Arthur Laffer Breaks Down Reagan, Trump, and the True Drivers of Economic Growth

Summary

Detailed Summary: "Arthur Laffer Breaks Down Reagan, Trump, and the True Drivers of Economic Growth"

Podcast: Impact Theory with Tom Bilyeu
Guest: Dr. Arthur Laffer
Date: December 16, 2025
Episode Focus: Deep dive into economic growth mechanics, lessons from the Reagan era, the shortcomings of Trump’s first term, persistent myths about debt, and the future of US (and global) economic stability.

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Episode Overview

This episode brings legendary economist Dr. Arthur Laffer—key architect of the Reagan economic boom—onto Impact Theory. Host Tom Bilyeu and Laffer explore the true levers of economic growth, dive into the effectiveness and limits of tax cuts, analyze the US’s ballooning debt, and examine whether America faces inevitable economic decline. Laffer, now an advisor to Donald Trump, offers an insider’s perspective on policy, while Tom challenges foundational economic assumptions, probing whether the US can escape the fate of empires past. The conversation is vigorous, rich in historical context, and punctuated by both hope and worry about America’s economic prospects.

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Key Discussion Points & Insights

1. Reagan’s Economic Revolution (02:01–04:24)

• Situation in 1981: US economy crippled by 21.5% prime rate, 70% top income tax, high unemployment—what Laffer calls "Collapseville."
• Policy Response:
  • Slashing top income tax rates from 70% down to 28%
  • Dropping corporate tax from 46% to 34%
  • Reducing tax brackets and dramatically cutting capital gains tax
  • Strengthening the US dollar via Paul Volcker
• Impact:
  • Real GDP grew 12% in 18 months (8% annualized)
  • "The US just took off like a rocket ship." (04:01, Laffer)
  • Stock market soared, peace prevailed, and prosperity lasted beyond Reagan into the Clinton years

Notable Quote:
“We reached into that trash heap, we pulled out this platinum thing, we polished it... put it up there. It said, USA Inc. America, Enterprise.”
—Arthur Laffer (04:44)

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2. Debt: Crisis or Manageable Tool? (04:24–12:29)

• Laffer’s Nuanced Stance:
  • Most talk about the "debt-to-GDP ratio" is misleading.
  • Proper measures: debt to net wealth (stock to stock) or debt service to GDP (flow to flow)
  • After adjustments, debt-to-wealth is about 18–19%; debt-service-to-GDP around 4%—high but not panic-worthy.

Notable Quote:
“Debt is just a tool... It’s how the proceeds are used that’s important. If you use debt properly... you can reestablish credulity in the debt market within a couple years.”
—Arthur Laffer (11:33)

• Policy Comparison: Debt was used in Reagan’s era to spur growth, but under more recent administrations, it was used to “pay people not to work.”

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3. Cycles, Collapse, & American Exceptionalism (16:38–38:26)

• Tom’s Concern: History shows empires collapse for debt & money printing. The chart always points up, and populist anger rises as inequality increases (16:41–19:09).
• Laffer’s Rebuttal:
  • America’s strength is its "automatic response mechanisms”—elections, corrections, innovation
  • US systems are more flexible/adaptive than fallen empires
  • Private sector (cryptocurrency, private money) is already innovating to counterbalance federal monetary mismanagement

Historical Context:

• Pre-1913: Private money system operated well—government only defined currency and audited banks.
• Post-1913: Federal Reserve and income tax centralized money, led to recurring inflation and currency instability (19:16–21:41).

Notable Exchange:
Tom: “Every empire... has always collapsed due to debt and money printing.” (02:49)
Laffer: “You’re talking in a very different timescale... you get economies that have automatic responses like elections... you can adjust.” (02:56)

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4. Tax Policy: Real-World Evidence (21:41–29:36)

• Historical Evidence:
  • Every hike in the top marginal tax rate led to underperformance, less revenue from the rich, and harm to the poor.
  • Every cut outperformed, increased rich’s tax payments, and provided more opportunity for the poor.

Notable Quote:
“Every single time we’ve cut the highest tax rate... the economy has outperformed, tax revenues from the rich have gone up, and the poor have had opportunities.”
—Arthur Laffer (27:49)

• Progress Over Time:
  • Top federal tax rate down from 94% (1944) to 37% today
  • Most states have eliminated death and inventory taxes
  • Reforms in securities trading and industries have made the economy more dynamic

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5. Is Collapse Inevitable? Adaptive Systems & Cryptocurrency (29:31–38:16)

• Debate About Collapse:
  • Tom: The trajectory of debt, M2 money supply, and recent policy crises show we’re still heading toward a cliff.
  • Laffer: US metrics are “textbook,” but the core problem is government spending, not just debt—the private sector provides new escape routes.

Notable Quotes:
“All of these cryptocurrencies are rushing to our defense... I view that as the private sector trying to come in and solve your problem correctly.”
—Arthur Laffer (34:33)

“I just don’t see the inevitability of the collapse just because we’re 250 years old next year.”
—Arthur Laffer (36:33)

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6. Wealth Inequality, Transfers, and Economic Logic (43:19–51:04)

• Tom’s Base Assumption: Voters act emotionally; anger from rising inequality will drive policy responses that further destabilize budgets.
• Laffer’s “Transfer Theorem”:
  • Any redistribution (taxing richer, subsidizing poorer) lowers everyone’s incentives to produce; therefore, the overall system produces less.
  • “Perfect equality” means everyone equally poor: “Equality of income is the stupidest concept I’ve ever, ever heard in my life.” (48:00)
  • The goal should be to make the poor richer, not the rich poorer.

