EntreLeadership - #213: Dr. Arthur Laffer —A Return to Prosperity

Episode Date: July 17, 2017

Dr. Arthur Laffer, world-renowned economist, father of supply-side economics, and advisor to President Ronald Reagan, joins us for a unique conversation on what makes an economy thrive and what makes it dive. He also shares his memories of the late president and what you, as a business owner, can do to prosper. Host Ken Coleman also answers your questions. entreleadership.com/podcast Dr. Laffer Bonus Resources Summit 2018 Send Ken's Mail to: Eric Cieslewicz 1749 Mallory Lane Brentwood, TN 37027   Learn more about your ad choices. Visit megaphone.fm/adchoices

helping business leaders grow themselves, their team, and their profits. This is the Entree Leadership Podcast. Now, here is your host, Ken Coleman. Broadcasting from the Music City, this is the podcast of leaders, by leaders, four leaders. Thank you for joining the conversation. Our feature conversation in this episode is with Dr. Arthur Laffer. Now, if you don't know who he is, here is the bio line that you need to know. This guy is a world-renowned economist, father of supply-side economics.

That is the Reaganomics that you have probably heard about. He was a friend of Reagan's and then became an advisor to Ronald Reagan. We talk about that in the conversation. And here's why this is important. We say all the time that you, the small businessman and woman, are the backbone of the American economy. And if you're going to thrive in this economy, you need from time to time to be thinking, What has happened in the economy? What makes our economy thrive? What makes it dive? Well, we're going to talk a lot about that, so it's great stuff. We're going to get into Ken's Electronic Mail, and of course we have our free resources. Before we get into that, a big thanks to Mashable. Mashable is a, I guess you would call it a cultural news hub. Mashable certainly has all types of news, and they have 28 million people following them on social media, and we were recently featured as one of of three podcasts that will help millennials take over the world.

So that's nice. So we appreciate that. I wanted to give a shout out. I guess we were number one. Will the engineer is looking at me through the glass scene. We were number one of three. So there you go. We'll have a link to that article in this episode, show notes, episode 213.

All right, folks, our feature interview is with Dr. Arthur Lafers. I said at the top of the podcast, and this is so fun because we actually took the equipment on site, on location. We went to his offices in downtown Nashville, right around the corner from a great coffee shop. Can't remember the name of it? Fantastic cup of coffee before we started. Went in, this guy is a real treasure. Great personality. So the team had it all set up.

We walked in there. He brought in a bucket of popcorn and ate it during the interview. So it's just a lot of fun. Here we are in Dr. Arthur Laffer's office in downtown Nashville. Well, folks, this is a special treat. I'm sitting with Dr. Arthur Laffer. And for you, non-political geeks of which I am, this guy is one of the most respected economists from the Reagan era of respected economists, period. But I want to pull this out because I want to start here before we get into some great issues that will really help our audience.

You've been called the father of supply-side economics. Now, again, for you non-history buffs, a guy by the name of Tip O'Neill, who was the House Speaker during Reagan's presidency, turned that supply-side economics into a term of derision. He called it trickle-down economics. I've used the term trickle-down leadership on this podcast, I think that's a good thing. He meant it is a bad thing. But let's start. What is supply-side economics,

and why was O'Neill trying to call it, trickle-down economics? Well, you'll have to ask O'Neill, and for that, we need a Ouija board. That's true. He's no longer with us. Long since gone. That's right. But trickle-down economics or supplies that economics, it's just basically economics. People respond to incentives.

If you make something more attractive, people will do more of it. If you make something less attractive, they'll do less of it. And frankly, government policies affect the attractiveness of activities. It's the silliest one, but the most obvious one. If you tax something, you make that less attractive and people will do less of it. And if you subsidize something, you'll make that more attractive and people do more of it. And, you know, it's basically, just to sort of do it clearly, if you tax people who work and you pay people who don't work, do I need to say the next sentence to you? not makes sense. It ain't rocket surgery, as Larry Gatlin says. It just ain't

common sense. If you tax rich people and give the money to poor people, you're going to get lots and lots of poor people and no rich people. The dream I've always had up America is to make everyone rich, not to make everyone poor. That's been mine. You have two locations, A and B. You raise taxes in B, and you lower them in A. Producers and manufacturers and people are going to move from, two. It's just common sense that people respond to incentives and you change their behavior as a result, and that supplies that economics. Now, that is also what's called economics.

Yes. It should be everyone's economics, but there you've got some people who believe that you can tax an economy into prosperity. That's right. How's that for something in an econ one that you'd get flunked out for? The other one I love is the ones that they believe that poor people can spend themselves into wealth. If that's not the dumbest notion, I don't know what is, but if they were in my classes, they wouldn't have made it. That's right. So when we think about this term, and we go, okay, this is common sense. The supply-side economics should be economics. We go, this makes total sense. Yet there are, and I'm not trying to be political, but I want you to just take us behind the mindset of people who don't agree with that. It seems so sensible. Yet people go, no, that doesn't make sense. Why do they believe that? Well, because they construct an alternative model. Let me give you an alternative. I'll give you one example. It was 1982.

I was in the White House. The president came up to me in the Roosevelt room and said he'd just been talking to Marty Feldstein and Marty Feldstein suggested that we get rid of the third year of the tax cut to make the economy boom. He said, let me tell you what Marty said, Arthur. And I said, sure. He said that if we get rid of the third year of the tax cut,

we'll have a smaller deficit. If we have a smaller deficit, there'll be less government borrowing. With less government borrowing, there'll be more room for private. private borrowers in the capital market. So it will be less crowding out. Interest rates will fall, all right, as a result of that. And there'll be lower hurdle rates for investments with lower interest rates. They'll be lower mortgage rates.

So there'll be more home buying. There'll be more investment. And that times the multiplier will give you more output, more employment, more production. Now, that's exactly what he said that Marty said to him. And therefore, Marty concludes that we should get rid of the 30 of the tax cut. And my comment back to the president, any thoughts? And I said, well, yes, sir. Let me see if I can restate his argument.

