW YOU AGREE WITH WHAT BRIAN
SAID.
IT WAS A BRILLIANT ARTICLE.
HIS POINT IS THAT WE DON’T NEED
TO HAVE A RECESSION IN ORDER TO
LICK INFLATION.
DO YOU AGREE?
>> YES, TOTALLY AGREE.
IN FACT, JUST THE OPPOSITE.
IF YOU WANT TO LOWER THE PRICE
OF SOMETHING, INCREASE THE
SUPPLY OF GOODS.
IF YOU HAVE A BUMPER CROP OF
APPLES, DAVID, WHAT HAPPENS TO
THE PRICE OF APPLES?
THEY GO DOWN.
WHAT YOU REALLY NEED TO DO
INSTEAD OF REDUCING DEMAND BY
CREATING A RECESSION, YOU NEED
TO INCREASE SUPPLY WHICH LOWERS
THE PRICE AND BRINGS I DOWN CAN
INFLATION JUST THE WAY REAGAN
AND VOLCKER DID IT.
DAVID: SO HOW DO WE INCREASE
SUPPLY?
>> DEREGULATION.
LOW RATE, BROAD-BASED, FLAT TAX.
LOWER TAX RATES.
CONTROL GOVERNMENT SPENDING.
FREE TRADE.
ALL OF THAT AND THEN, OF COURSE,
A SOUND MONEY.
THERE’S NOTHING THAT CAN BRING
AN ECONOMY TO ITS KNEES QUICKER
THAN AN UNSOUND MONEY.
WITNESS THE U.S. ODD.
TODAY.
SPENDING RESTRAINTS, SOUND
MONEY, MINIMAL REGULATIONS AND
FREE TRADE AND THEN GET THE HECK
OUT OF THE WAY --
[LAUGHTER]
AND LET THE MARKET SOLVE IT.
YOU’LL SEE INFLATION COMING
RIGHT DOWN, STABILIZE PRICES
WITH ECONOMIC GROWTH.
DAVID: IT’S A BEAUTIFUL THING,
AND IT’S HAPPENED BEFORE.
IT’S NOT LIKE WE’RE JUST MAKING
IT UP IN SOME HARVARD ECONOMICS
CLASS.
THIS IS ACTUAL REALITY.
THAT’S WHAT HAPPENED IN THE
’80s.
PAUL VOLCKER, OF COURSE, IS
GIVEN COMPLETE CREDIT BY THE
MEDIA AND HISTORIANS FOR KILLING
INFLATION.
AND, YES, HE LET INTEREST RATES
RISE UP, AND THAT WAS VERY
IMPORTANT.
BUT WHAT REALLY KILLED INFLATION
WAS, WERE THE REAGAN TAX CUTS
WHICH, WHEN THEY KICKED IN, HAD
HE NOR MOUSE INCREASE IN
GROWTH -- ENORMOUS INCREASE IN
GROWTH AND SUPPLY, AND IT WAS
THAT EXTRA SUPPLY THAT BROUGHT
DOWN PRICES, RIGHT?
>> YEAH.
AND LET ME SAY IF I CAN ABOUT
VOLCKER, VOLCKER WAS NOT POWELL.
POWELL IS RAISING INTEREST
RATES, CONTROLLED INTEREST
RATES.
VOLCKER LET ’EM GO.
DAVID: YES.
>> RIGHT WHEN WE WERE COMING
INTO OFFICE, THE PRIME INTEREST
RATE WAS 21.5%.
HE DIDN’T TRY TO CONTROL THE
10-YEAR BOND YIELD.
SO HE DIDN’T SIT THERE AND BUY
GOVERNMENT BONDS AND, THEREBY
CREATE A HUGE MONETARY BASE
WHICH CAUSED THE INFLATION.
VOLCKER KEPT THE MONETARY BIAS
TIGHT -- BASE TIGHT, DID THE NOT
HOLD HUGE BALANCE SHEETS, AND
THAT IN CONJUNCTION WITH
SUPPLY-SIDE ECONOMICS ON THE
GROWTH SIDE BROUGHT INFLATION --
IF YOU LOOK AT THE PLOT OF THAT,
DAVID, AND SOME SHOW YOU SHOULD
HAVE IT, JUST WHAT HAPPENED TO
INFLATION UNDER REAGAN, WAIT A
MINUTE, JUST BOOM, STRAIGHT
DOWN.
IT DIDN’T TAKE ANY TIME.
IT WASN’T 20 YEARS IN THE MAKING
AND WE’RE GOING TO HAVE TO
SUFFER A HUGE DEPRESSION.
NO!
IT’S GROWTH AND TIGHT THE MONEY,
AND THAT’LL DO IT.
BOB MONEY DELL’S -- BOB MONEY
DELL’S MODEL ALL THE WAY.
DAVID: BY THE WAY, THE FACT IS
WHAT VOLCKER DID, ESSENTIALLY,
WAS TO AVOID BECOMING A CENTRAL
BANK.