Notable Quote:
“Whenever you redistribute income, you always reduce total income. Period. That’s math.”
—Arthur Laffer (46:59)

• Personal Note: Laffer relishes out-arguing Larry Summers and pushes back hard on economically “destructive” progressive ideas, but with good humor.

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7. Insider Policy Outlook—Trump’s Next Moves? (38:26–43:19)

• Laffer’s Role with Trump:
  • Provides economic advice and perspective—doesn’t want to know all of Trump’s decisions
  • Frames himself as a facilitator for better decision-making, not the ultimate decider
  • Sometimes Trump’s instincts outpace even his expert advisors

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Memorable Quotes & Timestamps

• "We reached into that trash heap... put it up there. It said, USA Inc." —Laffer (04:44)
• "Debt is just a tool... it's how the proceeds are used that is important." —Laffer (11:33)
• "You always reduce total income [with redistribution]. Period. That's math." —Laffer (46:59)
• "Equality of income is the stupidest concept I've ever, ever heard in my life." —Laffer (48:00)
• "You believe that democracy allows for a release valve... The private market has come in with crypto." —Tom Bilyeu (43:21, paraphrased summary)
• "Every empire... has always collapsed due to debt and money printing." —Tom Bilyeu (02:49)
• "I just don't see the inevitability of the collapse just because we're 250 years old next year." —Laffer (36:33)

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Timestamps for Key Segments

• [02:01–04:24] — Reagan Era Problems/Policies Explained
• [04:24–12:29] — How to Understand US Debt, "Crisis vs. Tool"
• [16:41–21:41] — Historic Money Systems: Before & After 1913, Lessons for Today
• [21:41–29:36] — What Tax Policy History Really Shows
• [29:31–38:16] — Is Collapse Inevitable? The Adaptive Nature of US Economic System
• [43:21–51:04] — Wealth Inequality, Democracy, and The Transfer Theorem

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Tone and Vibe

• The conversation is high-energy, at times combative but always respectful. Tom Bilyeu presses relentlessly, representing a skeptical, system-level anxiety about American decline. Laffer is forceful, brimming with historical anecdotes, data, and trademark wit. Both share deep concern for America's trajectory but differ in their optimism and analysis of whether policy and systems will self-correct before catastrophe.
• Memorable Touch: Laffer’s unapologetic humor about "the Four Stooges" of pre-Reagan presidencies and calling income equality “vile” give the discussion a candor rarely heard in economist talk.

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Conclusion

For listeners who want to understand what truly drives economic growth, and how policy, history, and human nature intersect to create boom, bust, or reform, this episode delivers a masterclass. Laffer’s optimism—rooted in flexibility, innovation, and political self-correction—collides with Tom’s cyclical, macro-level pessimism. The result is urgent, enlightening, and littered with practical wisdom and historic example. Stay tuned for Part 2, where the conversation promises to get even deeper.

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[End of Summary]

Transcript

[Arthur Laffer]

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[Arthur Laffer]

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[Podcast Host (Impact Theory)]

In the 1980s, under Reagan's leadership, the US economy exploded with 12% real GDP growth in just 18 months.

[Tom Bilyeu]

And the man behind that boom, today's.

[Podcast Host (Impact Theory)]

Guest economist, Arthur Laffer. Now, with America sitting on $38 trillion.

[Tom Bilyeu]

In debt, rising inflation, and growing wealth.

[Podcast Host (Impact Theory)]

Inequality, Laffer's back this time advising Donald Trump on how to spark a second economic revolution.

[Tom Bilyeu]

In this episode, we go deep into.

[Podcast Host (Impact Theory)]

The real mechanics of growth. What worked under Reagan, why Trump's first.

[Tom Bilyeu]

Term fell short of boom, and what.

[Podcast Host (Impact Theory)]

Laffer says must happen now to avoid collapse. From tax cuts and currency reform to crypto and debt restructuring.

[Tom Bilyeu]

If you care about your financial future.

[Podcast Host (Impact Theory)]

The 2026 midterms, or understanding how we fix a broken economy, this is the.

[Sponsor/Ad Voice]

Episode you've been waiting for.

[Podcast Host (Impact Theory)]

I bring you Arthur Laffer.

[Tom Bilyeu]

You helped design the policies that fueled Reagan's boom. So why aren't Trump's economic policies creating that same growth? What exactly is missing?

[Arthur Laffer]

Well, I think they will, but let me just say that I don't share your pessimism about the world, because the systems adopt that. Well, these systems adapt and change. And, you know, when things get way out of control, there are always response mechanisms that come through the political structure. Reagan was not an accident. John F. Kennedy was not an accident.

[Tom Bilyeu]

Of, you know, so you see them as mechanistic responses to where the economy went and that we will always have said response.

[Sponsor/Ad Voice]

Yeah.

[Arthur Laffer]

And you have these back and forth. And it's only when you get economies that don't have automatic responses like elections and stuff, like in those economies, you can't adjust, and you would be completely correct that we're Going straight to hell in a handbasket if the markets weren't able to readjust and offset the damages that you see coming. I agree.

[Tom Bilyeu]

How do you, how do you reconcile that statement with the fact that every empire ever has always collapsed due to debt and money printing?

