Read the full transcript of Head to Head Inequality: Are the rich cashing in? below:
Mehdi Hasan VO: Ronald Reagan and Margaret Thatcher unleashed an economic revolution based on cutting taxes and getting government out of the way. The result? The rich got richer and left the rest behind.
My guest tonight was one of the brains behind that Reagan-Thatcher upheaval, and remains today one of the most influential advocates of low taxes and free markets.
I'm Mehdi Hasan and I've come here to the Oxford Union to go head to head with Arthur "Art" Laffer, former advisor to President Reagan and "father of supply-side economics". He thinks that cutting taxes on the rich makes us all better off. But does wealth really trickle down? Or is he just telling the rich what they want to hear?
Tonight I'll also be joined by Dr Faiza Shaheen, Head of Inequality at anti-poverty charity Save the Children. Adam Memon, Head of Economic Research at the Centre for Policy Studies, a free-market think tank in London. And Ann Pettifor, leading economist and author of a recent book decrying the power of big finance.
Ladies and gentlemen, please put your hands together for Arthur Laffer.
Mehdi Hasan VO: A controversial economist for 50 years, he wants to bring in a flat tax and scrap the minimum wage.
Mehdi Hasan: Good evening.
Arthur Laffer: How are you?
Mehdi Hasan: I'm alright.
Arthur Laffer: Thank you.
Mehdi Hasan: Arthur Laffer, do you accept that since, the Reagan-Thatcher economic revolution, in which financial markets were deregulated, state enterprises were privatized, and perhaps crucially, taxes on the top were slashed, a revolution you were involved in, that you encouraged. Since then, inequality, the gap between the rich and poor, the gap between the rich and the rest, has spiralled out of control.
Arthur Laffer: It didn't happen during that period but it happened since then, yes. It's…it's really bad today.
Mehdi Hasan: As a direct result of policies that came about in the 80s to do with cutting taxes on the rich.
Arthur Laffer: I don't…I don't think so. I think these are policies that were done in the last 15-20 years, not the 80s.
Mehdi Hasan: But inequality increased on Margaret Thatcher's watch.
Arthur Laffer: [INTERRUPTING] Inequality increased...
Mehdi Hasan: It increased on Ronald Reagan's watch.
Arthur Laffer: Inequality has increased dramatically and I don't think it in…er, increased under Reagan or Thatcher.
Mehdi Hasan: Well, the statistics tell a…a different story….tell a…
Arthur Laffer: [INTERRUPTING] Well, let's take a look at the statistics. Cos if you look at just income tax return…
Mehdi Hasan: [INTERRUPTING] Yeah.
Arthur Laffer: Uh, they have…I mean, you've seen all sorts of people - I forget how many jobs we created but these are people who had no income at all. And then, all of a sudden, they had lots and lots of income by creating jobs. But what's happened in the last 20 years, you’ve had people drop out of the numbers.
Mehdi Hasan: [INTERRUPTING] But of course… But, of course, the incomes rose in different ways, of course. Under Reagan, something like the top 10 percent, I think their incomes went up by something like 120 percent, and the bottom 90 percent, their incomes went up as well but more like 25 percent. A massive disparity.
Arthur Laffer: [INTERRUPTING] Yeah, but…but what you realise…
Mehdi Hasan: [INTERRUPTING] The gains of growth going to the top 10, top 1, top .1 percent of society…
Arthur Laffer: [INTERRUPTING] But those numbers are correct. Except the point is that there were so many more people coming in to the labour force and getting jobs that those people started off at the bottom. So, even though your percentages are correct, the absolute numbers of people who got jobs and had higher incomes, was…
Mehdi Hasan: [INTERRUPTING] But…
Arthur Laffer: …really increased under Reagan.
Mehdi Hasan: Do you think it's wrong that when the economy is growing, 95 percent of the gains from GDP from growth go to the top 1 percent. Is that wrong?
Arthur Laffer: I don't know if that's wrong or right. I mean, you know, I would love to see the poor get richer. Er…
Mehdi Hasan: [INTERRUPTING] That's not what I asked.
Arthur Laffer: But not at the extent of everyone getting poorer. I mean, you’re using percentages here rather than the truth, which is the…the poor who got jobs who didn't have any income at all, they're much better off by earning some income, even if they are at the low end, I should think.
Mehdi Hasan: Well, the debate about real wages and how much they’ve gone up and stagnated...
Arthur Laffer: [INTERRUPTING] But zero wages don't, even in real terms, are pretty low.
Mehdi Hasan: [INTERRUPTING] Of course, agreed, but that's, that's a separate argument. [LAFFER LAUGHS] You're slightly distracting from the issue now. The World Economic Forum said that deepening income inequality is the biggest threat to the international community in the coming decade. Are they wrong? Have they been taken over by communists?
Arthur Laffer: [INTERRUPTING] No, no, of course not. But can I make a…a statement just here? Inequality that's triggered by everyone getting richer, I find acceptable much more so than a drop in inequality because everyone is getting poorer but the rich at a faster rate.
Mehdi Hasan: [INTERRUPTING] It's a red herring, that's a red herring.
Arthur Laffer: [INTERRUPTING] I don't think…
Mehdi Hasan: [INTERRUPTING] Before the 1980s, before Reagan, Thatcher, you and the revolution came along, everyone was growing then too but they grew in a similar pace. The IMF just published a research paper a few months ago which concluded [LAFFER LAUGHS] that higher inequality leads to lower growth so inequality is not just a morally bad thing; it's bad economics as well.
Arthur Laffer: I don't really think that's where the growth issues are. I really do think the growth issues are how you run your fiscal policy, tax policy, spending policies. That's where you really…
Mehdi Hasan: [INTERRUPTING] Ok.
Arthur Laffer: …can generate the growth.
Mehdi Hasan: Well, let's go to our panel of experts. Dr Faiza Shaheen is an economist who works for the charity Save the Children, specializes in poverty and inequality issues. Um, Arthur Laffer says we don't want to make everyone poorer - it's more important that everyone's richer, even if it's at different paces. What's wrong with that view?
Faiza Shaheen: Well, I guess that's the point, right? That you said it's a red herring. What we're actually seeing is that people get rich off the back of others. Profits rise and wages for everyone else fall. 67 people with as much wealth as 3.5bn, half the world’s poorest population…
Arthur Laffer: [INTERRUPTING] No.
Faiza Shaheen: …I mean, that's pretty crazy. Er, why do they say that's growing? That's growing because falling trade unions, because of tax changes, because there’ve been these tax tuts-cuts at the top, because of the way we haven't been investing in certain public sectors. I mean, this has very much started in the period of Thatcher and Reagan and you're wrong to say that inequality didn't grow at that time. It grew exponentially at that time.
Mehdi Hasan: Adam Memon, who is Head of Economic Research at the Centre for Policy Studies, a free market think tank in London. Adam, people like you in your think tank, whenever I see reports, it's always about the importance about economic growth, of getting growth back. When the IMF is saying, which is normally on your side of the argument, that inequality is so bad, so out of control that it's harming growth, surely you should get behind initiatives to cut that gap.
Adam Memon: Well, the…the…when you say harming growth, most important thing is poverty reduction. It's making sure we have enough food to eat, we have clothes to wear, we have beds to sleep in at night. Now, when we talk about inequality, er…one of the major reasons why people are…some people are against this…this debate is because the propos-…the proposed measures which are used to tackle inequality damage growth and damage prosperity
Mehdi Hasan: The IMF says the opposite. The IMF says, actually, redistributive policies would be good for growth…
Adam Memon: [INTERRUPTING] No…no…no…
Mehdi Hasan: …and less harmful than inequality.
