The U.S. economy is the best it's ever been.

Dr. Arthur B. Laffer speaks to the USC Economic Outlook Conference

- Dr. Arthur B. Laffer

By John Temple Ligon

Temple@TheColumbiaStar.com

In December 1974, when Dr. Arthur B. Laffer was an economics professor at the University of Chicago and a consultant to Secretary of the Treasury George Shultz and President Ford's Chief of Staff Donald Rumsfeld, he and Rumsfeld and Rumsfeld's deputy Dick Cheney had dinner in the Two Continents Restaurant in the Washington Hotel in Washington, D.C. With them also was Jude Wanniski, associate editor of The Wall Street Journal, who recorded the event. The Washington Hotel is about a block from the White House and across the street from the Treasury Building, which was designed by South Carolina's Robert Mills.

The dinner discussion included President Ford's WIN (Whip Inflation Now) proposal for tax increases. Laffer laid out his napkin on the table and sketched a curve illustrating the trade-off between tax rates and tax revenues. The "Laffer Curve" showed how a reduction in taxes could generate a rise in tax collections through stimulating an expanding economy.

The Laffer Curve was not invented, actually, by Laffer. Laffer openly admits he was familiar early on with something similar by John Maynard Keynes, the British economist who negotiated Britain's position in peace conferences after both WWI and WWII. He warned against the draconian reparations the winning team imposed on post-WWI Germany, and he was an author of the Bretton Woods monetary agreements of 1948.

As Keynes put it: "Nor should the argument seem strange that taxation may be so high as to defeat its object, and that, given sufficient time to gather the fruits, a reduction of taxation will run a better chance than an increase of balancing the budget. For to take the opposite view today is to resemble a manufacturer who, running at a loss, decides to raise his price, and when his declining sales increase the loss, wrapping himself in the rectitude of plain arithmetic, decides that prudence requires him to raise the price still more, and who, when at last his account is balanced with nought both sides, is still found righteously declaring that it would have been the act of a gambler to reduce the price when you are already making a loss."

Laffer was a member of President Reagan's Economic Policy Advisory Board (1981-1989) when his Laffer Curve influenced the 1981 Economic Recovery Tax Act. The top personal tax rate fell from 70% to 50% when the Dow Jones Industrial Average was below 800. Now it's above 12,000.

While at the University of Chicago, Laffer was one of the "Chicago boys" who helped Chile rewrite its economics plan, to include private accounts as part of the country's social security.

Laffer was in Columbia last week at USC's 26th annual Economic Outlook Conference in the Marriott. An eternal optimist, Laffer said to the Columbia audience the U.S. economy is the best it has ever been.

Laffer's appearance was sponsored by Darla Moore, as in the Moore School of Business at USC.

Asked about off-shore oil exploration near South Carolina, Laffer warned the audience adequate oil supply must be maintained to recover from oil price shocks such as the ones in 1973-4, 1979-81, and most recently, the hike to $70 a barrel. Pursue alternative fuels, he said, but don't forget an oil economy will always need more oil.

According to The Wall Street Journal, November 17, "Mr. Laffer is surely the most irrepressibly ebullient practitioner of the dismal science of economics alive today, maybe ever. Mr. Laffer, famous in part for cutting down economists, pretenses to ideas anyone can understand, had an answer for the boo-birds of Reaganomics: Almost alone, the United States since those tax cuts has managed to remain both a growth country and a developed nation."