[Arthur Laffer]

Yeah, well, you're talking in a very different timescale on that. You're talking hundreds of years. You're not talking hundreds of years. At least I don't think today. I mean, you had the Biden economy there. You had the response by the Trump economy. What you're seeing with the Trump economy is exactly as what you'd expect. I mean, you know, the policies change. They don't change all at once. They come flowing in. And the economy is responding very favorably right now, and I expect it to continue to respond favorably, in fact, even get more favorable. I mean, with Reagan, starting on January 1, 1983, now that's almost two years into his presidency, real GDP started to rise. The tax cuts took effect, and from 1-1-83 to 6-30-84, now that's just 18 months. That's just a year and a half. US real GDP grew by 12%. 12%. That's at an 8% per annum compound rate over a year and a half. And it just changed the whole face of the earth as we know it. You know, I think you're going to see very major improvements in the economy because of the policies you've seen and when they fully take effect. Wow.

[Tom Bilyeu]

I, I just, let's, let's get specific. So what, Take us back to the Reagan conversations. You come into office, he brings you in. What are the structural problems that you see? And then why were tax cuts the answer?

[Arthur Laffer]

Well, when I came into the office on January 20, 1981, all right, the prime, the prime interest rate was 21 and a half percent. Mortgages were doubled at 17, 18%. We had huge unemployment. We had a highest marginal income tax rate of 70%. You know, it was Collapseville. We just come off the Four Stooges. I say four Stooges. Johnson, Nixon, Ford and Carter, which to me was the largest assemblage of bipartisan ignorance ever put on planet Earth. When we took office, we found the US in the doldrums. I mean, it just trashed. We reached into that trash heap, we pulled out this platinum thing, we polished it a little bit, we put it up there. It said, USA Inc. America, Enterprise. And we borrowed lots and lots of money, and we did because we had very good uses for that money. We Dropped the highest marginal income tax rate. Now just think of this. From 70%, which is what it was when we took office, down to 28%. Is that a good enough drop for you? Pretty spectacular. We cut the corporate rate from 46% to 34%. That's not too bad either. We went from 14 tax brackets to two tax brackets. The two tax brackets were literally 28 and 15%. That's what we went. That was it. We dropped the capital gains tax rate dramatically as well. All of these things happened. We strengthened the dollar. We got Paul Volcker to strengthen the dollar. The US Just took off like a rocket ship. And that's where I talked to you about the real growth. Once those policies took effect on January 20th, I mean, on January 1st, 1983, we were off to the races. He won the election, the midterm, the second term election, 49 out of 50 states. And I was on the executive committee of the Reagan Bush Finance Committee. And I'll just tell you, in the 84 election, Fritz Mondale was not a bad guy. He was a good guy, solid person. Nothing wrong with him. He just was running against Reagan. And you know, that's a tough one for a guy like that. Reagan, about eight weeks out of the election, eight weeks out, asked us to withdraw our, all of our funding, all of the campaign funding from Minnesota so that Mondale could at least win one state. Now, that's a different world than you see today and the hostility and all that sort of stuff, but that's what it was. We went from a huge, I mean, boom to the large share of the world. There was no wars. Us, the economy was back in full. Stock market took off like mad, as you probably know. And it lasted for a long time. It lasted all the way through Bill Clinton. Now, the one thing you mentioned, and I want to address that very formally with you, debt. And let me talk to you about debt a little bit because it's really, really important. And I'm an economist and I want to go through that debt number. And the way they usually structure the debt conversation is debt as a share of GDP is 130% of GDP and it's rising like mad. Oh, my God. Oh, my. Help me. I'm going to jump off the edge of the cliff. I can't. My grandchildren are going to be. You know what the one I'm talking about, of course those numbers are true. And that debt as a share of GDP is too high. Okay, but let me put it in perspective. First place, you should never look at gross debt of a country or an individual or anything else, you should always look at net debt. There's a lot of debt that has been issued by the federal government that is on the balance sheet of the federal government and different departments and agencies, et cetera. So what you should do is first and foremost eliminate all the intra governmental debt and just look at net debt to the public, to the private sector. That's what you should do. And if you did that, you would reduce that net debt number, that debt to GDP number from 130% to about 100%. And that's a big drop. I mean that's the first thing you do. The second thing we do, when you look at debt and compare it to gdp, it's really an inappropriate comparison. When you look at a company, for example, you only compare balance sheet items with balance sheet items, income statement items with income statement or cash flow items there for those. You should never mix stocks with flows or flows with stocks in any of these comparisons. So when you look at debt to gdp, it's an inappropriate measure. You should look at debt to wealth or you should look at debt service to gdp. Both of those are appropriate members. One is a stock to a stock and one is a flow to a flow. If you look at debt to net wealth, it's still too high, but it's about 18, 19% of total wealth. That's too high, but it's not jumping out of a window too high. It's just not. If you look at debt service to GDP, it's about 4%, something like that. Debt service to GDP today it was about 4 and a half, 5% after Reagan, you know, was in that range. It fell as low as 3%. But again, it's too high. But it's not something you get panicked about. So when you look at it, it should be flow to flow or stock. When you buy a house from a bank and the bank you want a bank loan, the two questions they ask you what's the loan, the value of the home, that's a stock to a stock and can you afford the interest payments? Those are the two questions that same thing you should ask about the US and both of those are too high, but they're not panic city. That's not going to hell in a handbasket. Far from it. Then the real thing you want to look at on debt, if I can, is, is debt is just a tool. Debt is a way of getting money from savers to investors. It's just a loan. That's all it is. And it's a very normal way of transferring assets from net savers to net investors. And it's neither good nor bad. It's how the proceeds are used that is important. Now let me give you the example here. I'm going to let you borrow all you want at 1% and let you invest all you want risk free at 12%. How much are you going to borrow from me?

