Speaker 1: And Hi, how are you Happy Friday to you? Welcome
to the Big Podcast on this twenty second day of August,
year of Our Lord twenty twenty five. My name is
Tom Sullivan. So this we get started today. Since we
last left you, the state legislature in California has been
busy working on trying to get the laws passed that
they need in order to get a ballot measure for
the people of California in November to vote on whether
or not they want to allow the politicians to once
again draw the congressional district lines or let the which
they took away from them back fifteen years ago. And
they created an independent commission. Not only is it even
Stephen Republican Democrat, but in addition to that, the members
of that commission cannot run for public office for ten years.
They really wanted an independent commission. Everybody has their bias,
but the commission has drawn the lines and it still
hasn't hurt Democrats. I mean, the Democrats still dominate the
legislature and the governor's office. They have for a long time.
But Governor Knewsom if after this was passed by the
legislature in Sacramento, they what they've done is they now
have triggered a special November election to redraw the congressional
districts for the US House map. They're not saying who
came up with these new maps. Nobody will Nobody. Katie Porter,
who's kind of in the lead for the governorship for now,
they asked her about it earlier today, Jesus, I don't know.
Everybody's looking to go I don't know. I don't know
who do were the maps? Why can't they take credit
for it? They're trying to make it so that they
can get five more Democrat seats that will offset or
as they call it, neutralized Texas, and both of them
still have to get the voters in those districts to
vote the way that these parties want. So there's still
a lot of work to be done there. But it
was it wasn't a surprise that the California Legislature, which
is good again controlled by the Democrats, would pass these
bills to put it up on the ballot for the
voters they still have. I mean, right now, sixty four
percent in the latest poll of California votvoter said no,
we don't want to give it back to politicians. To
draw the lines, so they still have to run a
campaign to try to convince Californians to vote for giving
the drawing of the lines back to the politicians. The
cost of it, nobody knows what the cost will be.
The last special election they had a few years back,
it cost them two hundred and fifty million dollars. Now
this is a stake that's having financial problems, but they're
willing to spend two hundred and fifty million dollars because
it's about them. It's not about spending two hundred and
fifty million for the voter, for the citizens, No, of
course not. So it's all up to making sure that
they're trying to protict themselves, so they'll spend your tax
dollars on themselves. But Newsom's been weird. He's trying to
He did the I don't know does he still have
his podcast going. Probably does. But he made news when
he first launched it because he had Steve Bannon on
and he had some other conservative Republicans on his podcast,
and he was trying to pretend he even had Remember
he went on with a debate with Governor DeSantis of
Florida on Hannity Show and I thought, oh my gosh,
what's he doing. Well? He was trying to pretend like
he was mister even Steve in middle of the road.
He's don't hold anything. I guess, well, that hasn't worked.
So now he's pulling out a card and it's very
obvious that he's sending out tweets mocking President Trump using
the same kind of language that President Trump uses, and
it doesn't seem to work for anybody who's tried it.
Remember when Trump was running in twenty sixteen, what was it,
It was something like sixteen or seven seventeen. I think
Republicans are running and they all tried to copy Trump
and all of them failed, and he rolled over the
whole group and became the nominee and became the president.
It's been done number of times people tried to outdo Trump,
try to out trump Trump, and you can't do it,
you just can't. But Newsom is the latest to try that.
I'm just looking at his tweets. He says, the power
of California will have The people of California will have
the power to push back against Texas and any other
state that obeys Donald Trump's demand to rig the next election.
See here's a little Trump language. Here's another one. California
is countering Trump's attempt to rig the twenty twenty six
election and redistrict this way out of accountability in states
like Texas. We're fighting fire with fire, giving the power
to the people to fight back and demand nation wide
independent redistricting. No, you're done. You're taking the power away
from the people. Here's another one from him. This is
radical rigging of a midterm election, destroying, vandalizing this democracy,
the rule of law. Right now, we're walking down a
demand different path. We're fighting fire with fire. We're going
to punch those sobs in the mouth. From Gavin Newstem
trying to talk tough, what's this one? This confirms what
we already know. California's effort to put new maps before
the people to make the final decision is entirely legal.
Why won't Texas let their people have a say. Well, essentially,
California is doing the same thing they're going. They're trying
to get around the people. I don't know, very northern
California is very red. I don't know how they're going
to try to turn that into blue. But good luck
to them on all of that. I don't think. I
don't think it'll work. They'll spend a couple hundred million
dollars of your tax dollars for you in California, and
I'm not sure it's going to be successful. I hope
it's not. I don't want to give I hope they
don't give the power back to the politicians. So we
move on. Today is also a big day in Jackson Hole, Wyoming,
the annual conference of the Federal Reserve. I think it's
the Federal Reserve District of Kansas City hosts it, even
though it's in Wyoming, but it's the annual Federal Reserve.