What Marty said is that if we raise taxes on workers and producers, there are going to be more workers and producers. Is that right, sir? Is that what he said? He said, thank you, and walked away. But, you know, this is what happens with economics. It becomes sophistry. It becomes a series of partial derivatives, not looking at the aggregate.

And that's what they all do. You know, you lose all the discipline of a pricing system, and a pricing system tells you what to produce and what not to consume. I mean, if the price goes up, we want to produce more of it. And if the price goes up, we want to consume less of it. That's how bring us back into equilibrium. I want to take you back. Okay.

Take us to the early days right before you met Reagan or the opportunity to work for Reagan in the White House. Were you on the campaign? How'd that all come about out? Well, I was on the campaign, but I never worked for Reagan, just so you know. Okay, you're just an advisor. Yeah, but why don't you get a paycheck from someone? You're an employee. That's right.

And then you can't be, I mean, you can't be honest. You are an employee in my job then. is to make him look good rather than to tell him the correct story. And there were a number of times you can probably see him. I'll hear letters that he wasn't real happy with everything I told him. But that's my job. I mean, and the way I met Reagan was my godfather was a guy named Justin Dart. Justin Dart happened to be Reagan's best friend, head of the kitchen cabinet.

I tell everyone that Reagan picked me on a, I was on a stage of economists. He got all these economists and he looked out there and put his glist. glasses on and he goes out there and says, oh, I'll take that little short fat one over there. That's not the way it actually happened. Right. Sure, sure. It actually happened because I happen to be socially. I've known him forever. And privilege is always a far better way of getting a job actually having to work for it. You know what I mean. You know what I mean, don't you? Yeah, there you go. Absolutely. So that's the way I've worked with Reagan. And knowing him that way, we get to be conversant. He feels comfortable with me. And 76 I was involved.

with them. I was involved with way before that as well. But, you know, when you see someone socially and have dinner, and it's much easier to talking with them and you don't feel uncomfortable. And so I'd have lunch with him maybe once a month or so during between 76 and maybe 80. I didn't, I mean, after 76, I didn't think he was going to be. Right. I mean, it was just a very nice, pleasant lunch the two of us would have over at the Beverly Wilshire. It's the public area and we'd have lunch together.

And we'd have lunch together and he'd come in with paper clips on magazine articles and talk about this. How can that guy say that? Just like your first question about Marty Feltz. Exactly. Exactly. How does it make sense? How can they say what they say? Right.

And when you hear them say what they say, you know, it has this ring of truth to it. But, you know, it's really weaving the tapestry of the big lie with threads of partial truth. And these partial truths when put together really causes a problem. So you meet Reagan, you know him personally, and then he wins the nomination in 80. And obviously he wins the presidency. He comes in. And it's night and day from the Carter era. Obviously, the economy's in the absolute tank.

You can go do your history on that. That's not a political statement. That's a fact. And he comes in. I want you to describe what you observed. Let me first describe. You're right about the economy being in the, tank, and that's true it was Carter.

But it's not Republican. The four stooges I like to refer to as Johnson, Nixon, Ford, and Carter, the largest assemblage of bipartisan ignorance ever put on planet Earth. It's not Republican. It's not Democrat. It's not liberal. I agree with that. It's not left wing.

It's not right. It's economics. You know, you can be Kennedy with the tax cuts and the growth. You can be Clinton and have a beautiful economy because whether he meant to or not, he did the right things. And with Reagan, involved with Reagan, The coolest thing about Ronald Reagan, if I can say, there are so many people who sort of worship. He was born in a manger, a light shone down, and his mom and his dad's recognized it.

You know, there are all this. The coolest thing about Reagan, he isn't a God. No. The thing is, he wasn't blessed by some beam of light on him. The thing is, here is a man, mortals as you and I are, who learned and who really made a difference in his life. before he was governor of California as an actor. He got involved in AFRA and SAG, which are the two major unions in the entertainment industry.

He not only got involved with the union, he actually went up the ladder to where he became president of the union. He not only was president of the union, he was the first president of the AFRA and SAG union that was aggressive and violent and called a nationwide strike against the movie producers. This doesn't sound like a right winger to me. That's right.

And then when he came off, he then ran for governor. Now, he was evolving there. He saw a lot of the problems of what we call the left. It's not the left. It's just bad economics. Sure. He saw a lot of those problems there. He ran for governor.

As governor of the state of California, he raised the personal income tax rate from 9.2 to 11.3%. Did you know that? He raised the capital gains tax from 9.2 to 11%. He raised the corporate tax rate from 9% to 11%. He was the biggest social spender of any governor in the state of California up until that time. He chaired. Now, he didn't just support the Equal Rights Amendment.

He chaired it in the state of California. And he personally, through his own legislation, eliminated the anti-abortion provisions of the state of California. He was the pro-choice governor of the U.S. at that time. who could believe that that man could become the greatest president. It's because as he went, he saw. I used to tease him, and I said, you know, sir, as governor, yeah, I know, I know, as governor. I wasn't very good. I know that.

But darn it, I was better than those other governors. At least I learned from my mistakes and didn't do it again. Those other guys keep doing it over and over again, expecting different ones. The coolest thing was when Reagan took office in 1981. He wasn't hooked on supply. He ran on a tax cut. In 1976, the tax cut he ran on, they asked how he was going to fund it. First place, it was a $90 billion tax cut, not a 30% cut.

Big difference in how you talk about it. Well, that's true. It is. And I'll come back to these. It was a $90 billion tax cut, asked by a reporter how he's going to fund it. He said it by cutting out waste, abuse, and fraud. That was 76 in New Hampshire. In 1980, they asked about his $90 billion tax.