[Tom Bilyeu]

It depends on which one of those I get.

[Arthur Laffer]

Well, but you get 1% costs and you can invest in it 12% risk free.

[Tom Bilyeu]

I see what you're saying. Yeah.

[Arthur Laffer]

Then you're going to borrow infinite amount. Reverse those two numbers. I'm going to let you borrow at 12% and invest at 1%. How much are you going to do?

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[Tom Bilyeu]

Yeah. So, okay, we're getting into the abstract here because of course, in reality.

[Arthur Laffer]

No, it's going to be real.

[Sponsor/Ad Voice]

Yes, it is.

[Arthur Laffer]

Okay.

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Bring it.

[Tom Bilyeu]

Bring it home to reality for me.

[Arthur Laffer]

Bring it home. When we came in under Reagan, we found the US had been trashed. The economy was in bad shape. We had to look at Enterprise America and we had an ability there to borrow at lower rates, what we considered lower rates compared to the investment rates there. And we borrowed lots and lots of money. We use it to cut tax rates. We use it to build up defense spending. We used it to do all the wonderful stuff. And that economy just took off like a jackrabbit. And thank God with, you know, when you get to people like Biden and Obama and w. And these people, they borrowed lots and lots of money to pay people not to work. The purposes of the debt were very different. What you want to do here is if you use debt properly on a federal level, you can reestablish credulity in the debt market within a couple of years. I mean, you really can. You can grow your way out of this debt or quite easily if you do the right policies. That's all I'm saying. It's not something that's inevitable. It's not something that can't be handled over the next three or four or five years. It can be. It's just. It's a. It's a problem, but not a crisis problem.

[Podcast Host (Impact Theory)]

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[Podcast Host (Impact Theory)]

Thanks for sticking around. Let's get right back into the action.

[Tom Bilyeu]

That was great. That's very easy to follow. However, I have what I think is the rebuttal that can't be gotten around. And I hope you can, because I have no interest in living in the dark and terrifying place that I am currently occ. So here is what I see. The humans are a certain way. We have a nature. I've heard you talk about this. Given that we have a nature, history is going to loop. It doesn't exactly repeat. But money, money abides by something akin to physics. Humans only have so many reactions to different setups. And you put those two things together and on a roughly 150 to 250 year time horizon, every empire collapses. And they collapse for one very simple reason. Debt and money printing. We are debt and money printing. Not in the way that you just described it. We are debt and money printing for the exact reason you just warned us not to. So we are running deficits precisely so that we can give people money not to work. And the great irony of that, when you increase your levels of debt, you radically increase the levels of inequality. Because a very small number of people, let's call it 10%, understand assets and therefore 10% of Americans own 93% of the assets and are shielded from the inflation that's caused by debt and money printing to pay people not to work. And the other people, 90% that own 7% of the assets, they just get hammered by inflation and they don't understand that's what's happening. So they have this economic force being applied to them, but all they know is they can't make ends meet. They're. They're very anxious about what's happening. They have to transmute that anxiety, which does not feel good, into anger, which does feel good. They need someone to blame A populist leader will rise up and give them someone to blame. And that's how in this moment, despite the fact that it's basically all the socialist policies in America that have created this, you have a rise in a love for socialism and a decrease in a love for capitalism. And the only thing historically that has pulled us back from that ledge is an amount of pain that is so extreme that people finally go, ah, yeah, I guess we do have to completely restructure the system and effectively start. Not over, but you're hitting me with.

[Arthur Laffer]

A lot of topics. So let me.

[Tom Bilyeu]

The great news is I can run through it piece by piece, over and.

[Sponsor/Ad Voice]

Over and over, piece by piece.

[Arthur Laffer]