Adam Memon: [INTERRUPTING] No, that…that is different. It's different to say inequality damages growth and the policies which are often used to tackle inequality, erm, the impacts on growth. So those are two separate things there.
Mehdi Hasan: Ann Pettifor, you are the director of PRIME, an economics think tank in the UK, author of the recent book Just Money: How Society Can Break the Despotic Power of Finance. You are listening to this discussion about the legacy of Thatcher and Reagan and inequality. What's your take?
Ann Pettifor: There's no question that it's a…it’s the legacy of Nixon, Reagan and Thatcher, and it’s…
Arthur Laffer: [INTERRUPTING] No…
Ann Pettifor: …vile inequality, it’s obscene inequality…
Arthur Laffer: [INTERRUPTING] Now, I was…
Ann Pettifor: And ob-…it's obscene because these guys are not extracting assets from the earth and from the economy without it costing the rest of us. They've got to do that in order for…for them to be as rich as they are. I mean, th-th-the richest people in the world can fit into a London bus. And to have that amount of wealth, that few number of people, they have to steal it from us. And that's what's happening, and that's what's really wrong about inequality.
Arthur Laffer: I don’t think…
Ann Pettifor: It's ethically…it's ethically unacceptable.
Mehdi Hasan: Ethically unacceptable, Arthur.
Arthur Laffer: Well, you know, I don't think they’re stealing it from you, to be honest with you…
Ann Pettifor: [INTERRUPTING] How do you think they are getting rich then?
Arthur Laffer: But…but…but…but that ethical issue is your ethical issue, and I can understand your position…
Mehdi Hasan: [INTERRUPTING] What’s your…?
Ann Pettifor: [INTERRUPTING] Sure.
Arthur Laffer: But I don't really think the income distribution of 10 or 15 people is the key issue in the world. I really think what…what Adam said here is correct, is providing jobs, output, employment for those people who are poor…
Mehdi Hasan: [INTERRUPTING] Just…
Arthur Laffer: …deprived. We have had the greatest drop…
Ann Pettifor: [INTERRUPTING] We have never…
Arthur Laffer: …in poverty this world has ever seen by...in China. For all mankind, we've seen more pro-prosperity created and poverty reduced by China...
Ann Pettifor: [INTERRUPTING] But that is a communist regime.
Arthur Laffer: …through supply-side economics. Sound money, free trade, tax-cuts...
Mehdi Hasan: [INTERRUPTING] For-former Reagan…former Reagan advisor offers communist China as example for way forward. [LAUGHTER]
Mehdi Hasan: Um…the…just on…
Arthur Laffer: Ok.
Mehdi Hasan: Just, just, before we go forward, quick…quick point on the…on the ethical point… [LAFFER LAUGHS] …because I’m, I’m intrigued by this, Arthur. When most people, let's just get a show of hands as well: when you see the statistics about 67 people control the same amount of wealth as half…
Faiza Shaheen: [INTERRUPTING] Half.
Mehdi Hasan: …the world's population, morally, put the economics to one side, is that right or wrong? Right, put your hands up. [AUDIENCE MEMBERS RAISE HANDS]
Mehdi Hasan: Wrong? [AUDIENCE MEMBERS RAISE HANDS]
Mehdi Hasan: Where do you stand, Arthur?
Arthur Laffer: Well, you know, if I look at it, I'd say probably the five heads of the major countries from Cameron to Obama to Putin, they probably control more than all of these people combined. So you look at government prosperity that's been created, I mean these wealthy, I think those…
Mehdi Hasan: [INTERRUPTING] But you’re dodging…
Arthur Laffer: [INTERRUPTING] But I think those people…
Mehdi Hasan: [INTERRUPTING] You are dodging a very simple question!
Arthur Laffer: [INTERRUPTING] No, but I…but I think the very s-…
Mehdi Hasan: [INTERRUPTING] In your view, is it ethically wrong…
Arthur Laffer: [INTERRUPTING] I would love…
Mehdi Hasan: …that so few people control so much wealth at the expense of others.
Arthur Laffer: But, but I think the real control of wealth is much more in the hands of the government. But I don't think that that, uh, that is completely correct at all. I mean, I’d love to see wealth more evenly distributed if it does not come at the cost…
Mehdi Hasan: [INTERRUPTING] Ok.
Arthur Laffer: …of the poor people who are getting poorer. I mean, I…
Mehdi Hasan: [INTERRUPTING] Great, we're making progress. We are getting closer to each other.
Arthur Laffer: Yes.
Mehdi Hasan: Um, you're most famous…
Arthur Laffer: [INTERRUPTING] After 74 years I move. [LAFFER LAUGHS]
Mehdi Hasan: You're most famous…it takes 74 years? Great. Um, You're most famous…
Arthur Laffer: [INTERRUPTING] But to move an inch!
Mehdi Hasan: …for the Laffer Curve. The Laffer Curve is the theory that…
Arthur Laffer: [INTERRUPTING] It still works.
Mehdi Hasan: …lowering taxes on the wealthy generates growth and can actually increase tax revenues in some cases. Legend has it that you drew it on a napkin for, of all people, Dick Cheney and Donald Rumsfeld at a dinner in 1974. Now I just [LAFFER LAUGHS] happen to have here a napkin… [LAUGHTER]
Arthur Laffer: [INTERRUPTING] It’s on there.
Mehdi Hasan: …with a…with a…with a Laffer Curve drawn on it. I'm gonna hold it up here. Can you explain what this curve is all about and why it’s become so influential, so important? What's the…what’s the thinking?
Arthur Laffer: Well, sure, I can explain the curve. I mean, at 100 percent taxes, if every time you went to the office, instead of getting a cheque you got a bill, how long would you work? You wouldn't; the government collects zero revenues and there'd be zero output. Then as you go to zero taxes, uh, if people, they’d work a lot but there'd be no tax revenues for the government either. And then as you raise tax rates from zero, uh, you'll get less output, less employment, less production but you'll get more revenues until you come to a point - sort of right in the area there - uh, where the revenues all of a sudden start declining back again and go back to zero at 100 percent. It's not.... It's like any company knows that they can charge too much for a product and lose money. Or they can charge too little for a product and lose money. And there is a price in there that’s a profit maximising price. It's the same principle there.
Mehdi Hasan: It's basic economics, I think you once referred to it as. The problem is: while it's superficially appealing - it's quite seductive, it's intuitive, you explained it so well - a lot of economists don't agree with you, don't like it. We’re here at Oxford, in the Oxford Union. I looked at… [LAFFER LAUGHS] …I looked at the lecture slides for the main undergraduate macroeconomics course here at Oxford University, and in the very first lecture, it refers to the Laffer Curve as, quote, “the economics of wishful thinking”. [LAUGHTER] Why is… Why is Oxford University saying that to its students about your curve?
Arthur Laffer: You know, being a Yalie, I have no idea, but perhaps if I... [LAUGHTER] ...perhaps if I came here and spoke a little more slowly, they'd see the point a little better...
Mehdi Hasan: [INTERRUPTING] The…The problem…the problem with the whole Yalie [LAFFER LAUGHS] ...I know you went to Yale. The problem is, [LAFFER LAUGHS] in America in 2012, they did a survey of the top 40 US economists at Princeton, Yale, MIT, Harvard: not a single one agreed with the curve and the thinking behind it.
