Kind: captions
Language: en
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 Laugher, now with
America sitting on $ 38 trillion in
debt, rising inflation, and growing
wealth inequality. Laugher's back. This
time advising Donald Trump on how to
spark a second economic revolution.
[music]
In this episode, we go deep into the
real mechanics of growth. what worked
under [music] Reagan, why Trump's first
term fell short of that same boom, and
what Laugher 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
[music] economy, this is the episode
you've been waiting for. I bring you
Arthur Lafer. 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?
>> Well, I think they will. But let me just
say that I don't share your pessimism
about the world because the systems
adapt that well the 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 of you know
>> so you see them as mechanistic responses
to where the economy went and that we
will always have said response.
>> 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 hand basket if the
markets weren't able to readjust and
offset the damages that you see coming.
I agree.
>> 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?
>> Yeah. Well, well, no, but I'll you're
talking a very different time scale on
that. You're talking hundreds of years.
Uh you're you're not talking hundreds of
years, at least I don't think today. I
mean, you had the Biden uh uh economy
there. You had the response by the Trump
economy. Uh what you're seeing with the
Trump economy is exactly as what you'd
expect. I mean, you know, that 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 1st, 1983, now
that's almost two years into his
presidency,
uh, real GDP started to rise. The tax
cuts took effect. And from January 1st,
83 to June 30th,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% peranom 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. I I
>> Let's get specific. So, what um take us
back to the Reagan conversations. You
come into office, he brings you in. Um
what are the structural problems that
you see? And then why were tax cuts the
answer?
>> Well, when we came into the office on
January 20th, 1981, all right, the prime
uh the prime interest rate was 21.5%.
Mortgages were doubled to 17 18%. Uh we
had huge unemployment. Uh we had a
highest marginal income tax rate of 70%.
Uh you know, it was collapseville. We
just come off the four stooges. Uh I say
four stooges, Johnson, Nixon, Ford, and
Carter. uh 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. Uh 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 uh
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? [snorts]
>> Not spectacular.
>> We cut the corporate rate from 46%
to 34%. That's not too bad either. Uh we
went from 14 tax brackets to two tax
brackets. The two tax brackets were were
were literally 28 and 15%. That's what
we went that was it. Uh we dropped the
capital gains tax rate dramatically as
well. All of these things happened. We
strengthened the dollar. We got Paul
Vulker 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 uh his 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 Manddale 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 uh uh eight weeks out uh
asked us to withdraw our all of our
funding, all of the campaign funding
from Minnesota. uh so that Montdale
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, uh, the one thing you
mentioned and and I want to address that
very formally with you, uh, debt.
And let me talk to you about debt a
little bit because it's really, really
important. And I'm an economist, uh, and
I want to go through that debt number.
And the way they usually structure the
debt conversation is debt is 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 I
can't. My grandchildren are going to be
you. You know what the one I'm talking
about.
>> Of course,
>> those numbers are true. And [snorts]
that debt as a share of GDP is too high.
Okay. But let me put it in perspective.
First place, uh 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 uh
that has been issued by the federal
government that is uh that is on the
balance sheet of the federal government
and different departments and agencies
etc. So what you should do is first and
foremost uh eliminate all the
intragovernmental 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 that debt to GDP number from
130% to about 100%. And that that's a
big drop. I mean that's the first thing
you do. The second thing you do when you
look at debt uh and compare it to GDP
it's really an inappropriate comparison
when 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 it's an inappropriate measure. You
should look at debt to wealth or you
should look at debt service uh 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 181 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, uh
it's about 4% something like that. Death
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 they 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 a 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 uh it's a very
normal way of transferring assets from
net savers to net investors. Uh 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-f free at 12%. How much
you're going to borrow from me?
>> Uh, it depends on which one of those I
get.
>> Well, but you get 1% it costs and you
can invest it at 12% risk-f free.
>> Uh, oh, I see what you're saying. Yeah,
then
>> infinite. 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 you going
to do?
>> Zero.
>> Yeah. So, okay, we're getting into the
abstract here because of course in
reality,
>> no, it's going to be real.
>> Yes, it is. Okay, bring it bring it home
to reality for me.
>> Bring it home. When we came in under
Reagan, we found the US have been
trashed. The economy was in bad shape.
We had to look at Enterprise America and
we had an act 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
jack rabbit. 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, uh you can
reestablish credul 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.
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let's get back to the show. That was
great. That's very easy to follow. Um,
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. Uh 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 um 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. Uh 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 a 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 a lot of topics.