He said, no, no, it's a 30% cut. and that'll create more growth, more output, more employment, and there won't be the deficit. Do you see the difference in the way he looked? And then when he came into office, he had second thoughts. You know, we looked at Kemp Roth to push Kemp Roth through, and everyone said he proposed Kemp Roth, but it wasn't Kemp Roth. Kemp Roth cut the highest tax rate in America from 50% to 35%. That's a 30% cut in that rate.

He did not cut the highest tax rate on earned income. He did not. He shifted the brackets out. But didn't lower them. But by the 86 Tax Act, the skies opened. The sun shone forth through the clouds under the fields, and the fields they turn green. The animals, they multiplied.

The trees blossomed and bore fruit. The children danced in the streets. Are we at after Noah's Ark right now? That's what happened. Okay, all right. And all of a sudden, the 86 Tax Act, we cut the highest rate from 50% to 28%. Come on, is that a good enough cut in the fat cat riches?

Massive. And then we cut the corporate rate from 46% to 34%. Oh, are we not feeding those fat cat riches just totally? And then we raise the lowest rate. Oh, you'd just be a low-income earner. See, we'll treat you. We raised the lowest rate from 12 and a half to 15%. But now what we really did was we went from 14 tax brackets to 2, 15 and 28%.

All right? And we got rid of all these deductions, exemptions, exclusions, loopholes. all that junk, and made it exactly revenue neutral. That was Reagan's bill in 86. Guess what the vote was in the Senate? I can't remember. 97 to 3. Every liberal voted with us.

Alan Cranston. Al Gore, my name. Why? Because they knew it was the right thing to do. Right. And they know it now. Yeah, three Senate votes to vote against it. Simon from Illinois.

11 from Michigan and I think Merckley from Montana. But, you know, Alan Cranston voted for it. Howard Metzenbaum for it, Bill Bradley voted for it, Ted Kennedy voted for it, Joe Biden voted for it. You know, all of them. Schumer voted for it. Harry Reid voted for it, Barbara Boxer voting. I mean, and the reason they voted for it because it's the right thing to do. And we'll get to that position again. Don't ever lose faith in that. How did that affect the small business? Everything was positive except for the unemployment and the welfare workers, not the welfare mothers. The welfare mothers did really well. It's the welfare workers lost their constituency.

because there were no welfare recipients any longer. They all had good, high-paying jobs. Did you see what happened to employment during our period? Go look at it. Go look at the stock market. From August 14, 1982, to the end of Clinton, stock prices were up in real terms. Now, this is by 771%. Stock prices.

In nominal terms, it was up 1,340%. But if you have to look at real terms, I mean, that's a boom. I want to get to that. We're going to get back to that. But I want to ask you about Reagan's leadership. One of the things you just discussed was all great leaders continue to learn. They're not stuck in their world. What else was he great at as a leader?

The way he learned is the way academics know how to learn. The way you have to learn is if you can't give a lecture on a topic, you don't understand it. If you can't write it down, you don't understand. If you hear someone say something, you think you understand it. But the only way you know you understand it is if you actually have to explain it back to someone, or write it. That's right. And Ronald Reagan had this habit of writing all the time.

You look at those books. Reagan in his own hand, he's writing thousands and thousands of words every day on these subjects. And by writing it down, he thinks it through carefully and really learns it. And that's what I did with my students. You know, you make him do a final exam, not to find out if they know something to make them learn it. Right. And that's the key to this whole process. And that's what he did.

None of these other guys sit down and write. I mean, if you'll notice the papers I do here, I write nonstop. That's how you learn something, and that's how you transfer the knowledge of someone else. But they got to write it back at you or they don't know it. From your observation as a leader, what did you see that he did so well as it relates to, I don't like the word compromise, but he did it in a way. Like he was able to collaborate, compromise, and still get big initiatives, done and a lot of times business people have to maneuver.

What did he do? I wouldn't. You know, everyone says that about compromising. Not as, no, no, no, I know what you're saying. But I know what you're saying too, and I'm going to try to put it into Slate a different way. You know, there are different ways of viewing the world. Right. And there are different constituencies out there.

And, you know, what you want to do is bring these people into the big truth, the big process. And he was able to do that very well. He never made it a personal issue. in public. Every now and then in private. He never was mean. But you know, you always treat the other person with respect, with dignity, and with humor.

And it's the winner. You'll never see me on TV ever being hostile about anyone. Whenever you fight, you always lose. You may not lose as much as the guy you beat the hell out of. Okay, you may not. But you lose nonetheless. Just because you saw it someone doesn't mean you've got. convinced them. Debates and wars don't work. Sit down and talk with people. We're all humans.

We all want. But once you get that, it's over. You've lost everything. And Reagan never, ever did that. I never saw him get mad. No, I knew on several personal occasions that he did not appreciate what I had said to him. But he never yelled at me. He never was abusive. I've never never seen him do anything like that. He always was gracious. And that is a key to winning. I don't know of anyone who didn't like him. Right. Even his arch enemy, Clark Clifford, who, I mean, you know, I hate to go back in time, but this is a guy who was finally convicted of criminal fraud and banks, and he was Secretary of Defense for Democrats and Secretary of, you know, he referred to Reagan as an amiable dunce. I mean, at least.

least he had the amiable right. But, you know, this type of stuff is Reagan never once lost his cool, never once lost his sense of humor, never once lost his sense of respect for you. And he had plenty of opportunities with me to lose all of this. And he didn't. Now, I did see him a couple times, be serious with people and did his sternness, but not often. It was always winning you, bringing you on. He wanted to convert you not to kill you. Yeah. All right, now I want to to tee you up. You've really been talking all around this, and I want our small business, entrepreneurial audience to hear from you. They're sitting out there right now. They're working hard. They're going after it. The capitalistic dream very much alive, and they're winning. We see

this all the time. When Dave and I are traveling around and we meet him at events, they're winning. Yep. So besides their vote and activism, from an economist, what can they do to help turn the tie here? Just a very simple thing is, you know, people deserve the governments they get. Yes. And you know, you may not think you need to work for government to work in the political process, but I'm going to tell you, when government is 35% of all your resources go to government, you better be involved. Yeah, that's exactly right. I mean, it is. State and local, federal, and get in there and get involved. And don't be a heck. Don't be a slogan slinger. Try to get in there and understand it and work with it.