Arthur Laffer: [INTERRUPTING] How can you not agree with it? [LAUGHTER]
Mehdi Hasan: They…they didn’t…
Arthur Laffer: [INTERRUPTING] I mean, you know…you know…
Mehdi Hasan: But that's a good response...
Arthur Laffer: What you should really have here, Mehdi, is you should have those 40 professors and run them out of the profession.
Mehdi Hasan: Ok. [LAUGHTER]
Arthur Laffer: It's ridiculous!
Mehdi Hasan: [INTERRUPTING] Because they don't agree with you?
Arthur Laffer: No! Not that they don't agree with me!
Mehdi Hasan: [INTERRUPTING] That's a great form of debating! Let's put aside the economists who all think…
Arthur Laffer: [INTERRUPTING] Yes.
Mehdi Hasan: …you're peddling nonsense. Peter Diamond, Nobel Prize-winning economist, he says that when you look at the evidence, the actual top rate of tax on the rich could be something like 70 percent before you hit the curve, before it starts declining. He's actually saying, you know what? That's fine, have your curve, but stop saying, "Cut taxes, cut taxes!"
Arthur Laffer: [INTERRUPTING] Well…
Mehdi Hasan: You can actually raise taxes.
Arthur Laffer: [INTERRUPTING] Thank goodness because now I see you moving towards me. At least you have my curve. [LAUGHTER] Now, the question is, where is the line drawn? Every single time we've raised the highest marginal rate in the United States, every single time what has happened is tax revenues from the highest one percent of income earners as a share of GDP have declined and we've had economic growth. Every time we've raised the highest tax rate on the top one percent of income earners, we've had slower growth and we've had a reduction in tax receipts on the top one percent of income earners as a share of GDP. I mean, those are the facts. Now the question is, with every other group in the income categories, the reverse is true. If you raise tax rates on the lowest income people, you will collect more revenues. If you lower rates on the lowest…because rich people, because they are rich…
Mehdi Hasan: [INTERRUPTING] Arthur…
Arthur Laffer: …they can get around higher taxes. They can…th-they can hire lawyers, accountants, deferred income specialists…
Mehdi Hasan: [INTERRUPTING] Just on your factual point…
Arthur Laffer: [INTERRUPTING] But if you have a tax rate of 40 percent on your income, you should…
Mehdi Hasan: [INTERRUPTING] Hold on…
Arthur Laffer: …spend 40 percent of your time trying to minimize that tax.
Mehdi Hasan: Well, Arthur… [LAUGHTER] …Well, not if you believe that tax has a purpose to play in society in terms of funding key public services.
Arthur Laffer: [INTERRUPTING] You know altruistic, you'll last for about an hour in Washington.
Mehdi Hasan: Ok, well, um… [LAUGHTER] …That says a lot about Washington. [LAUGHTER] What I was going to say was…
Arthur Laffer: [INTERRUPTING] London! [LAUGHTER]
Mehdi Hasan: The golden age of American economic growth was in the post-war period, under Eisenhower. Eisenhower cut the top rate of tax from 92 percent to 91 percent and yet, under Eisenhower, the average economic growth was something like three percent a year. Low unemployment…
Arthur Laffer: [INTERRUPTING] No, No…
Mehdi Hasan: …low inflation, he balanced the budget for three of his eight years in office. He didn't have a problem with a 91 percent top rate of tax, a Republican president.
Arthur Laffer: Harry Truman did cut the highest rate from 93 percent to 91 percent, he got there. Then Eisenhower, uh, you’re correct, he had the slowest growth, it was a very poor, we had two recessions in eight years there. Facts! Then you came to Eisenhower, uh, Nixon, who was Eisenhower's person versus Kennedy. Kennedy was elected. What Kennedy did, he cut the highest rate from 91 percent to 70 percent, he put in the investment tax credit, he shortened depreciable lives for planned equipment expenditure.
Mehdi Hasan: [INTERRUPTING] 70 percent's still much higher than…
Arthur Laffer: [INTERRUPTING] Oh, yeah, but that's a cut.
Mehdi Hasan: …what right wingers are calling for today.
Arthur Laffer: [INTERRUPTING] No, but no, no, it's the cut…
Mehdi Hasan: [INTERRUPTING] Oh, so it's the cut that matters, not the level?
Arthur Laffer: [INTERRUPTING] No, well, take a look at it, if you were in the highest bracket when Kennedy came into office, and you were in the 91 percent bracket, for every dollar you earned you were allowed to keep 9 cents. After the tax cut to 70 percent, every dollar you earned you were allowed to keep 30 cents. That's a 233 percent increase in incentives for a 23 percent cut…
Mehdi Hasan: [INTERRUPTING] It's interesting you talk…
Arthur Laffer: …in tax rates.
Mehdi Hasan: …You talk about incentives; Warren Buffett, who…
Arthur Laffer: [INTERRUPTING] Oh, I love…
Mehdi Hasan: You're not a fan of Warren Buffett, one of the world's richest men…
Arthur Laffer: [INTERRUPTING] We get along.
Mehdi Hasan: He says, "I've worked with investors for 60 years; I’ve yet to see anyone shy away from a sensible investment because of the tax rate on the potential gain. People invest to make money, and potential taxes have never scared them off." That's Buffett's view. What do you know that the 4th richest man in the world doesn't know?
Arthur Laffer: Warren Buffett has all of his wealth in unrealised capital gains, which has no tax whatsoever. In the US it's only when you realise the capital gains that you actually pay the taxes.
Mehdi Hasan: [INTERRUPTING] But we're talking about the realising bit. He's talking about when he makes investments, when he buys and sells…
Arthur Laffer: [INTERRUPTING] But he doesn’t ever realise. He has never realised…
Mehdi Hasan: [INTERRUPTING] What? He doesn't buy and sell? How did he become the 4th richest man in the world?
Arthur Laffer: [INTERRUPTING] No, he doesn't buy and sell. He owns it all in Berkshire Hathaway and all the buying and selling is done below the corporation there so he doesn't pay capital gains on that at all!
Mehdi Hasan: [INTERRUPTING] So you don't accept his argument that incentives…
Arthur Laffer: [INTERRUPTING] His argument is totally fa-…
Mehdi Hasan: [INTERRUPTING] So, when people go…when people go to make investment…
Arthur Laffer: [INTERRUPTING] Fallacious!
Mehdi Hasan: …decisions, start companies, build businesses…
Arthur Laffer: [INTERRUPTING] every …
Mehdi Hasan: …just based on marginal tax rates. Ok. Ronald Reagan is the president who, on your advice and the advice of others, he cut taxes, especially on the top at the start of his first term and he ended up nearly tripling both the deficit and the debt, forcing him to bring in new…11 new tax rises to try and compensate. In fact, 8 years of Reagan saw more federal debt added in the United States than in the previous 200 years of the United States. That's the record of tax cuts under Reagan and...
Arthur Laffer: [INTERRUPTING] Now, can we talk about revenues?
Mehdi Hasan: What happened to revenues?
Arthur Laffer: You said… Well, in 1981, at the pre-Reagan tax, before Reagan’s tax cut, the top one percent of income earners paid one and a half percent of GDP in taxes. In 2005, the top one percent of income earners, after all the tax cuts, paid 3.2 percent of GDP as a share in taxes, with the tax…now, this is the top one percent, collected huge amounts more revenues from the top one percent of income earners, had the biggest boom ever…
Mehdi Hasan: [INTERRUPTING] And yet tripled the debt… To do this, he tripled the debt.