So, let me
>> The great news is I can run through it
piece by piece over and over and over.
>> We'll do it piece by piece. Let me do
the first one. inflation and the
printing too much money and all that.
Uh, 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 12th of an ounce of
gold. It's 1 ounce of silver. That's a
dollar. Uh, it also did one other thing
as well. It did mint coins. If you
brought billion in to 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 around the
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 etc. At that
time banks created money. There were
bank notes that were the li liabilities
of individual banks. uh 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
bank notes like they did because they
were all private liabilities. Uh and
that was a system that went from 1776
until 1913 in the US. 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 one, the gold
confiscation of 1933,
uh, 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 uh voluntary foreign
credit restraint program. Those were the
ones I did my dissertation on at
Stanford.
We went on up to Smithsonian and 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, uh, 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 a joke.
And now finally, government had 100%
control of money in 1972.
They did. Inflation from n [snorts] from
1776 until 1913 was
>> zero.
>> Yep.
>> Zero. Uh 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. Uh there was
nothing there. Long bonds now these are
all from Jeremy Seagull and Jeremy
Schwarz who are my colleague at the
University of Chicago. Best people in
the world on 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 4 12%. Just all very stable
steady. No blah blah blah blah blah blah
blah blah none of that stuff. It was a
beautiful system. From 1913 to the
present, the price level has risen
35fold. You've had interest rates that
I'd mention went from 21% down to zero.
But ba doo. 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 went from private
banking, which worked really well, to
public one, which just screwed it all
up. And the US, by the way, screwed it
up a lot less than other countries did.
We are the we are the tallest [ __ ] in
the bunch on that. Now, when it gets you
to be scared, uh I look at I look at
cryptocurrencies at 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 uh um uh uh
like uh uh Tether and these other stable
coins, 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 uh
which makes me very optimistic about the
long term there. Um so that's the
monetary inflation one. Now you have
redistribution. You said uh 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 bawick and trade. Uh the
book I wrote on this one is called taxes
have consequences. It's two and a half
years old. Uh it is the complete history
of the US income tax from 1913 to the
present. Uh in this I just want to say
we have every single tax return. Uh 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 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 uh 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 1951
1617 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 19
191819.
Boom on down went down as low as 25%
under Harding and Coolage. We have had
huge amounts of variation in the tax
rates on the rich. We we have we've had
enormous amounts. And we don't just
guess what happens when you raise tax
rates on the rich. Uh we know we have
every single example and let me just
summarize if I can on SIZ [ __ ] and all
these other guys you know Zupman and
Savva and all the redistric 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 in 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 a long shot. So that's
where we are in this. So, as you can
probably guess, I'm far less afraid of
mom Donny's uh Elizabeth Warren. And
yeah, they screw up. They dumb. They
don't understand economics. They don't
know straight up from scum. 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. Uh, all
of them eliminated the inventory tax.
You know, when you look at the progress
we've made, we've got 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 deontrolled, airlines
decontrolled, all of this stuff. you
know, we are making enormous progress
coming along here and you know, I 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 I'm
telling you, it's getting better and
better and better. Yeah, we
[clears throat] 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 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 s 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,
>> okay, hold on really fast before let me
say back to you what I just heard.
>> That's why we're doing this.
>> Yeah. So, I here's what I heard. Um, hey
Tom, listen. Uh, 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. Um unfortunately
history is on my side that what is
actually happening is that you're
getting these back and forths but they
are on a trajectory of debt just going
up up up up. So there's no denying that
you have this tack up and down for sure.
Um, 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 '7s, 80s,
90s. It's like once you get the breaking
point of the 2001 dot crash, all hell
breaks loose in terms of how we treat
printing money to solve our problems.
You then compound that in the 2008 uh
financial bubble or bursting of the
housing bubble then obviously co and so
you look at this and we are in a moment
now
>> gotcha
>> 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 But but help me.
>> Bear with me. Bear with me. Bear with
me.
>> I just made up that new rate. This has
been done in accounting for a thousand
years. But the way I describe
>> changing the metric by which we judge.
>> No, I'm 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. That's 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 merit metric. It is a problem.
I'm not denying that but it's nothing
like the problem you're describing.
>> Okay. A bad metric.
>> You've that point is very clear. And so
now well I I haven't said that I
concede. I just said you've been very
clear.
>> Concede. I'm just the guy who knows
those metrics.
>> 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
counting
>> bear with me
>> numbers ev every empire Arthur has
failed for debt and money printing.
>> You know I read Rogoff too.
>> 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.