I don't know, boondoggle that goes on every year. The
Fed chairman comes and speaks, and so Jay Powell a
lot of pressure on him to drop interest rates and
everybody talking about what's he going to do. So we'll
see what that's all about as the day progresses. One
of the people that I wanted to talk to, and
this is going to be a little bit different because
I'm just a huge fan of doctor Art Laugher. Art
Laugher is the is the guy who created the Laugher curve.
The laugh for curve was the basis of Reagan's economic policies,
and Art Laffer was a young guy on Ronald Reagan's
economic advisory team. Laugher had a lot to do with Reaganomics,
and what the laughter curve is is basically a sweet spot,
trying to find a sweet spot for not too much tax,
not too little tax, get it just right so that
everybody wins. So I called up Art the other day
and had a wonderful conversation with him, and I wanted
to play that for you here today. Here's doctor Art Laugher. So, Art,
it's been a while since we've talked, but over the
years we've popped up in front of each other, going
all the way back to nineteen eighty six in California.
I was in the media, you were running for the Senate.
We met then and we've been in contact ever since.
And I just wanted to catch up with you because
we haven't talked it in a little while. But you
did something. I mean, I don't know what's wrong with me.
I moved from California to New York. What was I thinking?
But you moved to Nashville. In Nashville, no Tennessee income tax,
very prosperous, town. I mean, the population there has been booming,
and I thought, well, maybe you made the right choices.
Nashville still the hot spot that it was when you
moved there.
Speaker 2: Nashville is in Nashville starting to lose it, by the way,
very quickly, unfortunately, but because it's been too successful. Property
taxes they increased them three years ago by forty percent,
and then this year they increased them another forty percent.
Population growth in nashville's negative. You know, building there was
a big building that was sold I think four years
ago for one hundred and fifty five million. This year
got forty million when it was resold. You know, it
was First Third Bank. You know, there's a huge drop
in Nashville, which is too bad. I mean, it's going
to continue on for a while. But Nashville property values,
Nashville property taxes, property values are following. Property taxes are rising,
and it's going to become Memphis shortly unless we do
something about it.
Speaker 1: Well that's a shame to hear because I thought it
was quite the darling. But you're telling me everything's reverse.
Speaker 2: It happens everywhere, it always does.
Speaker 1: What's what's the matter with these big cities? I mean,
as Nashville was a nice southern town and now it's
a big city and they they tax the upper income people.
Then the upper income people move out and leave the
people that really don't pay any taxes but need lots
of services. And it starts, it starts killing the big cities.
Speaker 2: Yep, now that's right. You know the inner city top
politics is pretty left wing and they make it really tough.
Speaker 1: So there you are. That's what these politicians are. They
can't seem to help themselves about getting more revenue from
the citizen for their pocketbook.
Speaker 2: No, they can't. No, they cannot help themselves. I don't
give a damn if you get super free market fun.
Hi at Milton Friedman and all the others in there.
They'll raise taxes if they get the revenue. They don't
have any principles.
Speaker 1: What's over Well, you made your famous young economist the
White House for the Laffer curve, and correct me if
I don't have this right. But in the laugh of curve, basically,
the taxes should be somewhere between zero percent and one
hundred percent, and the job is to find the sweet
spot of the maximum amount that the government can receive
and the minimum amount that people have to pay.
Speaker 2: Yeah, that's correct. I mean it's not you don't want
to maximize tax revenues for government, that's not what our
job is. But you surely want to have it below
the maximizing rates because you want to create prosperity, economic growth,
all that. And it's way lower than people think it is.
That optimals tax rate.
Speaker 1: Somebody told me years ago that the perfect spot was
somewhere around a tax rate of eighteen percent. Is that right?
Speaker 2: There is no magic number for that. But with property taxes,
property tax rates pay for themselves for anything over one
percent property tax rate, I mean, you know that's where
it is on property tax. On income taxes, it's probably
in the fifteen to twenty percent range, you know. And
for sales taxes, who knows.
Speaker 1: So what you're telling me is there's no one perfect number,
no sweet spot.
Speaker 2: Well, it depends on what it is, depends on what
it is, and depends on how many other taxes there are,
and you know all that other stuff. All that matters.