HE TURNED THE CENTRAL BANK INTO
WHAT’S KNOWN AS A CURRENCY BOARD
BY JUST LETTING THE RATES FIND
THEIR OWN PLACE.
>> EXACTLY.
DAVID: AND IT MAKES YOU WONDER,
MAYBE WE DON’T NEED A FEDERAL
RESERVE TO DO ALL THE SPECIAL
BUYING UP OF BONDS IN THE
MARKETPLACE AND SO FORTH.
MAYBE WE JUST NEED A SIMPLE
CURRENCY BOARD TO JUST LET
THINGS GO, LET RATES FIND THEIR
OWN PLACE.
>> YEAH.
I DON’T KNOW IF YOU REMEMBER
WHEN YOU WERE AT THE "WALL
STREET JOURNAL," DAVID, BUT I
DID A PIECE WITH CHUCK CADILLAC
CALLED THE PRICE RULE,.
DAVID: OF COURSE.
>> I SPENT ABOUT THREE OR FOUR
HOURS WITH HIM ON THAT.
WE PUBLISHED IT RIGHT THERE IN
THE "WALL STREET JOURNAL," OR
JUST HOW HE DID IT.
I DID A PIECE CALLED THE BITTER
FRUITS OF DEVALUATION WHICH WAS
IN 1974 WHEN THE DOLLAR WENT OFF
GOLD.
GUIDED THE DOLLAR HOW WE WOULD
HAVE DOUBLE-DIGIT INFLATION.
I MEAN, THE BITTER FRUITS, ALL
THOSE ARTICLES WE WERE ALL
WRITING, YOU WERE RIGHT INVOLVED
WITH ALL THAT IN THE JOURNAL
MADE IT VERY CLEAR WHY WE HAD
INFLATION AND HOW WE COULD GET
OUT OF IT --
DAVID: AND IT WORKED.
>> IT’S ALL JUST AS TRUE TODAY.
DAVID: IT WORKED, THAT’S THE
BOTTOM LINE.
YOU DON’T BASE YOUR ECONOMIC
POLICIES ON SOMETHING CREATED BY
AN ECONOMICS DEPARTMENT AT AN
IVY LEAGUE COLLEGE.
YOU DO IT ON THE BASIS OF WHAT
HAPPENS IN THE REAL WORLD.
IT IS THE REAL WORLD WE’RE --
>> WE HAVE, WE HAVE TODAY WITH
THE HARVARD --
DAVID: JUST REAL QUICKLY, WE’RE
RUNNING OUT OF TIME, BUT I JUST
WANT TO FOCUS ON ONE THING AND
THE WORD NOW COMING OUT OF THE
UNITED KINGDOM IS THAT IT IS
ACTUALLY BECOMING MORE EXPENSIVE
THE CHARGE YOUR LEK THERE TRICK
CAR THAN -- ELECTRIC CAR THAN IT
IS TO FILL UP YOUR GAS CAR.
[LAUGHTER]
AND AS A RESULT OF THAT, THEY’RE
HAVING TO, THEY’RE HAVING
TERRIBLE PROBLEMS WITH THEIR
ELECTRIC GRIDS OVER THERE, THEY
HAVE TO START UP OLD,
CLOSED-DOWN COAL PLANTS WHICH
MEANS THE AIR IS GETTING DIRTIER
AND THE ENERGY IS GETTING MORE
PENSIONIVE.
IS THAT WHAT’S COMING HERE?
>> I HOPE NOT.
BUT IF IT DOES, IT DOES.
THESE PEOPLE DESERVE THE
COUNTRIES THEY GET, AND THESE
POLITICIANS ARE -- THE EARTH
THEY ARE BURNING AND RAGING ON
IS THEIR EARTH TOO.
AND, YOU KNOW, WHEN YOU LOOK AT
THE SCORCHED EARTH POLICY THESE
PEOPLE HAVE DONE POLITICALLY TO
GET WHAT THEY WANT, YOU KNOW, I
DON’T KNOW IF THEY’RE GOING TO
BE THE REALLY HAPPY WITH WHAT
HER GOING TO GET.
DAVID YEAH.
>> AND, FRANKLY, PEOPLE WHO VOTE
HEM IN, IT’S THEIR COUNTRY TOO,
AND I’M PERFECTLY WILLING TO
LIVE ALONG WITH THEM.
I’LL DO JUST FINE WITH THEIR
POLICIES, BUT IT’S NOT GOOD FOR
OUR COUNTRY.
IT’S JUST NOT GOOD.
DAVID: NO, IT’S NOT.
>> WE NEED GOOD ECONOMIC
POLICIES TO BRING PROSPERITY
BACK TO OUR COUNTRY, AND THEY’RE
NOT DOING IT.
DAVID: DO WHAT WORKS, WHAT WORKS
IN THE REAL WORLD, NOT JUST IN
THE HEADS OF THOSE IVY LEAGUE