>> I got you. No, I got you. It's a great
great question. And let me just answer a
little bit if if I can. I tried to give
you an answer on 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 me metrics. It's not like I
have edited it to rebut you. I didn't.
Uh it's been around there. It just is
useful in rebutting your 122% number.
That's all I'm you know you are right
about debt being too large. And you're
right. But the problem is is government
spending. And you know when I look at
this system today uh I don't see the end
of the earth coming. I see this system
adjusting right now. And I was trying to
describe
>> 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. Let me tell you your
cause. Let me let me support your
argument here. Uh in 2007, I think the
the balance sheet of the Fed was about
$850 billion, something like that. Uh it
went up as high as $9.4 trillion. Uh 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, they're 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
do it's doing in Turkey and central
Africa with the Masai 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
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. Those
>> agree. So what you're saying is this
empire won't collapse because that's
democratically possible for us to
replace the money.
>> Yes. Exactly. That's exactly correct.
And I think those other countries that
you've always tal mentioned there and
that's all they're all true. Your data
are correct. I I you know I know Rogue
off and 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 Winsky'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.
>> Totally agree that it has nothing to do
with the timeline. Um, 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 uh, 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 uh, 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. Uh 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 I 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
>> that's why I did the 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.
>> Okay. So, I think just so everybody
understands why you and I can agree on
so much and still uh walk away being you
not worried and me like terminally
worried.
>> 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.
>> 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 because I certainly from where
I'm sitting, it seems like Trump uh
listens to you. He certainly hears you
out. Whether he takes your advice or
not, we'll see over time. Uh but that is
extremely useful as we're talking to
somebody that's inside the White House
that uh understands how this works.
Okay.
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, uh 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 cuz
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. Uh, 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 were a
hell of a lot better than mine were. And
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for full disclosures. The base
assumptions that I think cause us to um
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 governmentcontrolled
financial system.
>> Yes, they can. And 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 an 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. That's I just
did my curve quickly and slid it by you,
didn't I? I got it slipped through.
>> I I know your curve very well. And it
>> you lower the rate, you collect more
money. 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. But um 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
>> uh 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 uh 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. Okay.
So
>> but let's do wealth inequality just the
facts during the great depression money
wealth was much more evenly dist
distributed than uh it was in the 20s or
than it is now. Uh 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 do you know the
transfer? Can I do a transfer theorem
with you? Because I I think you'll love
it.
>> Sure. if you let me do it and and
[clears throat] 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 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 slutskkey 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 lema 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.
>> Avid subscriber. Yeah, good. Well, let
me if I can't 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 you 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 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 [snorts] I win,
he loses.
>> You follow my
>> Well, he's he's he's pulling himself off
the chessboard for you, so I don't think
you have to.
>> And I Let me just say a little fun
[snorts] fun one for you. This is fun,
but I I'm not a mean person. I really
not I don't want anyone.
>> Don't strike me as one.
>> Well, I I don't want anyone to suffer. I
don't uh 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 be come down and there has to be
here. I know the guy I want to be the
one who gets it. Larry Sage 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. Both Nobel laureates, famous
mathematical economists. He's parlayed
that privilege all the way up being sec
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. Yeah. Well, to to uh you reap what
you sow, I guess. All right. So, really
fast, all of that makes sense to me. Uh
this is another case of everything you
say I agree with wholeheartedly. Um the
very clever guy from what I've heard you
are
>> well that is exceedingly generous very
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
and comments are really really
insightful and correct they're the right
questions and I hope I'm
>> I get emotional and answering them but I
hope you don't mind that but
>> I don't mind at all this is joy for me
>> you you and me both okay so the there's
one thing in all of this that I still
worry about which is um whatever the
government makes mandatory is the only
thing the average person is going to um
use. So if the government is making the
hyper it's not technically hyperinflated
but the very inflated currency the
mandatory one to pay your taxes and all
that that's the one people are going to
understand. I don't think the vast
majority of people understand crypto nor
will they embrace it unless they're
forced to. They need to because
otherwise they're getting hammered by
inflation and so going but they
understand that.
>> Yep.
>> Go ahead. Sorry.
>> Here's the thing. They don't understand
inflation. That that is a hill I will
die on. But I to your point intuitively
they know something is going wrong.
Okay. So that's one. The wealth
inequality even though that's the right
thing to point at in terms of what
drives people crazy from a there's just
a algorithm embedded in us from
evolution that makes us hate inequality.
per perfect. Uh, however, you can
distract people from that by giving them
relative growth. So, if they believe
that, oh, I'm making more money today
than I was yesterday, and buying that
car, that house, that whatever is a
little bit easier today than it was
yesterday, and I'm going to be able to
amass some amount of wealth that I'll be
able to pass on to my kids so that I
have reason to believe that their life
is going to be better than mine, and
therefore all of my sacrifices are worth
it.
