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

Summary

Podcast Summary

Podcast: Tom Bilyeu's Impact Theory
Episode: Arthur Laffer Breaks Down Reagan, Trump, and the True Drivers of Economic Growth
Date: December 16, 2025
Guests: Tom Bilyeu (Host), Dr. Arthur Laffer (Economist, Reagan advisor, Trump advisor)

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Episode Overview

This episode features renowned economist Arthur Laffer, architect of the Reagan-era economic boom and advisor to Donald Trump. The discussion centers on the drivers of true economic growth, lessons from the Reagan years, why Trump’s policies didn’t match Reagan’s explosive results, and practical advice for addressing the U.S.’s daunting debt, inflation, and inequality. Laffer offers a historical and analytical perspective on economic cycles, monetary policy, tax cuts, redistribution, and the adaptive potential of American democracy and free markets.

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Key Discussion Points & Insights

1. Why Reagan’s Economic Boom Worked—and Why Trump’s Didn’t (Yet)

• Historical Backdrop:

  • The Reagan administration inherited an economy with 21.5% prime interest rates, mortgage rates over 17%, high unemployment, and a 70% top marginal tax rate.

  • Laffer attributes the subsequent boom to dropping the top marginal tax rate from 70% to 28%, simplifying the tax code, and strengthening the dollar. (04:24–05:29)

    “When we took office, we found the US in the doldrums. I mean, just trashed. ...We reached into that trash heap, we pulled out this platinum thing, we polished it a little bit... and we borrowed lots and lots of money, and we did because we had very good uses for that money.”
    —Arthur Laffer [04:24]

• Why Trump Didn’t Match Reagan’s Results:

  • Laffer believes policy changes under Trump will yield results but notes policy impacts develop over time and are subject to political cycles and constraints. He sees positive trends likely to accelerate. (02:56–04:10)

2. U.S. Debt: Crisis or Manageable Problem?

• Clarifying Debt Metrics:

  • Laffer argues conventional “debt-to-GDP” ratios are misleading. Net debt (excluding intra-governmental liabilities) and debt service to GDP or debt to wealth are more appropriate:

    “You should never look at gross debt of a country or an individual or anything else. You should always look at net debt... 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.”
    —Arthur Laffer [05:29–07:45]

• The Use and Risk of Debt:

  • Laffer asserts the key issue is not debt quantity but the quality of its use. Debt used to invest in higher returns (e.g., via tax cuts or defense) spurs growth, while debt to “pay people not to work” is economically destructive. (11:19)

    “Debt is just a tool… It’s how the proceeds are used that is important.”
    —Arthur Laffer [11:19]

3. Economic Cycles, Human Nature, and the Fate of Empires

• Do All Empires Collapse from Debt & Money Printing?

  • Tom Bilyeu presents the historical inevitability argument: all empires eventually collapse due to debt and money printing.

  • Laffer is less pessimistic, pointing to the adaptive mechanisms in U.S. democracy and markets that allow for corrections and responses. (02:01–02:29, 29:55–31:28)

    “These systems adapt and change… 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.”
    —Arthur Laffer [02:01]

• Mechanisms for Adaptation:

  • Unlike rigid empires, Laffer argues, the U.S. system “self-corrects” thanks to elections, private enterprise, and new alternatives like crypto.

4. Monetary Policy: From Private Money to Federal Reserve to Cryptocurrencies

• History of U.S. Money:

  • Laffer contrasts the stable period of private sector money (1776–1913) with the inflation-heavy era after the Federal Reserve’s creation.

    “From 1776 until 1913… the price level was zero upcast. Yup, zero. ...From 1913 to the present, the price level has risen 35, 40 fold.”
    —Arthur Laffer [15:13–20:00]

• Optimism in Private Money & Crypto:

  • Cryptocurrencies and stablecoins are viewed as market-driven responses to government “money abuse,” helping circumvent fiat currency abuses and opening a new, more stable financial era. (31:28–32:33)

    “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.”
    —Arthur Laffer [16:59–17:27]

5. Tax Policy, Redistribution, and Incentives

• The Empirical Record:

  • Drawing from historical data, Laffer claims repeatedly:

    • Higher tax rates on the rich lead to underperformance, less revenue from that group, and harm the poor.
    • Lowering top tax rates produces more growth, raises more from the rich, and benefits the poor. (21:08–25:28)

    “Every single time we’ve raised the highest tax rate on the top 1% of income earners, three things have occurred: the economy has underperformed, tax revenues from the rich have gone down, not up, and the poor have been hammered.”
    —Arthur Laffer [21:08]

    “The dream should be to make the poor richer, not to make the rich poorer. The dream is to help those who are in need, not to hurt those who have succeeded.”
    —Arthur Laffer [41:13]

• The Transfer Theorem:

  • Laffer explains that redistribution—by taxing the rich and subsidizing the poor—decreases total income and, in the extreme, could reduce everyone’s income to zero. (38:07–41:58)

    “Whenever you redistribute income, you always reduce total income. Period. …If you redistribute so that everyone comes out exactly equal, there will be no income whatsoever.”
    —Arthur Laffer [39:31–40:26]

6. Structural Progress & Modern Optimism

• Policy Improvements Since WWII:

  • U.S. tax rates have declined, state-level taxes have eased, and regulation has loosened. Laffer credits democratic checks, free markets, and innovation for repeated rebounds from policy mistakes.