Arthur Laffer: Well, I've never liked balanced budgets.
Mehdi Hasan: [INTERRUPTING] Oh, you don't like balanced budgets.
Arthur Laffer: [INTERRUPTING] I've never… In fact, they…
Mehdi Hasan: [INTERRUPTING] You're fine with deficits?
Arthur Laffer: I am fine with deficits, if they're used correctly, of course.
Mehdi Hasan: Or if they are got through cutting taxes on the rich.
Arthur Laffer: Well, if you cut…no, if…if you cut taxes to create economic growth, I'm all for borrowing. If you borrow to consume, I'm not all for borrowing. Borrowing depends on what you do with the proceeds.
Mehdi Hasan: Ok. Many…
Arthur Laffer: [INTERRUPTING] And I thought the tax…
Mehdi Hasan: …people would say that that was the Laffer Curve in action and it failed in terms of...
Arthur Laffer: I don't think it failed at all. We created huge economic growth and the rich paid…
Mehdi Hasan: [INTERRUPTING] Well, lots of presidents
Arthur Laffer: …a lot more in taxes. What do you want?!
Mehdi Hasan: Well, it… [MEHDI LAUGHS] Ok, let's…
Arthur Laffer: [INTERRUPTING] What do you want?!
Mehdi Hasan: [INTERRUPTING] Let's deal with…let's deal with Bill Clinton. Bill Clinton…
Arthur Laffer: [INTERRUPTING] My…I voted for him twice.
Mehdi Hasan: You voted for Bill Clinton twice. Um…
Arthur Laffer: Publicly, everyone knows that in the US.
Mehdi Hasan: Yes, unlike Reagan, he didn't follow your advice. He actually raised taxes on the rich at the fa-start of his first term. It was followed by 32 straight quarters of growth, the creation of 250 thousand net new jobs a month, and the balancing of the US budget for the first time in 30 years. Yet again, the Laffer Curve disproved!
Arthur Laffer: Well, let… Can I respond to you on this?
Mehdi Hasan: Of course!
Arthur Laffer: I mean…
Mehdi Hasan: That’s what you’re here to do!
Arthur Laffer: Ca--…
Mehdi Hasan: Respond away!
Arthur Laffer: If Bill Clinton pushed NAFTA through congress against the unions and against the democrats…
Mehdi Hasan: [INTERRUPTING] Oh, you respond to questions I haven't asked, ok.
Arthur Laffer: Ha-… But no, but you say cut tax-…raise taxes,
Mehdi Hasan: [INTERRUPTING] Just deal with the tax issue.
Arthur Laffer: He didn’t raise… I am! It's a tax on trade and products, he cut dramatically!
Mehdi Hasan: [INTERRUPTING] In 1993, he did a tax rise in the budget…
Arthur Laffer: [INTERRUPTING] He cut taxes on capital gains!
Mehdi Hasan: …that was attacked by people like yourself!
Arthur Laffer: He cut taxes on the elderly who were retired, who were…he got rid of the retirement tax and so…he cut government spending as a share of GDP by more...
Mehdi Hasan: [INTERRUPTING] And he raised income tax on the wealthy and he was attacked for it, by the right.
Arthur Laffer: [INTERRUPTING] Two brackets he raised, a small amount, you’re right, that was wrong for him to have done, but…
Mehdi Hasan: But it wasn't wrong, was it? That's the whole point. It was a massive expansion.
Arthur Laffer: [INTERRUPTING] Oh, it was wrong! All the rest of the stuff he did was great! And he was a terrific president!
Mehdi Hasan: Arthur, on that basis, when future presidents and future prime ministers raise taxes on the wealthy, people like yourself won't say that's a bad thing because actually there are other things they might do that cancel that out.
Arthur Laffer: Well, of course that, and that's why I voted for Clinton the second time.
Mehdi Hasan: Let's bring in Ann Pettifor from our panel. Ann, what do you think history tells us about the relationship, is there a relationship between tax rates and economic growth in the way that Art has described, looking at US history, for example?
Ann Pettifor: Well, I think the de-regulation that Arthur is part of and is so enthusiastic about did make a lot of people richer, did create a lot of jobs, but it turned the United States away from being the world's biggest creditor towards being the biggest debtor in the world. And, as a result, it has gravely weakened the United States in its standing in the world.
Mehdi Hasan: On the tax rate issue, do you…
Ann Pettifor: [INTERRUPTING] Yeah.
Mehdi Hasan: …believe that if you cut taxes, you get more growth; if you raise taxes, you harm growth?
Ann Pettifor: [INTERRUPTING] I think it's absolute nonsense. I don't think people make decisions about their work or about their investment on the basis of the marginal rate of tax. And by the way, Arthur, I know so many people who go to work and, you know, are offered 100 pounds and get a bill for 100 quid and they are called mothers and they are called fathers. You know, there are people who have babies every day and it costs money to have a baby, you don't, to have a child and bring up a child. So this notion that we are all incentivised by these marginal tax rates at work or in the world just excludes a whole range of human behaviour, which is altruistic.
Arthur Laffer: But I don't disagree there are lots of things other than tax rates that matter. Please, this doesn't mean... tax rates also matter.
Mehdi Hasan: Let's bring in Adam Memon from Centre for Policy Studies. You're a…a fan of the Laffer Curve, is that fair to say that? You’re a…
Adam Memon: [INTERRUPTING] Yep.
Mehdi Hasan: …supporter of it. In this country, let's take the UK. The top rate of tax right now on the highest earners, on people earning over £150,000 a year, is 45 percent. But you would accept that you could raise, on revenue terms, you could raise the top rate of tax and get some more money out of the rich in this country.
Adam Memon: I…I would not like to see any more taxes go up.
Mehdi Hasan: So it's an ideological position? It’s not really based on any…
Adam Memon: [INTERRUPTING] No, no. Because increasing taxes on production, well, makes us less productive. Why do we increase taxes on tobacco, on smoking? Because we want people to smoke less.
Ann Pettifor: [INTERRUPTING] So…
Adam Memon: Why do we increase taxes on work? That leads to people working less.
Mehdi Hasan: Faiza Shaheen is shaking her head there. Do you want to come in and respond to Adam and to Arthur?
Faiza Shaheen: No, I mean it's the point about, I mean, the evidence actually doesn't suggest that when you low-…you know, when you lower these top rates of tax, you get this massive amount of growth, actually. You know, you saw in the UK and the US, like you said, Mehdi, this period of h-higher tax on the richest and we saw higher levels of growth than in the post-1980 era. At a time when we had better health service, we had education, we have, you know, the…that money went to something, that means something.
Mehdi Hasan: Surely you have to concede that there is a clear link between higher tax rates and better public services.
Arthur Laffer: Uh, my area of expertise is in the US and what you can see is those states that have raised taxes, those states that have the highest, have the poorest public services…
Mehdi Hasan: [INTERRUPTING] Globally, if you look at the Scandinavian countries, these are countries that are doing far better with higher rates of tax. [UNCLEAR]
Arthur Laffer: Well, Sweden has done a pretty amazing thing with their tax cuts and no inheritance tax and all that, and they’ve done very well on their performances. Diamond and all the rest, they all show there is a very strong relationship between tax rates, changes in tax rates and economic growth. I mean, just go look at the summaries…
Mehdi Hasan: [INTERRUPTING] No, they… No, they…in fact, in fact, Peter Diamond and Emanuel Saez, who are these economists you mentioned, and plenty of other economists, say actually there is no real correlation between tax rates and growth...