Let me do the first one. Inflation, printing too much money and all that. Prior to 1913, in this country, we had a private money system. It was not public. Now, the Government did do three things. It defined what a dollar was. It's 1/20 of an ounce of gold. It's 1 ounce of silver. That's a dollar. It also did one other thing as well. It did mint coins. If you brought bullion into the federal government, it got it the right purity. It would mint the coins and charge a commission. But so did lots of other private sector mints. All did the same thing. So there, the real thing they did prior to 1913 was the government audited banks balance sheets. Banks would issue their balance sheets, their income statements, and the government would audit them and say they're true and correct, et cetera. At that time, banks created money. There were banknotes that were the liabilities of individual banks. They had those. They had gold coins, circulating silver coins. Circulating money was private. The only thing the government did was define what a dollar was. And that was the world back then. Now, some, some banks notes sold at a slight discount to other banknotes like they did because they were all private liabilities. And that was a system that went from 1776 until 1913 in the U.S. that's a. What is that? 137 years there now, starting in 1913, we put in the Federal Reserve. The government started to nationalize money. We then had the Roosevelt won the gold confiscation of 1933, where they confiscated gold at $20.67 an ounce. Then they devalued that. So they just had this huge wealth tax. We were the only country, I think, ever that has had our citizens prohibited, legally, criminally, for holy gold. I mean, it was just amazing. And then of course, we had the interest equalization tax. We had the. A voluntary foreign credit restraint program. Those were the ones I did my dissertation on at Stanford. We went on up to Smithsonian. I was in the White House in Smithsonian time. I was George Schultz's right hand person. When we went off gold completely and totally, we were a freewheeling paper currency unbacked by anything anywhere at any time. George Schultz's comment was we've raised the price of gold, of the gold from $35 an ounce to $42 an ounce. But we're unwilling to buy it or sell it at that price, which is joke. And now finally, government had 100% control of money in 1972. They did. Inflation from night from 1776 until 1913 was zero upcast. Yep, zero. There were no major depressions or anything like that. There were some financial panics, but they were over in a matter of weeks or months. There was nothing there. Long bonds. Now these are all from Jeremy Siegel and Jeremy Schwartz, who are Mike colleague at the University of Chicago. Best people in the world. Long bond yields in 1776 were in the five and a half percent range. By the time you got to 1910, 1912, they had gone down to about four and a half percent. Just all very stable state. No ba ba ba ba ba ba ba ba ba, none of that stuff. It was a beautiful system. From 1913 to the present, the price level has risen 35, 40 fold. You've had interest rates that I've mentioned went from 21% down to zero. But we had the biggest depression ever. You know, this is a classic example of the federal government nationalizing an industry and screwing it up. We went from private banking, which worked really well, to public one, which just screwed it all up. And the U.S. by the way, screwed it up a lot less than other countries did. We are the tallest midget in the bunch on that now. When it gets you to be scared, I look at cryptocurrencies as being the private sectors and gold as being the private sector's way of circumventing government monies and creating a money of their own. Especially things like tethered and these other stablecoins. They can really stabilize values. And what I'm seeing in this world is the private sector moving back in and replacing the government monies and which makes me very optimistic about the long term there. So that's the monetary inflation one. Now you have redistribution. You said, let me go to redistribution with you. And this is a really important topic. And by the way, I've written a lot on the banking system as you know, if you did my background stuff that's my bailiwick and trade. The book I wrote on this one is called Taxes have consequences. It's two and a half years old. It is the complete history of the US income tax from 1913 to the present. In this, I just want to say we have every single tax return. You know, the last two months of 1913, we had an income tax. And all the way here, we know the last guy in the top 1%. We know the first guy in the bottom 99%. We don't have his name, but we have his tax return. All right, we have this. We see how the first year 13, 14 and 15, the number of people required to file was about 358,000 out of 62 million adults. Just teeny tiny little group. And the tax rates went from 0% to 7%. That was it. A little bitty, little bitty. And then, of course, by 1915, 16, 17, it had gone up to 77%, was the highest marginal income tax rate. It went up to 6.4 million people. That was World War I. That was the pandemic then. And then Wilson dropped it to 73% in 1918. 19, boom on down went down as low as 25%. Under Harding and Coolidge, we have had huge amounts of variation in the tax rates on the rich. We have. We've had enormous amounts. And we don't just guess what happens when you raise tax rates in the rich. We know we have every single example. And let me just summarize, if I can, on Saez Piketty and all these other guys, you know, Zuckman and Sancheva and all the redistributes. Bernie Sanders, AOC I can easily imagine raising tax rates on the rich and collecting more money and helping the poor. I can also easily manage raising tax rates on the rich. They hire more lawyers and accountants, deferred income specialists. They have bad economic activity happen to them, and you actually collect less money from the rich. Either one of those is very possible because these guys are rich and they can hire lawyers, accountants, deferred income specialists, whatever. So we have to look at the facts rather than feelings. Every single time, we've raised the highest tax rate on the top 1% of income earners. Every single time, three things have occurred. The economy has underperformed. Tax revenues from the rich have gone down, not up. And the poor have been hammered. Every single time we've cut the highest tax rate on the top 1% of income earners. Every single time the economy has outperformed, tax revenues from the rich have gone Up. And the poor have had opportunities that have exceeded other time periods by long shot. So that's where we are in this. So as you can probably guess, I'm far less afraid of mom, Donnie's, Elizabeth Warren's, and yeah, they screw up, they dumb, they don't understand economics, they don't know straight up from Sikkim. But you know, frankly, they sooner or later are going to be squashed and they're going to be replaced by a low rate flat tax. In 1944, the highest marginal income tax rate in America was 94%. Every dollar you earned, you were allowed to keep 6 cents. God bless you, son, for working hard. Today the highest marginal income tax rate is 37%. We've made enormous project progress over the years. If you look at states, in 1976, there was one state in the United States that did not have a state death tax and that was Nevada. All right, Every other state did. All right, today, 38 states have eliminated the death tax. All of them eliminated the inventory tax. You know, when you look at the progress we've made, we've now allowed people to do discount sales. We've gotten negotiated rates in the stock market. In 1973, every stock traded by law had to pay 34 cents as a commission. Today it's zero. Trucks were decontrolled, airlines decontrolled, all of this stuff. You know, we are making enormous progress coming along here. And you know, I do see the problems you're saying, and I do think they're correct. And a lot of the response is anger. But you know, we had a lot of anger after Nixon. I don't know if you were aware of that. You're way too young to understand that world. But I was the chief economist in the White House then. I was George Shultz's right hand person. If you think it's hostile and political today, you have no idea how bad it was under Nixon and Ford and Jimmy Carter and all. Oh my God, it was awful. So this stuff is repeating, but every time it's repeating, I'm telling you, it's getting better and better and better. Yeah, we make five steps forward, then we're pushed back three steps and it's all true. But we're making progress all over the place on inflation, private money, tax rates, all of this stuff. We are really making a big difference in the world in the right direction. We're creating a lot of new problems too, but they are soluble in the us. The way our structure is is that we allow those solutions to Come back into the system where other countries really don't. You can't get a vote in Russia, for example, and you have a hard time. Even in Britain, you don't vote for the Prime Minister. You vote for a party that then is 100% in control. That's not the way we do it. We do checks and balances. Britain does not. So.