And, you know, again, work with these guys and try to explain it to them. And if you're an assemblyman or a congressman as state legislator here in Tennessee, you know, you're probably not a Ph.D. in physics. You've got a part-time job. It's low pay. It's, you know, treat them nicely. Talk to them. Explain to them. And, you know, you're going to lose a lot of the time, but you're going to win a lot of the time. And you'll win a lot more if you actually talk to them, try to explain to it. Then if you go in, and sometimes, just saying, sometimes you may even learn something from them. Shock, oh, shock. Communication there.

Now, why I am totally against embargoes on countries, North Korea included, Cuba, Zimbabwe, once you embargo, you've hostileized the people forever. If you're trading with them and talking with them every day, you can learn from them and they can learn from you. And, you know, there's nothing like a person who makes you money. Right. Well, I want to ask you this because I'm a big-time conservative. Okay, the audience knows this. But I always was against the Cuba embargoes well, because I felt like capitalism, if we were to unleash it in that country, would be the single greatest factor in overthrowing it.

Am I right? Yes, of course, you're right. Why? Explain that. Well, because what you do when you trade, you get people to negotiate and work and give things goes. You realize, hey, I can actually make some money. Can you look at North Korea today and you can see the exact consequences of embargoes? Yeah.

You've got this horribly hostile, primitive regime of this kooky weirdos, God knows what, catcher. in the Rye person. It's just the weirdest thing ever because we embargoed them because we didn't let them interface with the world. Same thing with Castro. Same thing with all these things. Because isolation breeds that. Yes. And isolation and deprivation, especially.

Oh, all you need to do is get poverty and you can get a dictator to take over quickly. That's right. You get prosperity and rich people don't like dictators. Poor people really love them. That's a mouthful. If you get nothing else out of this entire conversation, that's really it. That's why I'm always against these things. I'm

against embargoes and I'm against taxes. Not really. We need taxes, but we want a low-rate, broad-based flat tax and not discriminate against the rich. The dream in America has always been to make the poor richer, not to make the rich poorer. Yeah. So you would be a proponent in these business people, I want them to hear this. Flat tax is, in your opinion, the best way to go. Oh, yeah, totally the only way to go. We don't want people sitting out there arbitrage in the tax codes. That's right. You don't. You want people to pay the same amount, cross the boards, it's fair. You make 10 times as much as I do. You pay 10 times as much as I pay taxes.

From the first dollar to the last dollar. Yeah, and that speaks to what we hear from the left or the liberals a lot, which is pay your fair share. On a flat tax, you can make the case, it is their fair share based on what you just said. Fair is a funny word. Well, yeah, it's a ridiculous word. Yeah, anything other than someone else, fair is always whatever I say it should be. That's right. But when you talk about other people, you know, you impose some sort of value system on them.

I like him, I don't like him, so fair as he gives his money to him. I mean, you want to have it so the tax codes. Let me explain to your taxes if I can. All taxes are bad. Some are worse than others. So what you want to do is you want to collect your revenues in the least damaging fashion and spend your monies in the most beneficial fashion. and when the last dollar of money spent is a little bit less benefit than the cost of the last dollar in taxes collected, you stop already.

That's where government is exactly where it should be. Anything above that's bad, anything below that's bad. But the problem, the reason it always goes above that is because politicians do not bear the consequences of their own actions. They're spending other people's money. And it's really easy to spend other people's money. Oh, I think that should be good. That should be good. So how do you solve that problem?

You ready? Mm-hmm. You put them on commission. Okay. You may compare the consequences of their own action. If you country grows at 3% GDP, you get your payroll. You get your check. If it grows at 4%, you get double.

If it grows at 5%, you get triple. grows at 2%, you don't get any pay at all. We're talking about the congressional salaries. Yeah, you get 1%. You owe the government the salary. you should have gotten if you had grown a 3%. I'll tell you, these guys would never be as dilettanish and silly as they are now. That's right.

You can see incentives matter with politicians. That's right. Two companies, Company A and Company B. Company A, officers and directors of the company have fixed salaries. They own no stock and have no stock options. Company B, same as Company A, except the officers and directors, all have very low pay and have stock options and own a lot of stock. which one would you rather invest in?

There you go. Who wants to do this country? You've got to put them all on commission, period. I don't agree with anything he ever said except for one phrase. And I think it's a wonderful conversation starter for our audience. He used to say that all politics are local. And I think he's absolutely right. I would suggest, I don't mind if you disagree with me,

but I would suggest that the local municipalities and the state governments are more important. to our small business audience in many ways than the federal government, meaning they can make gains there. I think they have more effect on their day-to-day business than the federal government. Do you agree with that and then maybe teach on that? I don't mind if I'm wrong. No, no, no, no, no, don't assume that my answer is wrong. Well, when I see the economists go like this, I get a little worried, I said so they're all, important. They're all important. They're all important. The federal income tax is pretty important. Well, of course, but I mean, how can they engage, what I'm trying to drive at is from an economist,

How can they engage with their local municipalities and the state governments to help them win in their business? Well, that's what they can do. They can go in and go in and run in campaigns and do all that stuff. I mean, that's what does a politician like more than anything? Getting reelected. Thank you. If you help get the politician reelected. That's right.

You know, I remember this, do you like Blue Bloods? Oh, I love it. It's my favorite show. My favorite. This one policeman was asked, what's this weapon of choice? he said a $20 bill. $20 handshake? You get more done with a couple of bucks than you can with a gun.

