Some people still listen to Art Laffer
Shiny SUVs and sleek sports cars spilled out of the River Oaks Country Club’s parking lots on Thursday, lining the streets for blocks around Houston’s most elite gathering spot. The draw: a talk by Arthur Laffer, the Reagan administration economist who is perhaps more strongly associated with the idea that tax cuts foster growth than anyone else.
Laffer is feeling pretty chipper these days. Back in July, when most pundits still considered Donald Trump a long shot for the presidency, Laffer put out a paper predicting he would win. It might have looked like wishful thinking: Trump’s tax plans hewed closely to what Laffer has recommended for decades.
But Trump did win, and now trickle-down economics is back in the White House. Close Laffer associates Stephen Moore and Larry Kudlow are among Trump’s trusted advisers. Laffer sees a lot of parallels between Trump and Ronald Reagan, whose own long-shot election he
rehashed in detail.
“You can’t believe the trash talk they said about him. He was ‘just an actor,’ ” Laffer said, to the clinks of knives and forks cutting steaks. “When you look at these candidates, I think there’s a lot of similarities. The point I was trying to make in this paper is that it can happen, it happened once before, and I was there, and this is how it went.”
In his hourlong, nonstop, high-velocity speech, Laffer bubbled over with enthusiasm for Trump’s plans to slash corporate tax cut rates, get rid of the estate tax and junk the Affordable Care Act. With the exception of tariffs on imports (“China’s our best friend, not our worst enemy”) and pouring money into infrastructure (“stimulus spending is the dumbest thing I’ve ever heard”), Laffer sounded truly thrilled about the changes to come.
The only problem is, he’s been proven wrong about most of it.
Take the most basic cause Laffer champions: The idea that cutting taxes almost always boosts gross domestic product and generates more revenue. Historically, that’s not true. In a review of the literature in 2014, the nonpartisan Congressional Research Service concluded that “slower growth periods have generally been associated with lower, not higher, tax rates.” One thing tax cuts have created is 35 years of widening inequality been the rich and the poor.
The philosophy also failed spectacularly in Kansas, after Gov. Sam Brownback cut taxes exactly to Laffer’s specifications in 2012; Kansas is now facing a $350 million budget gap, even after deep spending cuts, and job creation has stalled.
Or take the Affordable Care Act. While even Obamacare’s defenders have acknowledged that the law needs fixing and put forward many suggestions for doing so, Laffer insists that the whole thing needs to go. And the remedy? His answer for everything: More competition.
“Obamacare reminds me of a smorgasbord,” Laffer said. “You go in there, there’s a fixed sum, and it’s all you can eat.”
But competition is at the heart of Obamacare: The state-based marketplaces are designed for customers to compare plans and decide what works best for their lifestyle. Many researchers have concluded that the ACA accomplished that goal and pushed health care delivery away from a fee-for-service model toward one that instead compensates hospitals on the basis of outcomes.
As a result, the rapid rate of health care cost inflation has declined, Medicare is in much better fiscal shape, and the rate of insured people in America is as low as it’s ever been. If Laffer truly wanted to promote competition, he would talk more about an effective antitrust policy that would keep companies from getting so big that smaller ones can’t challenge them.
I could go on. The point is, Art Laffer is not a serious commentator on public policy, and yet his dogmatic prescriptions appear to be more popular than ever. It’s part of the reason so many academic economists are terrified of what the Trump years may bring.
So why are they so hard to shake?
The easiest answer is that Laffer’s ideas are seductively simple. People want to believe them.
Laffer had been invited to speak at the lunch in Houston — as well as a breakfast in San Antonio and a happy hour in Fort Worth — by Texas-based Frost Bank, which hosted the events free of cost for “customers and friends.” A Frost spokesman said the economist has been a “popular guest at other Frost events in the past.”
Julie Samson, a market president with the bank, enjoyed the talk, nodding along with some of Laffer’s points.
“It’s all logical,” she said, walking past the long valet line out into the neighborhood, where she’d parked. “It just boils down to common sense, and we’ve lost that in this country.”
Laffer did have a few pieces of advice, however, that many mainstream economists would agree with. First: Don’t start a trade war by slapping tariffs on Mexico or China. And second: Don’t be hasty in rolling back assistance for the disadvantaged.
“I really beg this administration not to cut safety nets fast,” he said. “Wait till you get the economic growth, and once you get that, all sorts of benefits will start flowing back into the system. Otherwise I think you’re going to lose the issue, and you’re immoral besides.”
The question, of course, will be whether the Trump era truly brings the kind of growth that Laffer expects.