[Tom Bilyeu]

Okay, hold on really fast before let me say back to you what I just heard.

[Arthur Laffer]

That's why we're doing this.

[Tom Bilyeu]

Yeah. So I. Here's what I heard. Hey, Tom, listen. When you put this into historical context, yes, we make these really bad decisions, but that causes humans to react and so we come back down and then that causes people to react and we go back up. You know, we sort of rock back and forth. Okay, so you have a base assumption that that will protect us. Unfortunately, history is on my side that what is actually happening is that you're these back and forth. But they are on a trajectory of debt just going up, up, up, up, up. So there's no denying that you have this tack up and down for sure. But when you just look at the M2 money supply, the amount of debt that we're taking on in terms of just the sheer magnitude of it is so much bigger than what we were doing in the 70s, 80s, 90s. It's like once you get the breaking point of the 2001.com crash, all hell breaks loose. In terms of how we treat printing money to solve our problems. You then compound that in the 2008 financial bubble or bursting of the housing bubble, then obviously Covid. And so you look at this and we are in a moment now where we're roughly 122% debt to GDP. You've already told me you don't think that's the right way to look at it. And I've heard you. However, I will say this. When you say don't look at that, I hear the same thing I hear when people are like, oh, we don't like the CPI results, we're going to change the CPI some point. You just need to have a metric. And so either bear with me, bear with me, bear with me.

[Arthur Laffer]

Either just made up that new rig. This has been done in accounting for a thousand years.

[Tom Bilyeu]

By the way, changing the metric by.

[Arthur Laffer]

Which we judge it, not changing. You're using a bad metric and you've always been using a bad metric. And the proper accounting going all the way back in time is the way I described it to you. It's the way every company does Its balance sheets and its income statements and its cash flows. So the way you do it, banks do it that way. Always have. Okay, you're using a bad metric. Now you say I'm changing it to. But I'm changing it to a good metric. It is a problem. I'm not denying that. But it's nothing like the problem you're describing. Okay, you're using a bad metric. You've.

[Tom Bilyeu]

That point is very clear. And so now while I haven't said that I concede. I just said you've been very clear.

[Arthur Laffer]

Concede. I'm just so knows those metrics.

[Podcast Host (Impact Theory)]

Sure.

[Tom Bilyeu]

But the. Any philosophy that somebody uses must describe.

[Sponsor/Ad Voice]

The world that I see.

[Tom Bilyeu]

The world that you are failing to describe so far is that every. Bear with me. Numbers. Every empire Arthur has failed for debt and money printing.

[Arthur Laffer]

You know, I read Bogoff too. Right.

[Tom Bilyeu]

But we're. We're just talking about what's actually happened. So if, if you're going to give me a metric that shows this is actually what they did wrong so that I can look at the American empire through that lens. Fair. But until I have a metric where I can go, oh, this is why.

[Sponsor/Ad Voice]

All of these empires before us failed.

[Tom Bilyeu]

So that I can look at are we making the same mistakes or not?

[Arthur Laffer]

I got you. No, I gotcha. It's a great question. And let me just answer a little bit if I can. I tried to give you an answer on that. Our system is much more flexible than most systems have been historically. They have not been free market, democratic, economic, capitalist system. And maybe ours will fail on that grounds as well. And I'm not sure it won't. But when I look at the systems today, first place, the metrics I use are just accounting textbook metrics. It's not like I have vetted it to rebut you. I didn't. It's been around there. It just is useful in rebutting your 122% number, that's all. You are right about debt being too large, but the problem is government spending. And when I look at this system today, I don't see the end of the earth coming. I see this system adjusting right now. And I was trying to describe.

[Tom Bilyeu]

But so you've been very clear on all that. So I want to make sure that we differentiate between when I'm confused and when I disagree. I am not confused about what you say because I agree with all of it. What I'm saying is that the. Where we disagree is that I have a way of explaining this that describes the collapse of the previous empires. So far you probably understand it far better than I, but so far you've not articulated what it is that caused those empires to fall.

[Arthur Laffer]

Until I can hear cause. Let me, let me support your argument here. In 2007, I think the balance sheet of the Fed was about $850 billion, something like that. It went up as high as $9.4 trillion in the next bunch of years, which you're talking about M2. You were talking about the money system in that terms. I use the balance sheet of the Fed. You're totally correct. You can see that 22% inflation from Biden really clearly in those numbers. It's just obvious, duh. I mean those numbers have changed dramatically and they not only have changed on the balance sheet not enough to make it great, believe me, but they've also changed on the responses of the market to the bad money that's been created by the Fed and by the US government and the nationalization. All of these cryptocurrencies are rushing to our defense and to our savior. Look at Tether. I mean Tether's hitting marketplaces all over the world and it's doing in Turkey and Central Africa with the Maasai and all these where you can hold dollars on your phone and you can transact the transactions. Costs have been dropped enormously and they're growing by leaps and bounds. What was, I think it was 2014, Bitcoin sold for 250 bucks. It's a couple of dollars higher than that now. I mean all of these things, I view that as the private sector trying to come in and solve your problem correctly. We agree.