Right, that's right. And the thing is, you know, I once was told by Rudy Boschowitz, he asked me to support him in the primary, and I did not support people in the primary. I said, no, but then one of my clients called me and asked if I'd support Rudy Boschwitz in the primary, I changed my mind. Well, hey, it's my life, too.

But he's a great guy, and he said that, Primary money shouts. That's right. Helping someone in a primary, that really, really does a lot of good. And get out there and work for them and talk to them. And let them, you know, don't lobby them in the sense of getting them to do something wrong for you. That's right. Get them to do something right for the country, for the district.

Right. Because jobs, if you as a small business are creating jobs as a result of maybe them with policy decisions helping you do that, they get to tout that and it's back to what do they want more than anything else. My career. I mean, I was a professor at the University of Chicago, and I had a lot of students. And to me, I got a bunch of my students, maybe five or six of my congressional staffs. But, you know, you go into the congressional officer, and if you demand to see the congressman or the senator or the president, you're not going to get anything done. But if you talk to the staffers, if you work and explain it to the staffers, that's much better than going right at the top.

In fact, it really is. It work your way through and try to. and make it logical. That's what I do. Yeah. I consider myself the premier staffer of the planet. I love that. And you said something earlier that we can get there again,

and there's some positivity there, and it's not Pollyanna. It's, I want to make sure these folks hear from you on the reality that the power they have as people who are creating jobs, job creators have power with our politicians, and they can drive it. It's a bottom up, not a top. Yeah, well, let me just tell you if you're a job. creator. Make sure your employees are thinking this thing's true clearly. That's right. I mean, Phil Graham said it beautifully once. He said, I've never been hired by a poor person. It's true.

And Jack Kemp put it in a way I liked. He said, how can you love jobs and hate job creators? But that's the truth. And, you know, what you want to really make sure you do is your employees understand how much their jobs depend upon good economics. Low taxes for the rich. It's not because you want the rich to make more money is because you want the rich to invest and create more jobs output. And then you go back to Kennedy and say the best form of welfare is still a good, high-paying job. You know, it is. And that's the way you bring people out of power. No one, no one likes living on handouts. Right. Yeah. Not even my grandson is a year old. I mean, he takes handouts and my daughter would not. But, I mean, he doesn't treat her especially nice because

throws the food on the floor. You know, it's handouts, and handouts are not attractive at any age. That's right. Now, you take them, but only because you need them. All right. I'm so excited to ask you, I can't wait to let you just go off on this, okay? Because this affects a lot of our audience, minimum wage. There's always a fight.

It's never necessarily going to go out. I've got a paper on that, if any of you would like to see that paper. Can we provide that for our audience? Oh, yeah, sure. We'll do that. This is fantastic. That's why you got Chris here? Because this is something that small business owners are fighting all the time.

Yeah. And what you find is the minimum wage, of course, affects people who make below the minimum wage, which is usually not the chairman of the board of General Electric. It's not where. That's right. So it basically is people who are just starting out in life or people who have less skills or who have maybe some personal hangups or something like that that make them not as employable as other people, handicaps or whatever else.

So what the minimum wage does is makes it so those people can't get jobs. And what you'll do is, you know, let's say a person at a McDonald's, at a minimum wage, you can have two of those people working there for the same price as one person up here. But then all of a sudden you raise that minimum wage and all of a sudden it's worthwhile getting rid of those two people and putting this one person at double who's not subjected to the minimum wage. And, you know, it creates unemployment reduction of output. And it's very, very selective. It goes right after the weakest members of our society. And I don't mean weakness in the physical sense. Sure.

I mean weakness in the sense of economic power. The poor, the minorities, the disenfranchised. I looked at black teenage employment as a share of population, which is the thing there. And if you look at it at the end of Clinton's era, it was twice as high as it was in 2013 because of minimum wage, bad economy and all that. And, you know, these kids, you know, with the minimum wage, that precludes them from getting the job. After being unemployed for a little while, they become unemployable. They lose all their skill sets.

They develop all sorts of other traits. They live. If you look at some of the inner cities there, you can see the people in there are the chains and the pants hanging down. There is a lifestyle that they get accustomed to, but it's not the working lifestyle that we're talking about. It's an alternative living style there. and after being unemployable for a few years, they become hostile. And then you have to protect yourself from them. And that's the riots in Baltimore and what happened in Ferguson and all those.

Not specifically each one of those, but the probability, the frequency of these things happening, I believe, is a direct consequence of bad economics. Absolutely. And whether these kids, these kids need the first job. And after being employed for a couple of years, they get some skills and then become more employable. They get a better job. And up they go. And that's the way it should be in America. But if you put on a minimum wage, you preclude them from ever getting that first job.

So what's driving that philosophy? The very people who say they care about the low wage worker put bad economic policy in place that ends up penalizing the very people they say they fight for it. I guess my question is, is this a sinister philosophy or is it just dumb? What's happening? I've never, I really want the answer to this. You give me too many choices, sinister or dumb. Oh, boy.

Both. Of course they're... Can I not say insightful and wonderful and wholehearted? Just joking. Is it? I mean, I want to know how you're giving me the altar. You go into Walmart and you see some of these people who have two or three kids and a single parent and working there. It's pretty tough life they're living.

So you ask yourself, you know, don't you wish their wage were higher? And you say yes. Well, of course you do. I mean, they're pretty stretched out. Of course. So Walmart, you should pay them higher. Well, if I pay them higher, I could hire someone. else who does the same job less.

And that, okay, we'll make it a law. And that's sort of the logical extension of what happens. And that's why, you know, it's the same example I use with Marty Feldstein and the present. You know, it's faulty logic. And our job is to sit down with these people. Gotcha. And explain it to them and go through it with them and show them the evidence and make them understand. Let's imagine I made the minimum wage $100,000 an hour for everyone in the U.S.

There'd be no one employed. Right. $100,000. Is that, I mean. But many people would be in the street going bananas. There'd be a three-day national break. No, they'd say they wanted $150,000 an hour. Right, you're right.