    “We are making enormous progress coming along here… five steps forward, then we’re pushed back three steps. And it’s all true. But we’re making progress all over the place.”
    —Arthur Laffer [24:33]

7. The Trump Policy Outlook

• Role as Trump Adviser:

  • Laffer’s advisory relationship is to provide economic perspective and research, not dictate political decisions. He praises Trump’s decision-making and expects future gains if supply-side reforms deepen. (34:45–35:40)

    “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.”
    —Arthur Laffer [34:45]

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Notable Quotes & Memorable Moments

• “We found the US in the doldrums… We pulled out this platinum thing, we polished it…”
  —Arthur Laffer [04:24]

• “Debt is just a tool. …It’s how the proceeds are used that is important.”
  —Arthur Laffer [11:19]

• “You lower the rate and you collect more money.”
  —Arthur Laffer [36:59]

• “The only way you can get equality of wealth or income is at zero.”
  —Arthur Laffer [38:07]

• “I don’t want anyone to suffer… but if pain has to come down… I know the guy I want to be the one who gets it—Larry Summers.”
  —Arthur Laffer (joking at a rival) [42:11]

• “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.”
  —Arthur Laffer [33:47]

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Timestamps for Key Segments

| Timestamp | Segment | |--------------|--------------------------------------------------------------| | 01:00–02:01 | Introduction, framing Laffer’s influence | | 04:10–05:29 | The details of Reagan’s turnaround and tax cuts | | 05:29–07:45 | Debt, proper metrics, and panic vs. perspective | | 11:19–12:29 | Quality and purpose of public debt | | 15:13–20:00 | U.S. money before and after 1913, effects on inflation | | 21:08–25:28 | Empirical record: taxing the rich and the impact on the poor | | 29:55–32:33 | Is collapse inevitable? Adaptability, private market’s role | | 34:45–35:40 | Laffer’s work with Trump and the nature of economic advising | | 38:07–41:58 | Transfer theorem and equality, why redistribution reduces income | | 43:13–43:33 | Mutual respect, Laffer’s passion for economics |

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Tone and Style

• The conversation is fast-paced, candid, and sometimes combative but always respectful, driven by Tom’s earnest pessimism and Laffer’s technical optimism.
• Laffer relies on historical data, practical analogies, and sometimes biting humor.
• Tom provides counterpoints and challenges, keeping the discussion anchored to practical concerns.

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For Listeners: Takeaways

• Perspective on U.S. Economic Worries: Laffer is less alarmist than many, citing the adaptive strengths of American institutions and the effectiveness of market innovation in correcting errors.
• Actionable Insights: Understand government debt beyond surface metrics, watch for policy incentives not just spending levels, and pay attention to the rise of private monetary systems (crypto, stablecoins).
• Policy Direction: Laffer’s proposals for the next administration include deepening tax reform, supporting sound money, and reducing regulatory barriers—believing these will spur growth and help manage debt.

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End of summary. For continued exploration, listen for part two where Tom and Laffer dig deeper into monetary history, tax simplification, and the future of global finance.

Transcript

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[Host (likely a podcast or show host)]

In the 1980s, under Reagan's leadership, the US economy exploded with 12% real GDP growth in just 18 months. And the man behind that boom, today's guest economist Arthur Laffer. Now, with America sitting on $38 trillion in debt, rising inflation, and growing wealth inequality, Laffer's back, this time advising Donald Trump on how to spark a economic revolution. In this episode, we go deep into the real mechanics of growth. What worked under Reagan, why Trump's first term fell short of that same boom, and what Laffer says must happen now to avoid collapse from tax cuts and currency reform to crypto and debt restructuring. If you care about your financial future, the 2026 midterms, or understanding how we fix a broken economy, this is the episode you've been waiting for. I bring you Arthur Laffer. 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

[Host (likely a podcast or show host)]

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

[Arthur Laffer]

Yeah. 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.

[Host (likely a podcast or show host)]

But 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, now 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.

[Host (likely a podcast or show host)]

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, 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's an 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? Sweet.

[Host (likely a podcast or show host)]

Pretty spectacular.