Arthur Laffer: [INTERRUPTING] That's…that's not true. That's not correct.
Mehdi Hasan: In fact, let me…let me just read out to…let me just read out to you what they say, based on their study of the evidence. They say that the US economy actually grew faster in the 30 years before the Reagan tax cut in 1981 than it did in the 30 years after it.
Arthur Laffer: tax-rates do matter. Now no-one wants a 0 percent tax-rate. That would be silly. But in the ranges we are talking in 90-91 percent, 70 percent, 60 percent, in those ranges, you are just plain wrong.
Mehdi Hasan: Well in the US it's 39 percent so it's not that high!
Arthur Laffer: No No…
Mehdi Hasan: Ann…
Ann Pettifor: What's very strange Arthur is that there's this whole demand for lower taxes and, and yet, when, when a state wants to expand it's programs, welfare programs, it's education programs, people like you always say 'oh that means you've got to put up taxes'. In other words..
Arthur Laffer: No I don't
Ann Pettifor: So for us to raise enough taxes for a decent education service in California, we would have to lower taxes would we? In order to get more revenue?
Arthur Laffer: Yeah
Ann Pettifor: Is that rational?
Arthur Laffer: Yes
Mehdi Hasan: Before we go to the break, one last question from me. There are some who say, that you know, you push an argument, you have a curve, which nicely, coincidentally happens to fit into the interest of the rich and powerful, just coincidentally. One of your peers, the former Reagan advisor Bruce Bartlett has said that you have quote 'got a stick' where you are able to get wealthy people to pay you a lot of money to be an entertainer, and you tell them what they want to hear, that they are vital to the economy and their taxes must be reduced. He's got a point doesn't he?
Arthur Laffer: Uhm, I feel very sorry for Bruce, he, what can I tell you? If he got a job now, he's written four paper for my firm. I paid him, his papers that he says he wrote for me, don't say any of that stuff.
Mehdi Hasan: Ok, but on the underlying point that he's advocating, happens to coincide with the interests of the richest most powerful people in society which helps doesn't it?
Arthur Laffer: It happens too! It's because it's accurate.
Mehdi Hasan: Ok, good, well on that note, on that confident note, we'll take a break right now, join me in Part 2 of Head to Head on Al Jazeera where I'm going to be talking to Arthur Laffer about the crash, about the global recession and the fallout from it, we'll be hearing from our panel again, we'll be hearing from our very patient audience here in the Oxford Union. That's after the break, stay watching.
Mehdi Hasan: Welcome back to Head to Head on Al Jazeera. I'm talking to Arthur Laffer tonight, the former advisor to Ronald Reagan and Margaret Thatcher.
You were part of that economic revolution in the 80's, which you are, which you are still defending. Very vociferously, passionately, as we saw in part one. You claimed, Arthur that your, their, economic policies, supported by you, encouraged by you, laid the foundations for a 25 year boom between 1982 and 2007 but then of course, it all went wrong, and you didn't see it coming. In August 2006, a year before the credit crunch, two years before the crash, you said on CNBC, quote: “The United-States economy has never been in better shape”. How did you get it so spectacularly wrong?
Arthur Laffer: After the 2006 piece, I read a book in 2007 called “The End of Prosperity”, I don't know if that's a real optimistic look of the world. Once the policies changed, wrote a paper once I left California, I said “California, who are you?”. And why I am leaving California and why I think the housing market is crashing, so you know I, I...
Mehdi Hasan: So ahead of the crash you adjusted your positions?
Arthur Laffer: Well of course, I adjust to facts. Isn't that what you are supposed to do?
Mehdi Hasan: True but than in 2007, you said, Iceland should be a model to the world. For the purpose of our audience, Iceland is a country that went bankrupt and then defaulted on it's debt.
Arthur Laffer: I don't remember saying Iceland should be a model for the world. If I did I misspoke, people.
Mehdi Hasan: For someone, for someone
Arthur Laffer: Does anyone here recall what the second largest city is in Iceland? [SILENCE] There isn't one! I mean
Mehdi Hasan: And yet you wanted it to be a model to the world!
Arthur Laffer: Well I would love it to be a model, I don't remember that quote.
Mehdi Hasan: Ann Pettifor is here on our panel from PRIME economics. Ann, you've been described by the Times in London as one of the few economics to have predicted the crash, to have seen it coming. So let me ask you why did so many of your fellow economists, including Arthur, in some senses, why didn't they see what you saw?
Ann Pettifor: Mainly because they have such a blind spot for the finance sector, and for the creation of credit and for the way in which the deregulation of credit, enrich those who can create credit, effortlessly A, through the banking system and B, through the shadow banking system. And because of a complete blind spot for that, which was very convenient for all of those people making massive capital gains in the finance sector, they were not able to see what was coming, because they were focused on taxes, all the tangible stuff.
Arthur Laffer: You know, the future is really not fully known in the past. And we all try to do the very best we can and we, the evidence we have at the end.
Ann Pettifor: [INTERUPTING] even when the analysis is so flawed, it is not possible to see the future, a geologist, can see you know, an earthquake coming, because he's looked at..
Mehdi Hasan: [INTERUPTING] very briefly Ann, what do you think the economics profession should do now to avoid that from happening again?
Ann Pettifor: Well we should be honest about what's really going on and should understand the finance sector and the role of the finance sector..
Mehdi Hasan: Would you agree with that?
Arthur Laffer: I think Ann is completely correct we should understand the finance sector, and we should understand the fiscal sector...
Ann Pettifor: [INTERUPTING] And we should regulate it! And we should manage it, and not leave it to manage itself.
Arthur Laffer: You know there's some element of regulation which you have to have. I mean everyone wants regulation. The question is how far does it go and when does it do damage and when it doesn't. It's all a matter of balance in my way of thinking, I think we've gone way too far on regulation of the financial sector. My view
Mehdi Hasan: Let's talk a bit about spending, about the stimulus that was brought in to help after the crash, to help the global economy recover, come out of the recession in '08 '09. You've said, and I quote "The massive stimulus, administered by the Obama administration, and the Bush before him, was an abject failure". Now you do realise don't you that the United-States economy has just posted its strongest 6 months of growth for more than a decade, and the US economy recovered much faster than the Euro-zone which did the kind of spending cuts that you favour.
Arthur Laffer: We had a much better recovery after the 2000 Y2K, And we then came out of it very quickly because the government didn't do stimulus. Because the government didn't do quantitative…
Mehdi Hasan: [INTERUPTING] But you thought the stimulus would be a failure, and it was a huge success
Arthur Laffer: I disagree with you totally, I have never heard of a poor person spending himself into wealth. But maybe I missed that Econ. 1...
Mehdi Hasan: [talking over] Well maybe you missed that whole section on Keynesian economics.
Arthur Laffer: Government, government, government spending is taxation pure and simple. There's no tooth fairy working in the treasury any longer! Whenever the government spends, they take it from someone else.
