Tipsheet

Former Trump Economic Advisor Shares "The Five Pillars of Prosperity"

Dr. Arthur Laffer, the influential economist who was an adviser to President Ronald Regan and Prime Minister Margaret Thatcher, spoke at the Young America’s Foundation Tuesday to discuss the Trump Economy. He also signed autographs for his new book, Trumponomics: Inside the America First Plan to Revive Our Economy.

“He tries to explain to me that he's a free trader,” Laffer said, recalling a time where he talked to President Trump. Laffer believed him, saying that, “anyone who owns and runs an international business is a free trader.” 

Laffer, the “father of supply-side economics,” was one of the key influencers behind a worldwide tax-cut movement in the 1980’s. He is an advocate for limited government and the free-market system. After he served the Reagan administration, he and Stephen Moore, economic policy-analyst and co-author of Trumponomics, became advisors to Donald Trump in 2016.

During the presentation, Laffer listed the five pillars of prosperity in an economy:

1) The Lower the Taxes, the Better

People don't like paying taxes. And if taxes are too high, they'll look for ways to avoid it.

“If you beat a dog, you'll know where the dog won’t be,” Laffer said.

You can see the first pillar in action in the 2017 federal tax cut. The tax cut dropped the corporate tax rate from 35 percent to 21 percent, letting the US finally follow with the rest of the world in lowered tax rates. It also turned the U.S. into a territorial tax system. So instead of a company paying the corporate tax for the country it’s settled in as well as the U.S. tax, it only needs to pay for the country it’s in.

2) Stop Excess Spending

Imagine two farmers, Laffer pictured for his audience. If one farmer was receiving unemployment benefits from the government, where does the government find the money to pay for it? The answer: from the first farmer.

“Anything that the government gives to you, they have to take from someone else,” Laffer said.

Laffer pointed out that this pillar was the big “elephant in the room.” He felt that the Trump administration, along with all the other administrations after Bill Clinton, had yet to tackle this problem in our federal government.

3) Good Monetary Policy

Laffer specifically went into interest rates and inflation when he discussed this pillar. When interest and inflation is too high, nobody will want to pay for it. But it’s also a bad idea to make the rates too low as well. If that happens, Laffer explained, “the supply of capitol doesn’t flow where it should.” This very problem caused the housing crisis of 2008.

Laffer said the Trump administration has been doing a good job at fixing the issue. Laffer pointed to Federal Reserve Chairman Jerome Powell, who worked to normalize interest rates.

4) Less Federal Regulation

Some federal regulation on the economy is necessary, Laffer acknowledged. But too much government interference could end up badly hurting the economy. When you make rules telling companies what they can or can’t do, you can restrict innovation and opportunities for employment.

According to Laffer’s website, Committee to Unleash Prosperity, ineffective and excessive regulation are often used by big businesses to prevent competition.

“If a large, established company finds itself threatened by a small-yet-innovative startup, sometimes companies will work to persuade the government to craft government policies that will impede their upstart competitors,” the website states. “When Big Business joins forces with Big Government, the marketplace is deprived of the potential innovations and better, more affordable, goods and services.”

5) Free Trade

“There is nothing more important than free trade,” Laffer said. “Whenever our country tries to interfere with free trade, it has ended up in catastrophic results.”

Right now, President Trump’s biggest goal in international trade is to establish free trade relations with China, who are not only notorious for tariffs, but also manipulating currencies. But Trump has little leverage to get China to lower their tariffs, according to Laffer, and that’s mainly because of the country’s primary focus on exporting products.

“They love love love their exports to the US,” Laffer said. 

Because of this, Trump’s solution is to threaten to raise tariffs on Chinese products coming into the country. That way, he can set up a meeting with China to establish free trade policies together.

In the book, Laffer and Moore defend President Trump’s economic strategy, which has “some conventional Republican ideas–tax cuts, deregulation, more power to the states–with more traditional Democratic issues such as trade protectionism and infrastructure spending,” according to the book’s Amazon page. While government spending has yet to be tackled and free trade is still a “work in progress at best,” Laffer is confident in the administration’s economic direction. 

He told people at the conference that we have seen the fastest growth in tax revenue in four years, and he expects the growth to continue as more taxpayers have incentives to pay. As for free trade, he feels that we will see cooperation with other nations soon.

“I’m very hopeful that in the future, we’ll get better trade deals,” Laffer said.