But you know, anything over twenty percent income taxes get
suspicious right away, and sales taxes anything over five or
eight percent gets real suspicious right away. All of a
sudden you paid for people to do transactions away from
the tax register. Yeah, the underground economy and the people
doing business not reporting their income. It's just you know,
and you can see it in California. You know, the
revenues start tumbling, people start leaving, and once you get
people leaving, rich people leaving, you've got you've got a problem.
Speaker 1: Yeah, it seems like how cities and states have lost
their tax base. Weren't you speaking of that area. Weren't
you born in the Smokestack area? You were a Cleveland
native if I read right somewhere.
Speaker 2: Oh see, I was born in Young Sound and raised
in Cleveland. Yet you're completely correct. How did you remember
that I smell bad or something? Just joking?
Speaker 1: No, I read your wiki. I think it was talking
about you're a native person of Cleveland. I had a
friend that was from Cleveland, grew up, went to school,
got married, started a family, and couldn't take the oppressive
taxes and the lack of government services. He was one
of those. Oh this is probably twenty years ago. He
was one of those that fled to Texas.
Speaker 2: Yeah, I left too. I left too. I left in
nineteen fifty eight and never came back, went to college,
and just that was it. Oh well, I really loved Cleveland,
by the way, I mean because of family. I mean,
every one of my family's been there for generations. But
you know, that's the way it goes. They throve people
like me out.
Speaker 1: What happened? What was it that turned the economy sour
in the Cleveland area.
Speaker 2: Some nineteen seventy six I think it was seventy six
in the income tax in Ohio. And from then on
it's been straight down. Ye know, it's just been a tragedy.
Speaker 1: Let's talk about the big conference going on at Jackson
Hole for the FED, their annual event. Jay Powell's under
a lot of pressure. He's going to give the speech.
I don't know how he's going to be received. But
what do you make of the pressure that Jay Powell
is under.
Speaker 2: He is under a lot of pressure, and unfortunately he's
responding badly to it. I mean, you know, he seems
like a very nice guy. I don't know him, but
he seems like a very nice guy. But he's totally
unqualified for the position he's in. You know, he is
he's not a I mean, it's not just that he's
not a trained economist. Most of them aren't qualified either.
And this guy then now has set his feet in
the ground. He will not leave unless fire, you know,
and all that. And he's just ruining a reputation and
and and a career by just opposing Trump at every
point he can. And Trump's going to win this one too,
and he's going to leave. And Powells already lost a
huge amount of his reputation. And he never was very good.
He's not an Alan Greenspan, he's not a McChesney Martin.
He's not a Paul voter. He's not He just doesn't
understand this stuff, but a lot of people don't. But
he should have just said, Okay, I'm out of here.
You can replace me. But he didn't. He wanted to
fight Trump, as so often happens, and it makes no sense.
Speaker 1: I was talking to Larry Lindsay, who, of course, you know,
he was on the Federal Reserve many years ago. But
I just am impressed by him as an economist, and
he was telling me that when he was on the Fed,
it was the Federal Open Market Committee. The twelve members
that vote were a combination of some bankers and some
business people and some economists and just a variety of
smart people that were there to vote on FED policy.
But he said that since then they have decided that
every one of the members of the Federal Open Market
Committee must be economist and they must be from one
of four elite business schools. And that surprised me.
Speaker 2: Larry's a good guy. Larry's a good guy.
Speaker 1: Smart guy. So it seems like the problem is that
you've got twelve people with all the same background and
the same education, so there's no diversity of opinion.
Speaker 2: Well, it is a problem, but that's not the real problem.
Speaker 1: You know.
Speaker 2: The way you run monetary policy is doing a price
reap rule. Do you care how much what the quantity
of money is? Not? Really, no, no one does. Do
you care what prices are?
Speaker 1: Of course, now you got my attention.
Speaker 2: Of course you do. If you have a price function,
you want to have a price rule for monetary policy.
Very simply, monetary policy should be run to stabilize prices.
And this is exactly what Paul Volker did, what McChesney
Martin did, what Alan Greenspeed did. Is they when prices
started rising in the marketplace, they would sell bonds in
the open market and take down the monetary base until
those prices stop rising. If they were falling too rapidly,
they would buy bonds in the open market, increase in
the monetary base until they stopped falling. In this way,
they stabilized the price level. Now, they used an indicator
back then, which was the spot commodity pricing. Next, that's
what Paul Wolker did. I wrote this up in the
Wall Street Journal in nineteen eighty two of a long
session I spent with Paul. But that's the way the
thing was operated. It's just like the gold standard was
operated under Britain, or the gold standard was operated in
the US before nineteen thirteen, and it stabilized prices beautifully.