The point of making is that you've got to try to communicate and work with people and understand them, not call them dumb. Right. Not call them sinister. Right. Well, no, I didn't call it. I asked you. You came close. Is it sinister?

Yeah. Are they dumb? Are they sinister? Or is it just dumb? All right, yeah. That's fair. That's fair. That's no.

What I want you to do is, want you to say, where is their flaw in their logic and how do we go through it and help them? And see it. And the example I use, I paid everyone $100,000 an hour. Does that not make it pretty clear? And then you ask yourself, have you been to a McDonald's lady? You've been to any of these fast food places? You've got these little computers.

A guy's gone. You've got these machines now that cook 60 hamburgers at a time. They're six by ten squares, and they make that perfect. Right. All this technology replacing these people, which is going to make it awfully tough to bring them back in. That leads me to, I was going to ask you about artificial intelligence. Obviously, technology is now leading into artificial intelligence,

which is a whole other wave, obviously, of technology. And a lot of people are wringing their hands as an economist. This is a reality. Where do you see artificial intelligence? I remember my grandfather and who told me about the, he was this about 1900, these damn, horseless carriages? What about the horse breeders

and the people are going to do that and to make the carry them in with all the... I mean, the oats growers and all... I mean, where are they going to get jobs? Right. Right. That's a really good perspective. Markets have a way. You remember that Jeff Goldblum line in Jurassic Park?

Yes. Life has a way. Right. Economics has a way. When you wake up in the morning and you look out at this universe, It's awesome. Einstein once said it, I thought very well. He said, all my colleagues tell me there are no miracles.

When everything I see is a miracle. When you look at the economy and you stand back and say, how did it happen? I mean, I got popcorn here. Where was the corn grown? What was it? I was salt? I mean, plastic, the rooms, the hair of the car.

I mean, this economy is amazing. For little tiny differences and incentives, you get all this stuff and you get this huge economic development of prosperity. I mean, the economy is awesome, dude, as they say in California. It's just awesome. I'll use the German phrase here, as I ever forgot. Be in awe of what exists. Don't sit there and look at it in order to meddle with it.

I'm going to use medicine here. It's called primam non-nokre. It's first of all, do no harm. You've got your PhD or your MD or your physics degree or whatever it is, and you look at this world and say, what should we do? Take a deep breath and nothing. I mean, first of all, make sure you don't screw it up.

Primum no knock on. Yes, there are a few times. Guys got a big green thing hanging out of his ear, onto the ground. The last 375 people who had those green things out of the ears hanging to the ground died. You know, maybe we should do an operation, but push the numbers far because, you know,

the huge power, of evolution. Evolution in economics, evolution in life forms, all of this stuff. The supreme power of all of that is life has found a way of producing these things really wonderfully. Keep your stinking hands off unless you really know what you're doing and then do it once in your lifetime. Now, I got my PhD because I was awestruck by economics. I wanted to understand it, not to control it, not to get a higher paycheck. My colleagues, almost all of them, came out of poverty to get their PhDs and all they want to do is control everyone else.

My view is exactly the opposite. I want to sit there and say, wow, economics is so way cool. Do you realize what it's done for people? My dream is not to be getting in there. With Reagan, my advice when every set of policies was, don't do something, undo something. Cut the taxes, deregulate. You're a stinking monkey paws off my economy, you dirty apes, as Charlton Heston said and Planet of the Apes.

You know, and that's the truth. The other economists are not that way. Janet Yellen wants nothing more than to do something. These politicians want nothing. What will we do? What will we do? Sit down and shut up and let markets take place. If we'd have never done anything in 2008 with the Great Recession, it'd have been over in six months.

But, oh, no, now we're living with the consequences because of what we did. So had we not done anything in 2008, in six months you say it just kind of cycles out? Well, that's what happened in 2000. We had this market collapse. We had this Y2K. And in six months it was over. Right. You know.

Because human behavior markets take over. There was a redistribution of assets and wealth. That's very true. But the cars didn't disappear. You're right. The people's brains didn't disappear. The clothes didn't disappear. It just was reorganized in ownership.

But once you put in too big to fail, once you put in the things that you make sure no one has losses, Then you create the problem that's going to last forever, and then it does real damage. Then you see the growth in the economy has been kidding because you put your stinking monkey paws on my economy. Too many protections. Too many. No, if you prohibit people from having losses, you also prohibit them from having profits. And by prohibiting them from having profits, you stop the whole process of growth. Wow.

You know, it is a profit and loss system, and you're allowed to lose money. It's right. It is nothing. You know, everyone who loses money wishes they hadn't, and everyone who loses money is so self-egotistical that they think the only reason I lost is because someone else stole it from me. But that's not the truth. This is a competition world.

So what do you see? Give us a little bit of a forecast. What do you see good? What do you see bad over the next? Oh, I see the big changes come. Is it the world? Sooner a lady wakes up. I mean, you know, I watched this process.

You know, I've been to this barbecue a couple times. Yes, you have. And you know, you watch it and you see, and we get really rich and prosperous and everyone gets up there. And then they start feeling sorry for other people and magnanimous. And they start redistributing other people's money. And finally people say, hey, wait a second. I don't have anything. I want a job.

And then they go back to free markets. And that's what happened with the election. If you saw my piece, I wrote in June, I think it was, of 2016 on why Trump was going to win the election. If you look at it, it's the economy. Stupid. James Carbell is correct. Right. It's the election's bubble.

up. You saw what happened in the House elections and the State Senate elections, and then you saw it in the U.S. House, and then you saw it in the U.S. Senate. You knew it was going to hit the top. You saw it and turned out in the primaries. You saw what that was going. That's what I did in my paper there. It's a classic response. And now we're going to have a big boom. And it's going to be a good, nice, wonderful, long-term boom. U.S. and in about 16 or 17 years or so, they're going to again, and they're going to do the same problems again. You'll get the, And then... Why do you see a boom right now? Oh, because when you're lying flat and you're back on the basement floor, you don't have much problem falling. I got you. Right. You know, and once it starts, it's got a force of its own.