Mehdi Hasan: [INTERUPTING] Hold on, hold on
Mehdi Hasan: Let's return this, about "The Return to Prosperity", you wrote this book in 2010. On page 2...you made lots of predictions in this book! On page 256, my favourite page of the book, you predicted four things, four very specific things rising prices, as a result of stimulus, rising prices, higher interest rates, reductions in output, reductions in employment. Four predictions, all four wrong. Pretty embarrassing.
Arthur Laffer: Let me, let me be very serious with you on the financial side and on interest rates and on inflation I was totally wrong . The papers I did back then I was wrong, I predicted that inflation would pick up…
Mehdi Hasan: [INTERUPTING] Back then, four years ago.
Arthur Laffer: No but that was, and I was wrong on inflation, I'm sorry.
Mehdi Hasan: You were wrong on that but you are still sitting and criticizing the stimulus.
Arthur Laffer: Hey, if you think that's the only thing I've been wrong on, let me take you through my whole life. I mean come on, people. I do the very best I can to say my best, but I don't try to couch my words so that I don't get a comment coming back at me I try to say what I think it's going to happen and I go out there and I do it and I expose myself. And when I'm wrong I’m really sorry I don't try to be.
Mehdi Hasan: [INTERUPTING] Fair enough
Mehdi Hasan: Ok, and on that, I appreciate your candour. That is a type of candour.
Arthur Laffer: Thank you.
Mehdi Hasan: Here's the problem, In Kansas, the governor of Kansas in 2012, he paid you I believe 75 000 dollars for some advice, economic advice, and you urged him to cut taxes which he did, and cut spending. At the same time he did that, California raised taxes on the rich a lot, since then California has seen GDP go up much faster than Kansas. Its employment growth has been 3.5 times that of Kansas. Tax revenues are up in California, down in Kansas. California has balanced it's budget, Kansas has lost its credit rating. the policies you advocated failed the people of Kansas.
Arthur Laffer: That's not at all true.
Mehdi Hasan: Real people in the real world are suffering, because of policies you advocated.
Arthur Laffer: No, that's not true…
Mehdi Hasan: Lay-offs, unemployment, teachers sacked, schools closed, all for what? A downgraded credit rating, a fall in tax revenue?
Arthur Laffer: Do I get to answer, or not?
Mehdi Hasan: Please
Arthur Laffer: First place, they did downgrade the Kansas credit rating that is true, to a much higher rating than California currently has. That's true. when you look at Kansas, there's been no reduction of public services, at all..
Mehdi Hasan: it is trailing all of the states, it’s trailing the US national average
Arthur Laffer: it hasn't had a tax cut for a year! I mean it just came in, that in 2013 it started.
Mehdi Hasan: Give it more time? Give it more time.
Arthur Laffer: Well you know if you look over 10 years, those states that have lowered their taxes, way out-perform those states that raise their taxes.
Mehdi Hasan: That's not true at all. let me read to you what the Kansas governor's own counsel of economic advisers found earlier this year. That Kansas is trailing its neighbouring states as well as the US national average on wages, employment growth, income per capita, and GDP. That's your tax-cut. Well done, congratulations
Arthur Laffer: No, did that just start? Kansas has been a basket case for years and years.
Mehdi Hasan: So you just made it worse?
Arthur Laffer: Oh, no it's getting a lot better now, it really is.
Mehdi Hasan: That's not what they say.
Arthur Laffer: They don't say that, I don't think that's correct.
Mehdi Hasan: Faiza Shaheen, stimulus doesn't work, because you can't borrow someone else's money, what was the phrase you used, remind me, a poor person can't spend…
Arthur Laffer: Can't spend himself into wealth?
Mehdi Hasan: Can't spend himself into wealth.
Faiza Shaheen: It's not the same, I mean individuals and countries are very different thing. I mean stimulus was needed because we had this big crash, and if you then try and have austerity to take money out , and there's no private sectors to also put money in, then you get the problems that we see. So we see poor people have really suffered we also see that austerity is not working in it's own terms
Arthur Laffer: Because of the stimulus spending, when we had the same crash in 2000, when we had the, we've had financial panics, there have been two in our history in the US, where the government has stepped in dramatically. One is the great recession, which is the one we are talking about now. And the other one is the great depression. And both of those caused the length of the decline to be much longer and deeper, because of the government intervention.
Mehdi Hasan: Ann Pettifor the 1930's was all about government intervention.
Ann Pettifor: I just want to come back to Arthur on the question of the poor man. Everyone's expenditure, whether they are on the pubic side or the private side, is somebody else's income, it's not taxation. Let's get that right. And Arthur it's because of those fundamental principles, Chicago principles being wrong that we have the financial crisis on the scale that we have. And really we can't dismiss it very easily because the fact is that Kansas, the United-States, the whole world, is massively damaged by that crisis. The human suffering, the human pain, the agony that's been caused by that crisis, the destruction of that value is un-un-un-precedented! And it is because of the flawed theory that have come out of Chicago. Including the idea, that one man's expenditure is another man's taxation, that's deeply flawed.
Mehdi Hasan: Very briefly
Arthur Laffer: You're completely correct on the desperation of the world, but your logic of connecting that with the policies is totally incorrect. You know, you can't tax an economy into prosperity you really can’t. And that's exactly what they tried to do during the great depression to raise the highest rate from 25% to 93% and you can see why it was the longest, deepest depression in US history.
Ann Pettifor: [INTERRUPTING] What did they do during the golden age
Mehdi Hasan: Adam, you support austerity measures as a way of getting out of the crisis and balancing the books.
Adam Memon: Well certainly it has to come with supply side of …
Mehdi Hasan: So when you look at what's happening on the continent for example, do you think, oh my word, we may have got it wrong?
Adam Memon: Well definitely because austerity is spending cuts and tax rises, so Mehdi, definitely, the way in which some criticised not being to the benefit of those countries. At the same time, they have not used supply-side reform in the way that countries in the far-east have, so in Korea, or in Taiwan or in China. Ask those people in those countries, have they benefited from tax reform, from supply-side reform, from privatization reform, from free-enterprise, they will all tell you, yes they are richer now than they were 30 years ago.
Mehdi Hasan: Not sure they will all tell me that. But I take your point. In fact, you talk about asking people questions? Our audience is waiting here in the Oxford Union to ask Arthur and our panellists some questions.
Gentleman there in the second row. Do you want to wait for the microphone to come to you?
Audience Member 1: Hello. I like paying taxes, I would be prepared to pay more taxes, knowing that they could help vulnerable people, reduce class sizes, you know, give more access to legal aid, and I don't think I am alone in that. Because I understand that when I give tax, I get something back from it. And when I look at the Laffer Curve, what I see is a piece of theory without any context, the drop off in the Laffer curve, it really represents, the likely behaviour of a small group of people who are paranoid about state-corruption and benefit fraud. Rather than representing the fact that most people would be prepared to contribute towards a fairer society.
Arthur Laffer: I, I, I agree with you totally, I mean the best form of welfare is still a good high paying job, we need that economic growth, but we do need to get the revenues. I'm not disagreeing with the revenues. We need those revenues to provide the public-services you talk about and everyone wants that type of system. You can go too far on taxes. And I think right now, we are way over-taxing the system for providing the revenues, and the provision of public services I think you and I would both like to have.
Mehdi Hasan: Even though US infrastructure is crumbling in many ways..
Arthur Laffer: But that's not because of a lack of taxes…
Mehdi Hasan: [INTERUPTING] Lack of investment
Arthur Laffer: … that's a lack of tax revenues, you're exactly correct, a low-rate broad based flat-tax will create a growth machine that would provide tons of revenue
Mehdi Hasan: The evidence is not with you on that again. The International Monetary Fund did a report on flat-tax incentives and there isn't the evidence for that.