Then these guys come in there, the monitors come in there,
and the Canathians come in there, and they don't know
a price roll. And so what they do is they
expand that monetary base to where we have the inflation
of the Joe Biden era. I mean, this guy doesn't
economic growth doesn't cause inflation. Hell, how does having two
more people working cause inflation? It makes no sense. So
that's where we are in the policy, and these guys
don't get it, and they're running monetary policy badly, and
the consequences are clear.
Speaker 1: Well, monetary policy is one thing to run, But what
about running the budget for your remodel of your office
building the better Reserve? What is it a billion and
a half or something. They're way over budget by hundreds
of millions of dollars. I mean that's not a good look.
Speaker 2: Well, that's you know, that just shows the That just
shows the the the the k internally on personal stuff.
I mean, you know that should not happen anywhere. You shouldn't.
You shouldn't have the fanciest desk in the world by
the Post Office director. I mean, you know, and these
guys just they can't stop themselves. They just didn't.
Speaker 1: Yeah, you want your pilot to have some gray hair,
looks like they've been doing it for a while, and
or responsible. And you want your that the leader of
the Federal Reserve and the Federal Open Market Committee to
look like they're financially well, maybe a little frugal, at
least have some financial management of their own finances.
Speaker 2: Yeah, and to be and to be and to be understated,
not overstated. You don't want to don't want them to
wear pink suits and flying hovercrafts. You know, you don't
want them to be show ponies. You want them to
be you know, want them to be mature gravitas stage
and you know Powell has that look. But God, this
building thing three point one? What is it? Billion? You know,
that's that's a lot of money. I mean, you know, God,
and for nothing?
Speaker 1: What do you make art of the annual event at
Jackson Hole, Wyoming for the Federal Reserve? Is this something
that you pay close attention to?
Speaker 2: No, I don't. I don't take it seriously. I've never gone,
and myself, I don't take it seriously. Just a bunch
of people getting together pass some little gas that sipping
coffee and smoking cigarette and they do it in a
lovely place where they can chase girls. Who knows what
the hell these people do, But there's nothing serious coming
out of those meetings.
Speaker 1: Well, from afar, it looks like it's a pretty nice boondog,
especially August in Washington, d C. The swamp. I mean,
somebody figured out, so let's get out of here and
go to Wyoming and have a nice August.
Speaker 2: Yeah. Well, and Jackson Hole is cooler. You know, it's
a fairly I mean nice place. You can spend a
lot of money. You have a lot of business people there,
you can get hookups and all sorts of stuff. And
it's like the World Forum, you know, in Davos, and
it's the same damn thing. It's just you know, and
it's a waste of money and a waste of time.
But they get to hang around with each other, and
it's it's sad because yeah, and if you look at
the number of economists employed at the I think it's
something like three hundred PhDd economists of the FED. Hell,
I could run fifty countries with twenty economists all the way.
Not just I mean, what are these people doing. They're
just there's just there's just creep all over the place,
expansion of factor, you know, creep, and it's it's just,
you know, it's because there is no discipline on these people.
There will be discipline shortly. Trump will put it in
and he'p they'll get them disciplined.
Speaker 1: Well, this particular FED was clearly too late, as Donald
Trump calls J. Powell, but they weren't too late on
boosting and raising interest rates when inflation started to take
off back in twenty twenty one, and even Janet Yellen,
who was the Treasury Secretary at the time former FED chairman,
said that inflation was transitory. They missed it totally.
Speaker 2: Even within the Yeah, even within their faulty model of
how they do monetary policy, which Janet Yellen doesn't have
stand either. Even within that framework, they were wrong. So,
I mean, it's wrong on top of the wrong, on
top of the wrong. And you know what we should
do is go back to a monetary standard where we
have monetary policy, fix the price level and that's it,
and just have stable prices for the next century. I mean,
they go up and down, but you want to make
sure there's no systematic systemic inflation. And they've got systematic
inflation right now.
Speaker 1: So Art, let's talk tariffs, because tariffs have a very
bad history. Prices go up, production shortages, product shortages, labor loses.
But is it inflation area and that seems to be
there's no consensus on that in the economic world.
Speaker 2: Yeah, that's true. Well, that's true, but it doesn't cause inflation.