Yeah. It creates a life. Once you get the tax cuttings, I talked about the Senate vote. You know, once you get this, I want to get a text too. And they all go and you read their press releases. They all understood it. And then we get to the next period. And then they go back to their old thinking.

Do you see the ACA ever truly going away or have we stuck with some iteration of it? You know, these things don't go away. Right. They don't in Washington. But let me just tell you that they get mitigated dramatically. You're a young man. Yes. 1984, you were 10 years old.

Yes. Thank you for saying. I made my day. They ruined mine. Let me just say this in 1946, the highest marginal income tax. tax rate in America was? 92 and a half percent. Whoa.

Whoa, dude. Is it that high now? No. Is that improvement? By the way, just so you know, back then, just like now, it had to pass the House and the Senate and be signed into the laws by the president.

Can you imagine the debate back then between the conservatives and the liberal? All right, all right, all right. Hey, I'll go along with 92.5%. But 95% that's gouging. Yeah, but 90%? that's a giveaway to the fat cat riches. I mean, that's what the debates were.

It's crazy. You know, what you've seen is this evolution, we used to have blue laws in the United States where you couldn't operate a store and we had retail price maintenance programs in this country where you couldn't sell a product as a discount. There were no discount shop. It was illegal to have a Walmart. Any of these stores.

You couldn't work on a Sunday. I mean, and I could go, unions in, what was it, 1980? unions, everything was unionized. Now they're gone. You don't even hear about you. So don't think we're not making real progress. We are. That's good.

But we have, you know, we go three steps forward and then two steps back. And we're about ready to go three steps forward again. That's good news. To our audience, a lot of small businessmen and women, a lot of personal growth junkies. I hope all of you small businessmen and women become big businessmen and women. I want you to grow out of your small business person. perspective and create lots of jobs and lots of wealth for yourself and others. And if you were going to sit down and have lunch with every one of them, okay, in a magical world,

and you could sit at, what would you say to encourage him? Would you pay with the bill? Did you see my Dune'sbury? Did you see my cartoon out there of Dune's very? Oh, well, Dunezbury said, he's a Yaley, too. He said, he was, I don't know if they should ask Arthur Laffer. He said, you know Arthur Laffrey? He said, oh, well, yeah, I did.

I was there at the restaurant when he did the famous thing. He said, you were there? Well, I wasn't at the table with him. I was at the next door table, but I could see they were all very excited. And if they all did that, and oh, by the way, he left and he stuck him with a bill. I love that. It's so cute. But, you know, the thing is, you know, work for what you want.

And at a 50% tax rate, you're going to be spending 50% of your time trying to reduce your taxes. And 50% of your time trying to grow your business. The lower those taxes are, the better off you are. It should be a low rate, broad-based, flat tax. You know, and if you want to help someone write them a check, have the government write them a check so it's transparent, so you see what it is, and make sure politicians are all put on commission.

But if there's one thing I can make, please get merit pay for politicians and that they lose their pay if they don't deliver, and they owe us money if they do even worse than that. Carrots are wonderful, but sticks really motivate well, to believe me. If you're going to lose your money, there's nothing that is more terrifying in investing in something you're having to go under. Is there? That's good advice. But wait a second. They told me it was going to do well. Right. Right. That's exactly right. Welcome to the real world. That's the issue, the real world. They don't live or operate or lead in a real world.

And what these folks do. Yeah, but they, you know, they understand. And by the way, and it's, we all want to make money. But you know, it's the differences in view. and the investments and where we work and stuff like that. When I got my PhD in economics, I never envisioned doing what I'm doing now and being advisor to prime ministers and presidents of countries. I mean, I just loved economics. That's all I just why I did.

I wanted to sit in a university and research. Give us the summary of the day-to-day activities in this office, the type of things you're doing. Obviously, you do media hits like you did today. You're also advising friends. What all are you doing as a publicist? The real stuff I do is I'm a good staffer. Okay.

And I don't mean that to be pejorative or to underplay my role. I'm not a president of a country. I'm not a senator. I'm not a congressman. But I know how to organize thoughts. I know how to get them there together. I know how to outline the arguments correctly so they can see the total one. You saw the example I used with Marty Feldstein there and that.

It's exactly that. The tax bill, you know, that we're talking about the corporate tax. Yes, it's true. If you cut the corporate tax from 35 to 15%, that will be a $2404%. That will be a $240 billion static revenue loss. But what you'll also see is there'll be less tax sheltering, which will much more than offset it. There'll be changes in corporate business forms that will work in the opposite direction.

There'll be less evasion of taxes, and that's shown to be a huge effect. There'll be more economic growth, which will create more jobs. Businesses will come back to the U.S. Because we're the highest tax rate at 35%, at 15%, will be the fifth lowest in the world. So there'll be no more inversions going there. be coming back here, that $3 trillion will come home there. And then we'll have revenues, secondary and tertiary and quadrenary revenues from people's payroll taxes, income taxes, sales taxes, Medicare. I mean, all of those will come back in. And then lastly, I mean, you know, not only will

we have less sheltering, we'll have changes in different corporate business forms, not only less evasion, we'll have more output, we'll have movement of resources back into the U.S., will have more secondary, but also state and local government. Let me just give you one sort of shocking number to conclude. If the Obama recovery had been as strong as the Reagan recovery, all right, state and local governments in 2016 would have had 581 billion more tax revenue in that year alone. Let me say that again. if the Obama recovery had been the same as the Reagan recovery,

tax revenues per year at the end of that in 2016 would have been $581 billion more state and local tax revenues. I mean, and you don't think the corporate tax pays for itself? Don't be a Yahoo. Corporate tax payment will pay for itself. There's one thing that brings in revenues in this country, in practical terms, economic growth. If real growth goes up, tax revenues go up like mad,

even if the real growth is brought about by a tax rate reduction. The base is what you've got to worry about, not about the rates. Yeah, that's right. There's a laffer curve related to this thing. I like that. But it's true. It's really true, and the economists miss it. Tax revenues as a share of GDP have been pretty much constant for the last 70 years.

