The expert who designed the tax cuts and other economic policies of President Ronald Reagan gave a grim prediction for the country’s current inflation situation on Wednesday.
Economist Arthur Laffer spoke at Young America’s Foundation’s National Conservative Student Conference in Washington, D.C., where he told attendees that predictions from many Democrats that inflation numbers are on the cusp of improving were “nonsense.”
“There is no chance from here to Sunday, frankly, in my view of the world, that we aren’t going to see inflation pop up to above 10 percent by the time we get into the election,” he said.
With fiscal 2022’s Q2 GDP statistics set to be released on Thursday, Laffer also took issue with the Biden administration’s denial that a recession is characterized by two or more consecutive quarters of negative GDP growth.
“We are already in the middle of a recession here in the U.S.,” he said. There are 500,000 fewer people employed today than there were in February of 2020, right before the onset of the Covid-19 pandemic, according to Laffer, who told students that Americans are living in “one of the worst-performing economies I have ever seen.”
While he was giving his remarks, the Federal Reserve raised rates once again, this time by 0.75 percent, but, Laffer said, its efforts will be fruitless.
“There is no way that the Fed can do anything in the near term that would, in any way, shape, or form, tamp down that inflation in the system. It’s just not going to happen,” he said.
Although the administration has boasted of a recent mild drop in gas prices, the falling cost of gasoline and raw materials can be a harbinger of a recession, Laffer argued.
“One of the real problems of gas prices,” he said, “is that, when you’re going into a recession, copper, lumber, gas, and a lot of other products will fall going into that. That is exactly what you’re seeing now. We have one hell of a bad economy.”
He articulated to the students two theoretical ways of bringing high prices down. The first, which he called the Keynesian approach, relies on reducing demand. As some economists such as Lawrence Summers have suggested, the economy must first go into this type of recession before it can move into prosperity.
But there is also another way of curbing inflation, Laffer said, one that relies on increasing supply rather than decreasing demand. To illustrate it to the students, he drew inspiration from his experience in the Reagan administration, where he attempted to institute the “Five Pillars of Prosperity.”
Those pillars are low taxes, responsible spending, strong currency, minimal regulation, free trade, and generally getting the government out of the way and allowing the economy to solve itself.
After describing his ideal economic platform, Laffer drew parallels to the years just before the 1980 election, in which Reagan defeated Jimmy Carter, who was unpopular due to the combination of low economic growth and high prices, which we call stagflation.
Though there was a dramatic blue wave in the 1976 election after Reagan lost the Republican primary to Gerald Ford, voters saw the unfortunate effects of big-government policy, and they voted accordingly in the next election, allowing conservative economic policy to shine forth, and the same can happen now.
“I think today is 1978 all over again. I was very depressed six months ago, but now I’ve, all of a sudden, seen the coming of the light. I have not been this optimistic in ages,” he said.