Reagan-era economist Arthur Laffer, the creator of the Laffer Curve and a winner of the Presidential Medal of Freedom, has said that whereas his former boss fixed inflation, current President Joe Biden “is creating inflation.”
Laffer famously served as a member of former President Ronald Reagan’s Economic Policy Advisory Board, which was responsible for helping him drastically reduce the exorbitant inflation of the late 1970s. By the time Reagan left office in 1989, inflation had dropped from 10 percent down to 4 percent.
The former president achieved this by reducing spending on domestic programs, cutting taxes, deregulating domestic markets and tightening America’s money supply.
“President Reagan was a proponent of supply-side economics, favoring reduced income and capital gains tax rates. He believed that the savings generated by companies from corporate tax cuts would trickle down to the rest of the economy, spurring growth,” according to Investopedia.
“He also assumed that companies would eventually pay more taxes anyway, boosting the government’s coffers, as a healthier economy would encourage them to increase volumes.”
The strategy worked. Yet decades later, Biden is now taking the exact opposite steps by increasing spending, spiking taxes, over-regulating and letting the money supply run loose:
‘Such BS!’ Biden roasted after insisting that spending even more money will ease inflation – https://t.co/WRcqQ390B9
— Bo Snerdley (@BoSnerdley) November 15, 2021
In an interview this week with the Daily Mail, Laffer warned that the current president is therefore in effect “creating inflation.”
“It was exactly the reverse of what is happening with Biden and the current era,” he said of the Reagan era policies that had reduced inflation.
“The policies are exactly the opposite, so the results are the opposite. While Reagan healed the sick, Biden has infected the healthy. While Reagan cured inflation, Biden is creating inflation.”
When Reagan took office, critics dismissed him and his advisers, describing their ideas as “voodoo economics.” This form of economics was based primarily on Laffer’s observation that one of the best ways to increase government revenue is to reduce, not raise, taxes.
This belief forms the basis of the Laffer curve, a chart that displays the relationship between taxes and tax revenue.
“The Laffer Curve is based on the economic idea that people will adjust their behavior in the face of the incentives created by income tax rates. Higher-income tax rates decrease the incentive to work and invest compared to lower rates,” according to Investopedia.
“If this effect is large enough, it means that at some tax rate, a further increase in the rate will actually lead to a decrease in total tax revenue. For every type of tax, there is a threshold rate above which the incentive to produce more diminishes, thereby reducing the amount of revenue the government receives.”
Can lowering tax rates produce greater tax revenue?
It can—and that tipping point is illustrated with the Laffer Curve.
The more you know! pic.twitter.com/rbhPioaJ2G
— PragerU (@prageru) April 10, 2020
Biden and in fact every single Democrat in office believes the exact opposite, that the key to more revenue is higher taxes.
In a research note shared with the Daily Mail, Laffer recently warned of what awaits the American people if the president doesn’t reverse course.
“Biden’s economy will look like the Reagan film played backwards: higher inflation, larger deficits, slower growth, falling participation rates, greater poverty, and weaker defense,” he reportedly co-wrote through his consulting firm, Laffer Associates.
“The U.S. economy is beginning to experience a reversal of the exceptional results inherited by President Biden just as drastic as the terrible results experienced in the late 1970s and early 1980s.”
It doesn’t help, he said to the Daily Mail, that the Federal Reserve is taking its time raising interest rates.
“When Reagan took power in 1981, the Federal Reserve board led by Paul Volcker raised the federal funds rate, which had averaged 11.2 percent in 1979, to a peak of 20 percent in June 1981,” the Daily Mail notes.
“These punishing interest rates, which tamped down growth in the short term, were however effective at fighting inflation, and ushered in a new era of stabilized prices and economic growth.”
Current Federal Reserve Board chair Jerome Powell has instead kept interest rates near zero and is only now, later than ever, moving to spike them.
— Conservative News (@BIZPACReview) December 16, 2021
This, according to Laffer, is no good.
“Volker and Reagan had tight control of the monetary base, and these guys are exploding it out of the universe. Over a year has passed since vaccines were rolled out to Americans and state governments have lifted many of the restrictions handicapping economic growth, yet rates remain low, and banks still enjoy a reserve requirement of zero,’ he wrote in his note,” he said.
“The monetary policy landscape is a far cry from the beginning of Paul Volcker’s chairmanship of the Fed in 1979 and especially far from the first month of the Reagan presidency, when the effective federal funds rate reached as high as 22 percent.”
It also doesn’t help that Biden is hellbent on spending to the moon. In addition to trying to push through the exorbitant Build Back Better plan, he’s also reportedly begun pushing for more COVID relief money.
The effect has been predictable:
🚨 BREAKING 🚨 Inflation just hit 7%—the highest rate since 1982.
This trend isn’t “transitory,” and it’s all happening under Democrats’ one-party control. pic.twitter.com/GfEhPQ67xy
— Kevin McCarthy (@GOPLeader) January 12, 2022
“The biggest take-away is that by adopting pro-growth policies, such as less regulation, sound money, lower tax rates, reduced union power, and higher defense spending, the participation rate rose quite substantially under President Reagan,” according to Laffer.
“‘By adopting the opposite of those policies under Obama and Biden, the participation rate has been declining by as much as it rose under Reagan. In direct contrast to the Reagan years, the policies followed over the past two decades are the polar opposite of Reagan and the results are polar opposite, as well.”
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