[Tom Bilyeu]

So what you're saying is this empire won't collapse because that's democratically possible for us to replace the money?

[Arthur Laffer]

Yes, exactly. Okay, that's exactly correct. And I think those other countries you've always taught that you've mentioned there, and that's all, they're all true, your data are correct. I know Rogue, often those numbers are correct. The collapse is all there. I just think that just saying the same thing always happens to every country is not correct. It happens for a reason. And I think the reasons it happened in those other examples are not applicable today in full. They may become applicable very soon. And thank God I'm 85 because I won't have to live to see a collapse in the US but, but, but the truth of the matter is I don't think we're doing the same problems that they did. I don't think our debt is anywhere near the same level those other countries you talked about. And. And I think the private market is coming in and replacing it, which really excites me. This is Jude Winiske's book, the Way the World Works, which is a. Really, a classic in this area. And it's just wonderful. And. And I just don't see the inevitability of the collapse just because we're 250 years old next year.

[Tom Bilyeu]

I totally agree that it has nothing to do with the timeline. I think the timeline is simply tied to the duration it takes the society to discover how much they can profit off of debt. And once they realize. Oh, wait a second, I don't. As a politician, my only job, no matter what anybody tells you, is to gain and retain power. So I know I have to gain and retain power. And what they begin to realize is I gain and retain power by promising free things, and I can pay for those free things by generating as much debt as I want and printing money to cover it, which is an invisible tax. And so it just. Oh, it takes roughly 150 to 250 years for that cycle to get so far out of control, because you need these random events. Not random, but you need these problem events to occur and to begin to stack up. And so you get. I mean, I've heard you say that. No, no, no. If you really want to understand about America's financial problems, you need to go back to the Great Depression. You're one of the only people I hear talk about that.

[Arthur Laffer]

Yes.

[Tom Bilyeu]

I'll ask you to go all the way back to 1913. For me, that's where the problem really starts, because that's where I did the.

[Arthur Laffer]

That's why I did the money up to 1913. Because you had the Fed and the initiation of the income tax. 1913 is a critical year where government came in and started screwing everything up really badly. And 1930 was proof of the pudding.

[Tom Bilyeu]

Okay. So I think, just so everybody understands why you and I can agree on so much and still walk away being you not worried and me, like, terminally worried.

[Arthur Laffer]

Don't get me wrong, I just. Not like you were worried. I don't think it's inevitable. I think we, through the political process, can solve it and have done so so far.

[Tom Bilyeu]

Okay. So really fast, because I want you to walk us through what Trump is going to do at a policy level to back all of this out.

[Arthur Laffer]

Yeah.

[Tom Bilyeu]

Because I certainly. From where I'm sitting, it seems like Trump listens to you. He certainly hears you out, whether he takes your advice or not. We'll see over time. But that is extremely useful as we're talking to somebody that's inside the White House that understands how this works. Okay, so here I like your I.

[Arthur Laffer]

Like where you're coming from. And just for the record, I'm an economist. Trump has to look at all sorts of stuff when I'm with him and I do see him frequently. I try to give him information to allow him to make better decisions. I ask him explicitly not to tell me what his thoughts are because I don't want to be burdened with that type of knowledge. He has a lot of other things to consider that I never consider. And so all I do is view myself as someone who tries to facilitate him making great decisions. I think he is a great decision maker. He's a coo. He's not the most popular guy anywhere, but he doesn't know how to make a decision. And he bases it, I think really on good stuff. Many times using my inputs but coming to a different conclusion. And sometimes his conclusions are a hell of a lot better than mine were. And I look back on it and I oh my God, how could I have misled him so badly?

[Podcast Host (Impact Theory)]

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[Podcast Host (Impact Theory)]

Now let's get back to it.

[Tom Bilyeu]

The base assumptions that I think cause us to share so much in common but still draw a different conclusion are you believe that democracy allows for a release valve where people it has a corrective mechanism and that the private market has come in with will round it to cryptocurrency in order to create a new financial system where people can escape the abuses of a government controlled financial system?

[Arthur Laffer]

Yes they can. And so and also on the tax system too, just for that. I mean I mentioned that the tax system has gone from 94% in 1944 to 37 today. That's. That is. That is a rectification. Our capital gains tax. I mean we effectively had no capital gains tax on owner occupied homes anymore. $500,000 for every couple and a step up basis at death. And I could go on. That's half the capital stock of America. So we've made huge progress at the state level and at the federal level on tax rates, which to me are much more important than tax revenues. As you know. That's. I just did my curve quickly and slid it by. You didn't I, I got it slipped through.

[Tom Bilyeu]

I know your curve very well, and.

[Arthur Laffer]

It might lower the rate and you collect more money. So.

[Tom Bilyeu]

Yeah, and look, we. We will almost certainly get to the point where we really push into that because it's very, very important for people to understand that. Something that I have a hard time getting people to embrace me too. First, I want to lay out what my base assumptions are.