Arthur Laffer: Oh come on! (LAUGHTER)
Mehdi Hasan: And in Kansas, your beloved Kansas,
Arthur Laffer: My beloved Kansas
Mehdi Hasan: 700, 800 million drop in revenues from a tax-cut
Arthur Laffer: You do realize that's where superman landed, I want you to know that's where Dorothy was also. (LAUGHTER)
Mehdi Hasan: So this is a state, this is a state that had a super hero, a children's character, and you come to the rescue. you say you moved to Nashville, because 0 income tax
Arthur Laffer: Yeah that's right
Mehdi Hasan: And you don't wanna pay that tax?
Arthur Laffer: No, I don't.
Mehdi Hasan: Do you believe, just out of interest, it's something we didn't talk about, do you believe there's a moral obligation for people to pay taxes, as a kind of membership fee for living in a civilised society.
Arthur Laffer: Of course I do, I agree with that fully!
Mehdi Hasan: But only the ones you agree with or like?
Arthur Laffer: Well I think there is a very important part of voluntary compliance in tax-codes. I mean when I have customers in my business, I don't hate them, I don't hit them, I don't go after them, yet the customers here that are providing the taxes to the system, you really want to make a system that works and doesn't work by enforcing.
Mehdi Hasan: It's a revealing insider that you referred to citizens as customers. Gentleman there in the 3rd row with the glasses, do you want to wait for the microphone to come to you? Yes.
Audience Member 2: Would you agree, that your impact has been primarily in the public relations for the rich rather than either economic science, if there is such a thing or generating prosperity.
Arthur Laffer: No, uhm, let me if I can just say, if you tax people who work and you pay people who don't work, do I need to say the next sentence to you? Come on, if you tax rich people and give the money to poor people, you're gonna get more poor people and less rich people.
Mehdi Hasan: Every single person who's looked, every serious person who's looked at your flat tax has, says it's regressive, i.e. it helps the rich and it hurts the poor.
Arthur Laffer: [INTERUPTING] That's not true. How can it be regressive if it…
Mehdi Hasan: Because it cut taxes on the rich and you raise them on the others.
Arthur Laffer: No you don't. What you do, you get people who had no jobs at all and you create jobs and now you're earning income. There is nothing wrong with that.
Mehdi Hasan: [INTERUPTING] Now I know why they call it wishful thinking.
Arthur Laffer: Oh, I see.
Mehdi Hasan: Let's have the lady here in the second row.
Audience Member 3: Hi, earlier this year you went on television and you said that the minimum wage makes no sense to you. Can you explain to me why you think people aren't entitled to a dignified wage?
Arthur Laffer: I think people are entitled to a dignified wage. I don't think that that can be set by the government to give them the type of dignified situation that they would have. You know, when you force a price above where it should be in the equilibrium, you're going to go to the demand curve and you are going to get less demand and you are going to get a higher unemployment, you're going to get these very people..
Mehdi Hasan: [INTERUPTING] Again, in theory but not in the real world.
Arthur Laffer: But the people from whom you are taking the money with the minimum wage are the people who are low income employers, I mean these are the people, not rich. They are taking that, so there's a 0 matter of fact..
Mehdi Hasan: [INTERUPTING] McDonald's? You count McDonald's as one of the small businesses? Cos there's a big campaign in America to get fast food workers higher wages. They're employers, McDonald’s, Burger King's, not know for being small businesses.
Arthur Laffer: I want higher wages for low wage workers, I think you get that by creating economic growth,
Mehdi Hasan: This is the problem with your principles, they're great on napkins, in the real world, they don't work! In the UK, in the UK. Blair, brought in Britain's first national minimum wage, people like yourself were saying then it would cost huge amounts of jobs. Unemployment fell to record lows under Tony Blair. Despite the minimum wage, so in the real world it doesn't work!
Arthur Laffer: It does work, it's just
Mehdi Hasan: [INTERUPTING] I've given you a real world example
Arthur Laffer: The minimum wage isn't everything, Tony Blair did a good, look at Gordon Brown, tell me how it worked with Gordon Brown
Mehdi Hasan: I've given you a counter example, you moved the goal post, that's fine. Hm, gentleman there, with the glasses.
Audience member 4: Professor Laffer, could you just describe how the flat rates, which you say is the ideal, reconciles with the example of Scandinavia where people in suffer some of the highest tax, rates yet are happier and also have some of the best social services
Arthur Laffer: Well I don't know if you've seen Sweden's performance in the last 10 years, Sweden's been a big tax cutting country, getting rid of the state, no but it has been, it's done well. You look at Hong Kong, cos Hong Kong is now...
Mehdi Hasan: Sweden! Denmark! Norway! These are some of the highest tax countries in the Western world, and you are going to go on and say that they are on your camp, they’re on your side of the argument? They are not. They tax and spend more, than you or anyone else on your side of the argument would ever entertain!
Arthur Laffer: Sweden went through a major reduction in taxes And they did not have...
Mehdi Hasan: But it still has high taxes and high spending.
Arthur Laffer: But they did not have the great recession because they cut their taxes dramatically! They really didn't!
Mehdi Hasan: Let's take another question, gentleman here in the front row
Audience member 5: Thank you. Professor Laffer, you talk of a flat tax, at what rate would that flat-tax be set at?
Arthur Laffer: If I, the one I did for Jerry Brown, we got rid of all federal taxes in the US, income, corporate, pay-roll taxes, Medicare, Medicaid taxes, the only thing we didn't get rid of was sin-taxes because their purpose is not so much to raise revenues, it's to change behaviour. Americans don't like drunk people, smoking while we shoot each other. But, you could match all federal revenues, at full employment within rates slightly less than 12 percent.
Mehdi Hasan: But it would be a massive tax cut for the wealthy people of society
Arthur Laffer: No it's not! No it wouldn't. Warren Buffet..
Mehdi Hasan: Hold on, I'm on at 45 percent top rate of tax and you give me a 12 percent top rate of tax.
Arthur Laffer: No, 45 percent of tax, as I tried to explain to you, these people, the rich ones, don't pay it!
Mehdi Hasan: Ok Well. Let's take a question from the back
Audience Member 6: I wanted to ask a question about the developing countries, I am from India. I think too much focus on supply-side economics, it's just becoming a substitution for a weak government. The government is just becoming, stepping back when when we go to our fully stable public services. What do you feel about that?
Arthur Laffer: I don't think so, I mean in India they had a whole thing there, what they call, the Laffer period, in India where they really did the tax-reforms and it worked very well in India.
Mehdi Hasan: But in a lot of developing countries, where taxes are cut, it doesn't lead to big income because as you say, a lot of these millionaires, billionaires, just avoid it.
Arthur Laffer: In a lot of these developing countries…
Mehdi Hasan: So you’re just helping them even more.
Arthur Laffer: A lot of these developing countries you don't have the infrastructure for a tax system like we do in the developing world. I mean in some of the Sub-Saharan African countries where I've spent time...
Mehdi Hasan: [TALKING OVER] Because the government doesn't have enough revenue. That’s the problem,… starve the government of revenue
Arthur Laffer: [TALKING OVER] It’s because they can’t get it..
Arthur Laffer: It's not a market economy like we have here where taxes can be implemented like they are here. You really have a very different system in Sub-Saharan Africa.