>> Yeah. The second you break that, you are
in a real problem. And we have broken
that.
>> And right now, things are getting harder
and harder for people to afford. And so
that makes them go, "Wait a second. That
guy's making a whole lot more than me,
>> which they never would have worried
about or thought about if things that
they wanted were getting effectively
cheaper for them."
>> You're right. So the question becomes,
since we agree on that and we know we're
moving in the wrong direction, what
precisely is Trump going to do from a
policy perspective or more importantly,
what are you advising him to do uh to
get it moving in the other direction so
that real wages are going up, not the
nominal where it's like, yes, I'm making
more dollars.
>> Gotcha. Gotcha.
>> That one obviously I'm not saying for
you, I'm saying for the audience. Okay.
But so that the the dollars I'm making
sure are more, but in terms of what they
buy, it is less. So real wages is where
it's like, hey, the actual difference
between how much I'm making and how much
something costs has changed and I'm in a
more powerful position. Okay, how do we
get there?
>> Yeah. Well, you know, I break it into
five kingdoms of macroeconomics. If you
look at a big macroeconomics textbook,
you've got five sections in there, at
least if you're talking about the US and
developed countries. First section is
taxation. Second section is government
spending. Third section is monetary
policy, inflation, all that stuff.
Fourth section is regulations. And fifth
section is international trade. And I
sometimes add one piece through strength
which is defense security. Sometimes
when I look at those five grand
kingdoms, I look at let's say Joe Biden.
He's a loser in every single one of
them. just just across the board. Trump
in his first term uh cut personal income
taxes, cut corporate taxes, 100%
expensing, cut the death tax
dramatically in the tax cuts and jobs
act. He did a great job on taxation on
government spending and that he did the
defense stuff that was pretty good. He
reduced the rate of increase of spending
there until it came to CO and then he
blew it on the CO. But uh even when he
blew it on the co he did get the uh the
vaccine in operation warp speed by
within 10 months which is pretty
impressive by the way. They were
expecting eight or nine years there. If
you look at his monetary policy he was 1
and a half% inflation during that period
there. It that was what he had there. Uh
if you look at uh regulations he
deontrolled energy. He deontrolled
healthc care uh price transparency. I
could go right to try. He did all of
that stuff which is pretty cool on
regulation and on trade. Uh I I'd love
to talk to you about trade that take a
longer but he all the deals he did in
his first term were lowering tariff
barriers, lowering uh quotas, lowering
restrictions on trade, not increasing
them. The Japan deal, the US MCA, the
South Korea, the Brazil and the Colombia
ones were all freer trade, not less.
This term he got the tax cuts and jobs
act permanent. He got u no tax on
overtime. So all those guys, all those
firefighters in California and all the
people in Palestine, Ohio who spend 80
hours a week at at 911, you know, do all
the work and take all the risk. He
doesn't. You don't tax the living crap
out of them anymore. You're not going to
tax them for putting in 90 hours a week
at the highest rates. Interest on loans
should be taxdeductible. As long as
interest income is taxable, interest
loans should be tips.
Why in the hell should you spend a
billion dollars trying to collect a
million dollars from tips? You know,
there just some things that are just not
worth it. He did [clears throat] that as
well. What he did, he put in workfare in
there. He put in the U medical price
transparency in the big beautiful bill.
He put in a bunch of other things there
that I won't go through the details on,
but are all pretty damn good. Uh what I
see him doing on trade is trying to
negotiate to get better free trade
deals. That's my belief. He's a free
trader all the way. He just loves to
negotiate them to reduce their tariffs.
We have much lower tariffs than any of
the other major countries and he wants
them to bring theirs down and that's
exactly and the deregulation. I mean,
he's doing that really well. So, I think
in the five grand kingdoms, Trump is an
outlier doing really well on taxes,
government spending. I think he's doing
well on monetary policy on regulatory
policy and on trade policy. And I think
his use of trade to negotiate peace like
in Ukraine, uh like in China, with
Taiwan, like in the four countries in
Africa that he's done it with Pakistan
and Afghanistan, what he did in Gaza,
you know, he really knows how to
leverage those types of tools to bring
the peace down. He is very Reagan-esque
in every respect except his personal
demeanor. He is a CEO. Reagan was
softspoken, was lovely high. Reagan was
as radical a rev