[Arthur Laffer]

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 talk 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, that's a different world than you see today and the hostility and all that sort of stuff, but that's what it was. And 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 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 a bank, 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 that. Those are the two questions, same thing you should ask about the US and both of those are too high, but they're not panic city. That's not, you know, going to hell in the hand basket. Far from it. Then the real thing you want to look at on debt, if I can, is debt is just a tool. A 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, 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?

[Host (likely a podcast or show host)]

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.

[Host (likely a podcast or show host)]

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 investor at 1%. How much are you going to do? Zero.

[Host (likely a podcast or show host)]

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

[Arthur Laffer]

No, it's going to be real.

[Host (likely a podcast or show host)]

Yes, it is.

[Arthur Laffer]

Okay.

[Host (likely a podcast or show host)]

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, 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 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.

[Host (likely a podcast or show host)]

We're hitting pause for a moment, but there's plenty more ahead, so don't go anywhere. Thanks for sticking around. Let's get right back into the action. 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 occupying. So here is what I see. The humans are a certain way. We have an 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.

[Arthur Laffer]

But you're hitting me with a lot of topics. So let me.

[Host (likely a podcast or show host)]

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

[Arthur Laffer]

Let me do the first one. Inflation, the 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 country 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 now to $42 an ounce. But we're unwilling to buy it or sell it at that price, which is a 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 might colleague at the University of Chicago. Best people in the world. Long bond yields in 1776 were in the 5.5% 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'd 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've gone 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, 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, 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. 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, they're now 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. 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 Sanchez and all the redistributes. Bernie Sanders, aoc. I can easily imagine raising tax rates in 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, far less afraid of Mamdani'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 Schultz'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.

[Host (likely a podcast or show host)]

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.

[Host (likely a podcast or show host)]

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. So we're going to change the CPI at some point. You just need to have a metric. And so either bear with me, bear with me, bear with me.

[Arthur Laffer]

Either made up that new rig. This has been done in accounting for a thousand years, by the way, changing

[Host (likely a podcast or show host)]

the metric by which we judge, not changing.

[Arthur Laffer]

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 you do it. Banks do it that way. Always have.

[Host (likely a podcast or show host)]

Okay.

[Arthur Laffer]

And 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.

[Host (likely a podcast or show host)]

Okay.

[Arthur Laffer]

You use a bad metric. You've.

[Host (likely a podcast or show host)]

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

[Arthur Laffer]

I'm just so knows those metrics.

[Host (likely a podcast or show host)]

Sure. But the any philosophy that somebody uses must describe the world that I see. 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.

[Host (likely a podcast or show host)]

Right. 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 enough. But until I have a metric where I can go, oh, this is why all of these empires before us failed. So that I can look at are we making the same mistakes or not?

[Arthur Laffer]

I got you. No, I got you. It's a great, great question and let me just answer a little bit if I can. I tried to give you an answer. And 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 edited 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.

[Host (likely a podcast or show host)]

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 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 there 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, a 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.

[Host (likely a podcast or show host)]

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. That's exactly correct. And I think those other countries you've always talked, that you've mentioned there, and that's all, they're all true, your data are correct. You know, 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 Winisky's book, the Way the World Works, which is a really 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.

[Host (likely a podcast or show host)]

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. 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.

[Host (likely a podcast or show host)]

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.

[Host (likely a podcast or show host)]

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.

[Host (likely a podcast or show host)]

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.

[Host (likely a podcast or show host)]

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.

[Arthur Laffer]

I like your. I 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?

[Host (likely a podcast or show host)]

Taking a short break. But there's more impact theory after. Stay tuned. Thanks for staying tuned. Now let's get back to it. 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. Okay, they can. All right. 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 is a rectification our capital gains tax. I mean we effectively have 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, I just did my curve quickly and slid it by you, didn't I? I got it slipped through.

[Host (likely a podcast or show host)]

I know your curve very well and

[Arthur Laffer]

you lower the rate and you collect more money.

[Host (likely a podcast or show host)]

So 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. So 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 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 with. 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.

[Host (likely a podcast or show host)]

Avid subscriber? Yeah, guaranteed.

[Arthur Laffer]

Oh, 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, will 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 poorer. 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.

[Host (likely a podcast or show host)]

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

[Arthur Laffer]

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

[Host (likely a podcast or show host)]

You don't strike me as one.

[Arthur Laffer]

Well, I. I don't want anyone to suffer. I don't in 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 become down and there has to be here, I know the guy. I want to be the one who gets it. Larry Summer 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's parlayed that privilege all the way up being set 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.

[Host (likely a podcast or show host)]

Yeah. Well to you reap what you sow, I guess. All right. So really fast all of that makes sense to me. This is another case of everything you say I agree with wholeheartedly. The There are a couple things from what I've heard well that is exceedingly

[Arthur Laffer]

generous nice things about you. 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.

[Host (likely a podcast or show host)]

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

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