Mehdi Hasan: Ann wants to come in here. very briefly Ann.
Arthur Laffer: Sorry Ann!
Ann Pettifor: I've worked in Africa a lot and what they don't have often is the state often. They don't have the institutions of the state, which are funded by tax revenues. They don't have a tax-base as well. But they are discouraged by the World Bank and the IMF from building a stronger state, because of policies that have come out of Chicago. And you know...
Arthur Laffer: No
Arthur Laffer: She's right all the way until the last sentence!
Mehdi Hasan: All the way until the finger of blame is pointed in your direction
Arthur Laffer: I agree with you Ann, but every single time we've cut the highest marginal rate in the US tax revenues, for the top 1 percent of income earners have increased as a share of GDP, and every time we've raised the rates, they've fallen, for goodness-sake. Look at the numbers! They hire lawyers and accountant to defer income! They do! When you see a group of people hanging with Obama, don't think it's poor people, trying to explain what it's like being poor. These are people going after tax, favours. They are! It's corrupt, the whole system
Mehdi Hasan: [INTERUPTING] come on, you’re picking and choosing numbers
Mehdi Hasan: Gentleman here, who's sitting there with the glasses.
Audience Member 8: I work in the finance sector and I'm an economist by training. My question is, given that you admitted that you were so wrong about interest rates and inflation that they didn't materialize in terms of the response of the financial crisis. Have you learned your lesson?
Arthur Laffer: when I was wrong, I chang -I haven't said that about monetary growth again after I was wrong. I really don't think I used the correct model on predicting inflation and interest rates. And I have stopped using it as a result.
Mehdi Hasan: let's go back to the audience I want to go to the lady there who has had her hand up for a while. Do you want to wait for the microphone to come to you?
Audience Member 9: I'm from Oxfam, we just published a report that's highlighting the scandal of extreme inequality and how it threatens to undermine the progress made in recent decades. To reduce levels of global poverty. why do you continue to ignore the evidence, the overwhelming evidence of around the world for taxing and spending by governments it's the most effective way to address this problem? And to ensure that everyone has access to quality public services.
Arthur Laffer: I don't think you're right on taxes and that has been show around the world to help poverty, I really don't. By taking from someone who has more you provide a disincentive and they produce less. By giving it to someone who has less, you provide them with an alternative source of income other than working. Whenever you redistribute income, you reduce total income.
Mehdi Hasan: Other than working? In this country Arthur the majority of people living in poverty are in work. So it's a myth to say that everyone who is poor is unemployed and your just encouraging them.
Arthur Laffer: I didn't say that.
Arthur Laffer: That’s true
Mehdi Hasan: You accecpt…
Arthur Laffer: Of course you have a lot of. But that's because you don't have the growth.
Mehdi Hasan: Ok, let’s go back to the audience, who’s had their hand up longest at the back. That gentleman there, everyone’s pointing at him. In the red, in the maroon jumper there.
Audience Member 10: You seem to say that inequality itself is not a problem if aggregate prosperity increases. But yet, people since Aristotle, we have been talking about the disruptive effects on society by inequality. So given a constant aggregate, cannot distribution have a profound effect on general well fare still?
Arthur Laffer: Can distribution have a profound effect on -yes it can! But the question is how does it come about? If you get a disparity in income distribution, because everyone is getting richer but the rich are getting richer faster.
Mehdi Hasan: That's not a problem in your view?
Arthur Laffer: That is not a problem in my view
Mehdi Hasan: Even if, even if the rich
Arthur Laffer: My view, what is a problem is if income distribution is getting narrower because everyone is getting poorer and the rich are getting poorer faster
Mehdi Hasan: Since Aristotle, we've been talking about the damage, the social damage done, by having this massive gap in one society between people at the top, often undeserving rich, people at the top, some of the bankers haven't done anything to deserve that money, and people at the bottom. Now you can say this is good for growth, everyone is getting richer but there is a destructive effect. There' been lots of studies done on how the rich are able to capture the political system, how they are able to entrench their wealth, and passing it onto their children.
Arthur Laffer: And when I tell you about it with Warren Buffet you don't, you call that a red herring! I'm telling you, you're exactly right, the rich can and ev -a lot of people can capture government and put in really bad policies.
Arthur Laffer: That's why you want a low-rate broad flat tax with no exempts or exclusions or reductions. And everyone pays his or her fair share.
Mehdi Hasan: Deal with the gap, you've moved away from it again. Is it bad or good? You said it's bad and good in the last answer.
Arthur Laffer: But the, but it, but the issue was not the gap
Mehdi Hasan: No, no, no, the issue is the gap, that's what I’m asking you about. Stop moving away, deal with this issue
Arthur Laffer: But I'm trying to tell you if the gap narrows because everyone is getting poor I don't believe..
Mehdi Hasan: [NTERUPTING] Forget the reasons! If you live in a society where a …
Arthur Laffer: [NTERUPTING] No, but that's the whole purpose!
Mehdi Hasan: [NTERUPTING] … small group of people control the vast amount of wealth. Is that good for society? You seem to think it is.
Arthur Laffer: No No I don't think it is, or I don't think it isn't. You know the reason...
Mehdi Hasan: What a great answer, there you go
Arthur Laffer: [NTERUPTING] No but you know that's not my prime thing, my prime thing is how do you make.. that’s the key
Mehdi Hasan: [NTERUPTING] Of course it's not your prime thing, because it's not a question you clearly want to answer.
Arthur Laffer: Do you want to make the rich poorer if you left the poor in the same state? Is that was you would like?
Mehdi Hasan: [NTERUPTING] No I want everyone to get richer but not at extremely different...
Arthur Laffer: [NTERUPTING] No but I asked you about the gap, I gave you an example, would you like the gap to be closed by the rich getting poorer and the poor staying the same? Would you or would you not?
Mehdi Hasan: I'm not going to accept that as one of your two double zero-sum games
Arthur Laffer: That's a red herring! But that's not, that's …
Mehdi Hasan: I'm saying I want what happened in the post war period where everyone got richer but the rich didn't get crazy richer than everyone else with destructive effects for society.
Arthur Laffer: And you tell me how you do that with a policy that makes that work?
Mehdi Hasan: We did it from the 1940's to the 1970's until you Ronald Reagan and Margaret Thatcher came along but uhmm..
Arthur Laffer: Oh my god
Mehdi Hasan: Sorry! Sorry!
Mehdi Hasan: One last question, we've got to finish, one last question before you go, from me. You once wrote that good political economics is neither left-wing nor right-wing, it's neither liberal, it's not conservative, it's just plain straightforward economics. Surely that's nonsense, we've spent the last hour talking about distribution, wealth, inequality, these are fundamentally political issues, you’re a fundamentally political person. You're on the right you advice right-wing leaders. Why not just say it? You’re on the right, Why beat around the bush and pretend to put yourself forward as some neutral expert ?
Arthur Laffer: Well if you wanna look at focusing on incentives as being the right, than I am! I'm not into the social issues like you guys are, but I'm really into creating economic growth!
Mehdi Hasan: Think a lot of people are and just about the way you go about it. But thank you so much for taking the time out to come over here and join us.
Mehdi Hasan: Thank you to our viewers at home who are watching. To our audience here in the Oxford Union. To our panel of experts. This is the last show in the series of Head to Head, but join us again for another series next year. Goodnight!
Source: Al Jazeera