And tax rates have gone all over the place, but revenues stay the same. People adjust their behavior. High tax rates, they have a lower tax base, and you get lower. revenues so the ratio is the same. That's great. It's all base. And if you can increase the base, you win. Well, Dr. Laffer, I'm so excited about you coming to be with us and San Antonio next year. It's going to be fun. When is it now again? It's May of 2018. Just make sure I'm 77 years old. Don't let it be too long. You're in good shape. It's going to be a lot of fun. Appreciate you, brother. Thank you. Thank you. My pleasure. Thanks, guys.

Well, folks, I hope you enjoyed that. We've got some more resources for you. It's a bundle. We're going to give you two articles from Dr. Laffer. One is the minimum wage is holding our country back. For some of you, there may not be a more important article you need to read right now than this. And then you heard him mention in our conversation that he predicted Trump would get elected due to the economic factors at play. It's entitled Game On.

And then we're going to give you some bonus audio. We talked a lot about the Affordable Care Act. And again, this affects you employers big time. We pulled it out of the general interview and we have put it in a shorter length for you to be able to digest all three of those items in a bundle for you at entreleadership.com in the show notes of this episode. Or we can email it to you. If you want it that way, just text us the word laffer. L-A-F-F-F-E-R. Dr. Laffer's last name, text Laffer L-A-F-F-F-E-R to 33-4-4-4.

3-344, or again, the link to all this in our show notes. Hey, I mentioned that he's going to be speaking at the summit event that has become our flagship event. It'll be our third Entree Leadership Summit, May 20 through 23 of 2018 at a absolutely stunning resort in San Antonio, Texas. Of course, Dave Ramsey, our founder, will be on the stage. He has invited Seth Godin, Donald Miller, CEO of Southwest Airlines, Gary Kelly, CEO of Chick-fil-A, Dan Kathy, former CEO of the Ford Motor Company, Alan Malawi,

former Secretary of State Condoleezza Rice, Christy Wright, Chris Hogan, and myself rounding out that unbelievable lineup. It's going to be great. We want to give you a discount to you fine podcast listeners. Here's how you get it. You text the word.

Summit 18. Summit 18 to 33444-4, or you can click the link in the show notes. Love to see you there. Ken's Electronic Mail. You've got mail. Oh, folks, I love when I hear from you. So a quick reminder, you can email me, comes right to me and Eric the producer and Will the Engineer.

Podcast at entreleadership.com. Podcast at entreleadership.com. Now, we had a lot of feedback from you, a lot of letters or I guess you can't call them letters. Well, electronic letters. Yeah, electronic letters. I would love for somebody to write me an old school letter with a pencil. That'd be even better. We'll have to get the address for you.

It'll be in the show notes if you want to write me a letter. So fantastic. Here's my promise to you. If a bunch of you write me some letters, I'm not going to answer all of them. But I will pick one of them and I will handwrite a response, put a stamp on it and send it back to you. Just for fun. There you go. All right.

So we got a lot of feedback in the form of emails from you on the Mel Robbins episode, The Five Seconds to a Better Life and Business. And so I want to read an email from Evan specifically about this podcast. So thanks for the email, Evan. I'm going to answer your question. He writes in, he says, I recently listened to the Mel Robbins podcast and was wondering if you could provide a little insight

into how you got yourself from an emotional reaction to instead counting down. So I shared, if you're new to us, you didn't hear that, I shared with Mel in the conversation that I wish I had written the book before her, and I would have called it the three-second rule. And we laughed about it, but I have a practice and have had a practice for years

before I start recording live or recording to tape, whether that be audio or video in my head and sometimes out loud, I would say, here we go, three, two, one, and then I would go. And I was verifying and validating that this practice, this five second rule really works because it allowed me to get hyper-focused when I got a million people around me sometimes,

audience watching me, a producer's telling me what needs to happen, And there's a lot going on. And what it would do is it would center my brain and lock me in to its go time. And it just works for me. And so the email, Evan, here, is saying he's going, I know I need to practice this, but I'm having a hard time acting on impulse. And so it's a complex question.

Evan, here's the reality. This practice of 321 for me, or 5, 4, 321 from the book, it just simply works. And if you're not able to begin to make that work for you, then you've got some self-discipline problems. I don't know how else to answer your question. I mean, because you're just saying that I practice it, but I just find myself interrupting and just going for it and getting in there too soon. And that's the essence of your question. You know your brain needs to count down, but your heart just wants to move into it.

So you know what? I love the question. It's why I pick this question. it's not clean, it's a little messy. But Evan, you've got to simply do it. When you do that 3, 2, 1, that's when you've got to act. Don't act before that. Don't act after that.

So you've got to now start working on this. And if you find yourself not being able to do this simple practice, it's a self-discipline issue. You've just got to force yourself to do it. And so that's how I used it. And it's in that moment that I know everyone is. counting on me. And I'm not interrupting the producer ahead of time. I'm listening what all needs to happen. And then I center myself with that countdown and I go. And so you just got to learn to discipline yourself. What is my role? And sometimes you're going to have to listen. And

sometimes you're going to have to wait. And so Evan, that comes with maturity. It comes with self discipline and then it comes with practice. Appreciate the email. Evan. Again, if you'd like to jump in and send you a question, email us at podcast at entreleadership.com. Wow, I can't believe it. Another episode about to go down in the books, but before I do, I want to say a big thank you to you, the listener. On behalf of our engineer Will Rutter and Eric the Proser, we love serving you.

Can't wait to talk with you again real soon.