Superheroes are real. Rare, but, once in a blue moon, real. "The Emergence of Arthur Laffer: The Foundations of Supply-Side Economics in Chicago and Washington, 1966-1976" by historian Brian Domitrovic is the secret origin story of one of these rara avis, Dr. Arthur B. Laffer.
Darkness has descended over the origin of the prosperity generated during the Reagan/Clinton era. Domitrovic here casts light.
The Establishment’s groupthink has almost obliterated from the collective memory the fact on the day in November 1979 that Ronald Reagan officially declared for the presidency the Dow Jones Industrial Average was at 814. Now it’s over 34,000 (not adjusted for inflation or population but ... you get the gist). Americans are now almost twice as wealthy than we were in 1979, real per capita GDP rising from $30,000 to nearly $60,000.
That didn’t happen by accident. It's an epic story. Advocates of the policies of equitable prosperity, like Arthur B. Laffer, valiantly conquered the policies that fostered misery.
Many of the figures behind this transformation went on to fame. Professor Robert Mundell received the Nobel Prize in Economics. Dr. Arthur B. Laffer and the honorable Jack Kemp received the Presidential Medal of Freedom from, respectively, Presidents Donald Trump and Barack Obama. That said, the real story of the struggles of these heroes of the republic to slay inflation and restore equitable prosperity have been obscured from popular memory.
The establishment Republicans attacked the supply-side as ''Voodoo economics,'' the establishment Democrats as ''trickle down.'' The latter was especially ironic in that ''trickle down'' was a trope coined by humorist Will Rogers to critique President Herbert Hoover, the supply-siders’ poster child for stupid economic policy.
Notwithstanding the wall of ridicule, we supply-siders won and got a decent version of our stable money and low tax rate policy mix adopted for a full generation. Sadly, politicians, ever seeking novelty, tend to forget the lessons of history. Since 2000, under both Republican and Democratic administrations, economic policy reverted to mediocrity. Annual economic growth subsided from the Reagan/Clinton 4% level to the Bush/Bush/Obama/Trump ~2% per year. Growth is surging under Biden. Will he implement the policies to sustain that?
The difference between 4% and 2% may seem trivial. When compounded over 20 years, however, U.S. GDP is a mere $20T instead of $30T. This shortfall yields horrendous national deficits. More pressingly, sluggish growth compounded over time means that median earners like you and me are making 50% less than we would at trend. Our net worth suffers accordingly. No wonder millennials are bitter.
Professor Domitrovic has done humankind a great service by sifting through the primary sources of the historical record and bringing to the fore the distinguished contribution of Laffer, and others, in restoring prosperity to America and exporting it to a world whose GDP, under supply-side policy, rose from a nominal $11T to $88T/year.
You’ve heard of the Laffer Curve. You likely have not read much about Arthur Laffer, its eponymous originator. The Laffer Curve makes graphic that there are two tax rates that bring in the same amount of revenue to the federal government: 0% and 100%. At zero, Uncle Sam forgos any share of national economic activity. At one hundred percent, Uncle Sam crushes (or drives underground) the tax base, killing the goose that lays the golden egg, extinguishing all tax revenue. Somewhere in between there is the sweet spot, ''point E.''
This is, of course, common sense. In the madhouse that was the economic policy mix in the 1970s, however, gaining federal revenue by cutting counterproductively high tax rates was treated as heresy or worse. Laffer, enfant terrible, was a principal in setting that straight.
New outbreaks of political and policy madness always threaten to break out in Washington. Domitrovic’s book, which brings to the fore how America, and the world, achieved, and can again achieve, vibrant equitable prosperity, is important. Arguably, essential reading.
There were giants in the Earth in those days, a small cabal of thinkers challenging the dogmas that induced a towering misery index: high inflation coupled with high unemployment punishing workers, consumers and investors. Arthur Laffer was prominent among those giants. Bringing the thoroughgoing story of Laffer’s contributions does much to clarify America’s historic pivot from austerity to prosperity.
If you care about what policies lead to equitable prosperity and how those policies were, within living memory, created and woven into the fabric of Washington, and then the world, "The Emergence of Arthur Laffer: The Foundations of Supply-Side Economics in Chicago and Washington, 1966-1976" is essential reading. We can but hope there will be a sequel describing the latter-day acts of derring-do by Mundell, Laffer, Kemp and other heroes, laying out their further work in architecting Reaganomics and thereby bending the long arc of history toward justice.
Ralph Benko, co-author of "The Capitalist Manifesto" and chairman and co-founder of "The Capitalist League," is the founder of The Prosperity Caucus and is an original Kemp-era member of the Supply-Side revolution that propelled the Dow from 814 to its current heights and world GDP from $11T to $88T. Read Ralph Benko's reports — More Here.
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