The White House has announced that President Trump is awarding Dr. Arthur B. Laffer the Presidential Medal of Freedom on June 19th. That, along with the Congressional Gold Medal, is America’s highest civilian award. It is well deserved.
Robert Mundell and Arthur Laffer were Supply-Side Economics’ premier intellectual architects. Supply-Side was roundly mocked by establishment Republicans such as George H.W. Bush, Reagan’s then-rival. Bush memorably dismissed it as “Voodoo Economics.” Most, though not all, Democrats mocked it. Many still do.
Who were the Supply-Siders? Jack Kemp was the political principal and Jeff Bell the political pioneer. Jude Wanniski was our Minister of Propaganda, Robert Novak served as the reporter-of-record and Warren Brookes, the columnist-in-chief. Bob Bartley turned “The Page” of the Wall Street Journal into a morally courageous beacon of sanity in stagflation’s darkness.
Bob Mundell later collected a Nobel Prize in Economics “for his analysis of monetary and fiscal policy under different exchange rate regimes and his analysis of optimum currency areas.”Businessman/philanthropist Lewis E. Lehrman and Kemp aide John Mueller, the American apostles of Jacques Rueff, prevailed with Kemp in their advocacy of the classical gold standard. And let us recall Supply-Side veterans Charles Kadlec, Alan Reynolds, Paul Craig Roberts, and Steve Entin. And Bruce Bartlett, who later apostatized.
Among its titans count publisher and presidential candidate Steve Forbes, George Gilder, author of Wealth and Poverty, “the Bible of Reaganomics,” and Larry Kudlow, now Director of Trump’s National Economic Council. Stephen Moore (with whom I have from time to time been professionally associated) flies the Supply-Side flag high.
I was the most junior member of the Supply-Side in its misty origins. What happened? Call me Ishmael, for I only am escaped alone to tell thee.
On November 13, 1979 Ronald Reagan officially declared for the presidency. On the day of Reagan’s announcement the Dow Jones Industrial Average was 814. As of this writing the Dow closed at 26,014. That’s not adjusted for inflation or population growth. Still, you get the gist.
Reagan campaigned on — while being ridiculed for — Supply-Side Economics. Elected, he put it to good effect. He backed Fed Chairman Paul Volcker’s actions to slay inflation. Reagan crusaded for the Kemp-Roth 30% across-the-board marginal tax rate cut. With full bipartisan support, Reagan also cut the top rate from 70% to 28%. And what followed?
There are not enough fingers among the thought leadership in Washington to count the 25,200 points the Dow then gained. Moreover, in 1979 world GDP was $11T. Now it’s $83T. A billion people or so arose from abject poverty. Much of this prosperity is due to the worldwide embrace of much of Supply-Side Economics.
So what is this much ridiculed, highly successful, thing, Supply-Side Economics? To oversimplify (but not by much), Supply-Side Economics calls for a stable currency. Most of its proponents favored the gold standard to seal the deal.
And tax rates are to be kept low. That will maximize economic growth and optimize federal revenue. Tax rates above a certain level — “Point E” on the Laffer Curve — reduce federal revenue much as overcharging for goods reduces an enterprise’s sales and, thus, revenue. Common sense, really.
The 1975 issue of Irving Kristol’s National Affairs presented its manifesto, by Wanniski: The Mundell-Laffer Hypothesis. Noting that excessive marginal tax rates reduce revenue is a footnote. Most of this essay called for monetary stability to quell the virulent inflation and the sky-high “Misery Index” and restore vibrant economic growth. Wanniski concludes:
“Theirs may or may not be the ‘Copernican revolution’ in economics that is needed. But at the very least, one suspects, it can legitimately claim a proto-Copernican status.”
Forbes.com columnist Nathan Lewis calls stable money (preferably gold) and moderate tax rates in his columns and his most recent book the “Magic Formula.” He marvels at why such a simple thing as gold-defined money and low marginal tax rates were, and are, anathema to the policy elites.
My guess? It affronts their vanity. Mundell, in his 1999 Nobel Prize in Economics acceptance speech, observes that it “did not require a great theoretical genius to run gold standards.… It was automatic.” There is little glory in maintaining a system on autopilot, however successful.
A few years ago I estimated the capitalized value of the additional world income created by Mundell and Laffer and their political team to be $100 trillion. It’s even higher now. Thus, Donald Trump’s awarding Arthur Laffer the Presidential Medal of Freedom is profound. Next… to make America fully great again… on to the gold standard as prescribed in the Mundell-Laffer hypothesis and commended by Candidate Trump!
Ralph Benko founded The Prosperity Caucus in 1985, served as a deputy general counsel in the Reagan White House and is the editor-in-chief of the Supply-Side Blog currently hosted by the Committee to Unleash Prosperity of which Arthur Laffer, Steve Forbes, and Stephen Moore are principals and which Lawrence Kudlow co-founded.