[Arthur Laffer]

So.

[Tom Bilyeu]

And we don't have to debate them. I think there's probably more interesting things for us to move on to, but for the audience who's trying to build their own worldview, I want them to understand. So for me, the thing that I see is voters vote emotionally. And so democracy can be the biggest problem as much as it can be a salvation. So it comes down to how voters feel, not what's actually happening. And wealth inequality, for better or worse, is the thing that drives how people feel. So you've got a system right now, as of today, because of inflation, money printing that wealth inequality is just going absolute haywire, which is making people feel bad. And that feeling is going to continue to create an impulse for politicians to give things away for free and run an unbalanced budget.

[Arthur Laffer]

Okay, so, but let's do. What about inequality? Just the facts. During the Great Depression, money wealth was much more evenly distributed than it was in the 20s or than it is now. During World War II, wealth was much more evenly distributed than it was now. In other words, the only way you can get equality of wealth or income is at zero. Do you know the transfer. Can I do a transfer theorem with you? Because I think you'll love it. Sure, if you let me do it and let me just. A transfer is when you take from one person and give to another person what you're saying. The governments give away money to buy off votes and stuff like that. You know, that's a transfer. We usually think of a transfer system being from those who have a little bit more to those who have a little bit less. That's the way we usually think of it. Although there is one from young to old, that's Social Security, which I love, by the way. From tall to short, I love that one. Skinny to fat, I like that one too. But let me do it here. The transfer theorem. From those who have a little bit more to those who have a little bit less, whenever you take from those who have a little bit more, you reduce their incentives to produce and they will produce a little bit less, period. Whenever you give to those who have a little bit less, you provide them with an alternative source of income other than working, and they too will produce a little bit less. This is just the Slutsky equation in macroeconomics. That's all it is. Common sense. So the theorem here is, whenever you redistribute income, you always reduce total income. Period. That's math. It's not whether you're tall or short, Harvard or Mtsu, it doesn't matter. It's just plain math. That's the theorem. Now, the lemma from this theorem is sort of cool, and I think it's fairly intuitive. The more you redistribute, the greater will be the decline in total production income. But now, the one that's delicious that I think you will love is the limit function of this theorem. If you were able to redistribute income so that everyone comes out exactly equal, there will be no income whatsoever. And God, I hope Bernie Sanders listens to this show. I hope he does. Let me do this.

[Tom Bilyeu]

He's an avid subscriber. Yeah, guaranteed.

[Arthur Laffer]

Good. Well, let me, if I can do the math for you on this one. In order to get everyone to come out exactly the same, so you have complete income equality. So you have a complete. What you'd have to do is you'd have to tax everyone who earns above the average income, 100% of the excess, and you'd have to subsidize everyone below the average income up to the average income. Only in that way can you make sure that everyone comes out exactly the same. Now, if you actually did that, if you actually taxed everyone above the average income, 100% of the excess, and if we actually subsidize everyone below the average income up to the average income, I'll stipulate today, counselor, we'll all be equal at zero income in the system. That is the theorem that drives the equality of income. Equality of income is the stupidest concept I've ever, ever heard in my life. It's dumb, it's awful, it's nasty, it's brutish, it's vile. Because the dream should be to make the poor richer, not to make the rich poor. The dream is to help those who are in need, not to hurt those who have succeeded. That's the dream in this world. And so when I see people willing to sacrifice all the poor and disenfranchised people in this earth just to make sure they get even with that rich guy, I find myself disgusted. That's the Larry Summers model of economics, and he's been my arch nemesis for 40 years now. And he. I win, he loses. You follow my.

[Tom Bilyeu]

Well, he's, he's, he's pulling himself off the chessboard for you. So I don't think you have to.

[Arthur Laffer]

I, I. Let me just say a little fun fun one for you. This is fun. But I, I'm not a mean person. I really not. I don't want anyone.

[Tom Bilyeu]

You don't strike me as one.

[Arthur Laffer]

Well I don't want anyone to suffer. I don't even no matter if they're vile or terrible. I just don't want them to have pain either. But if, but if pain has to be come down and there has to be here I know the guy. I want to be the one who gets it. Larry Summeridge has just done such a beautiful job and taking it for me. He's lived on privilege all of his life. His uncle is Paul Samus and his other uncle and his mom's side is Kenneth Arrow. Both Nobel laureates, famous mathematical economists. He parlayed that privilege all the way up being president of Harvard, Secretary of the treasury, head of the nec. And now he's always been a bad economist. He's always been that. But now you find he's a bad person as well. Yeah.

[Tom Bilyeu]

Yeah. Well to you reap what you sow I guess.

[Sponsor/Ad Voice]

All right.

[Tom Bilyeu]

So really fast. All of that makes sense to me. This is another case of everything you say I agree with wholeheartedly the but.

[Arthur Laffer]

There are a couple things from what I've heard.

[Tom Bilyeu]

Well that is exceedingly generous things about you.

[Arthur Laffer]

That's why I'm on the show. It's a. And you're living up to your expectations. I think your questions comments are really, really insightful and correct. They're the right questions and I hope I'm. I get emotional in answering them but I hope you don't mind that. But I love, I love economics.

[Podcast Host (Impact Theory)]

That's it for part one. Make sure you are subscribed so you do not miss part two.

[Tom Bilyeu]

Coming up soon.

[Podcast Host (Impact Theory)]

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