That's not what is that issue. We had a huge
increase in tariffs with the Smooth Holly tariff in nineteen
twenty nine nineteen thirty was signed into law in June,
and prices fell. Like Matt. The problem with tariffs as
they caused an economy to stumble and to fall and
to go into into recession. We had tariffs put on
when I was in the White House from nineteen seventy
to seventy two. You know, you had the Camp David
thing with Nixon who put on a ten percent import
surcharge and then had the job development credit that excluded
foreign made capital from getting the development credits. So you know,
and inflation went down, not up, but the economy crept out,
It just did badly. The problem with tariffs is they
hurt the economy, the real economy. That's the real problem.
And if you look at it, you know right now
tariffs are very our attacks on a very small portion
of total input in the US. I mean, imported goods
are about ten percent of GDP. It's a tax on
usually on extremely important products, things that we don't produce here.
So therefore it's bad that way. The gains from trade,
the Ricardian and the Alexander gains from trade are renowned
and go back to literature on them, goes back centuries literally,
So tariffs are in general a very bad way of
controlling the economy that now Trump is using these tariffs
very effectively to negotiate other things. He had five deals
he did in his first term, one with Japan, one
with South Korea, Brazil, and one with Columbia, and of
course USMCA was the fifth one, which is a big deal.
And in all of those cases he reduced tariffs. Is
the final stage. He threatened higher tariffs, and then when
push came to shav he lowered tariffs and we got
great deals. So I am expecting Trump to use tariffs
in the same way, whether it be with the Ukraine
Russian whether it be with China and Taiwan, whether it
be with the Gaza, whatever. He's going to use tariffs
to negotiate other things like peace and also to ultimately
bring down tariff barriers. That's my story. I'm going to
stick to it. I've had a number of conversations with
the President about this, and I'm still very much of
the view that ultimately Donald Trump is a free trader.
That's where he's going to come out. And so I'm
not I mean, I'm scared to death about it. I'm
nervous as all hell, and I could never negotiate this stuff.
But he's done a good job. Yeah.
Speaker 1: Donald Trump definitely likes to take risks, no question about it.
Speaker 2: Yeah, that's him he is, and it works. I mean,
look at what he's doing with Russia and Ukraine. It's
amazing company. It's amazing. He's done five other peace deals
already in office. You know, he did India, Pakistan, he
did two of them in Africa. What the hell is this?
I mean, he's as good as Reagan on this stuff.
You know, remember when Reagan bombed Libya and Kadafi's tent,
and you know, Reagan then threatened a round with you
know when when he took the oaths of office, they
sent back the hostages. You know, Trump has done the
bombing of a rod here, he to stop the nuclear facilities.
He is doing an amazingly wonderful job. You may not
like him, but you know, being president is not being
a popularity condes. Is doing the right thing, and this
guy's just doing it all the time the right way.
I'm really impressed by all the things Trump's doing. Yeah,
I still grouse about him from time to time. He
says stuff sometimes it drives me nuts. But he is
doing a lot of things, accomplishing a lot of things exactly. No, no,
And I can understand people not like you. He's a bully,
he is a believe, he's a CEO. He tells you
what to do, he doesn't ask you, and you know
all that stuff. But damned if he doesn't get stuff done.
And I love the stuff done.
Speaker 1: I don't know how this is going to work out.
I hope he's successful. But you know, during the last
four years, Biden and Kamala did they lift one finger
towards peace. Nothing, Never tried to pull the parties together
to see if they can put an end to the war.
And I don't know if Trump's going to be successful,
but it looks he's He's making more progress in a
couple of weeks than they made in four years.
Speaker 2: I know, I couldn't. I couldn't imagine how Kamalin and
Joe didn't solve it. They worked so hard at it.
Not what crazy people and Gavin newsom out there in California.
Oh my lord, And what's what's happening with mom? Donnie?
You've got him coming in shortly? Whoa thank God for
thank God for Trump? And you know, if Kamala a
Harris had won, I think we'd be in real trouble today.
It would be a much worst world. We've got a
great shot at prosperity in the next three and a
half years, four years, God knows how long this thin
could last. I'm really excited.
Speaker 1: Well I am too, Art, and I am such a
fan of you because you're so right. So I hope
you are definitely right and we will have lots of
prosperity ahead. Thanks for taking the time for us today,
and I hope you can carve out some time for
us in the future as well. But it's absolutely fun
talking to you, doctor Art Laffer. Thank you so much.
So that's it for today. This is a little different format,
interview format, if you will. We're recording this long before
the market closes on this Friday, so have yourself a
wonderful weekend. We'll be back on Monday. Hope to see
you then.