The Larry Kudlow Show

Transcript: July 15, 2017

Voice Recording: The economy is the biggest story of our time. That's why you're listening to the Larry Kudlow Show.

Larry Kudlow: Welcome back folks, I’m Larry Kudlow, larry_kudlow on Twitter. We're going to make some radio history today. I don't know that Steve Forbes and Arthur Laffer have ever appeared together on radio or TV maybe they'll correct me. We're going to run 45 minutes so that they get ample, ample time to discuss their views. Steve Forbes, chairman, editor-in-chief of Forbes Media. Steve ran for president twice. His latest book is Reviving America, How Repealing Obamacare, Replacing the Tax Code and Reforming the Fed will restore hope and prosperity.

Arthur Laffer, founder and chairman of Laffer Associates and Laffer Investments, a former member of President Reagan's economic policy Advisory Board. Gentlemen, welcome. We're going to make a little radio history today having you two giants on the program. I want to begin with my brief opening which was brief to carve out time for you. Rod Thanco, a good friend of ours, wrote in Forbes Magazine "Happy birthday to Jack Kemp, the man who transformed the world."

Jack would have been 82 years old two days ago, I believe, July 13th he passed away tragically, way too early, in 2009. He was a very good friend to all of us I know that. Jack had one big idea, Steve Forbes, one big idea, and that was a policy mix, low marginal tax rates to spur economic growth incentives and a sound steady reliable dollar to conquer inflation and create confidence. What do you think of that? Is that still relevant today? That one big idea or as many of our critics have criticized us, all three of us, that we're clinging to the past. Does it still work today, Steve Forbes?

Steve Forbes: We need it now more than ever. To say that just because it worked 40 years ago, therefore, it's old is like saying the Declaration of Independence and the Constitution are old therefore we can cast them aside. No, you have low tax rates, especially a flat tax, you have a dollar linked to gold, sound dollars we did for most of our history and we will make history economically again, land of opportunity again.

Larry Kudlow: Arthur Laffer, do you agree with that or --?

Steve Forbes: I do.

Larry Kudlow: Just a bunch of old fogies?

Steve Forbes: You should talk to my family because given my age they're all trying to discard me and done. What can I tell you? Our economic verities have remained forever. They go back to caveman, pre cavemen. Incentives matter if you reward an activity that people do more of it. If you punish an activity, people do less of it. All the things we want; output, employment, production, stable prices are exactly what the Steve Forbes is talking about and that is exactly how you get those policies to work today.

Larry Kudlow: What are the big debates in the national economic sphere is whether we could get 3% growth ever again? We've had 2% growth for about ten years and most of our friends on the Democratic side and even some of our friends on the Republican side say 3% growth is unattainable. Now, of course, Reagan generated 4% growth, plus John F Kennedy generated 5% growth and really for about 25-30 years we had near 4% growth on Reagan.

The question I'm asking, Mack Mulvaney, right? Mick Mulvaney, rather Donald Trump's budget director, he's put out a budget that has our, I say, our growth, 3% growth. His principles here it's not exactly, but very close to what Kemp argued for tax reform, unnecessary regulation -- regulation is -- it's not exactly a tax but it's a cousin to a tax and that's growing enormously. Welfare reform to provide incentives to work, energy reform to use incentives to become the number one energy producer, infrastructure, fair trade, government spending was strained.

Arthur Laffer, do you think that Mick Mulvaney is has his finger on the Jack Kemp pulse? I really should call it the Jack Kemp, Arthur Laffer, Bob Mandel, Steve Forbes post. Do you think he understands it?

Steve Forbes: Yes. But the one problem with the Mick Mulvaney thing is when you focus on 75 things you see nothing. We need to focus down on a couple of things very quickly, very forcefully. My view is the corporate tax is the easiest one now. But, if you do the Mitt Romney 39 policy projections, you're not going to get anything. We need to focus on one thing at a time and get it done.

Larry Kudlow: Steve Forbes, one thing at a time now. I know you're going to amend this. You're going to -- I think you're going to agree with Art and me and Steve Moore that it's the corporate tax rate which is the most onerous problem right now. By the way, Jamie Dimon had a wonderful rant on CNBC yesterday. He said the same thing. But, okay, corporate tax cuts Trump is very, very, very much in favor of that. I think most of the GOP is in favor of that. But, I'm not hearing any talk about sound dollar, Steve Forbes.

Steve Forbes: No and Art is right about focusing on a couple of big things then the other things naturally follow. On the tax side, I think the president recognizes that Congress made a huge mistake in trying to go with the health care bill first and then tax reform because of the crazy way they score losses and gains or revenues and spending on the hill which is voodoo scoring is what I call it. But, they all worship at that shrine.

Once they get a good tax bill through, I think they can do the corporate and the individual side, why not just do what Reagan did the first round and just do across-the-board rate cut of 25 or 30% and do the heavy lifting, or cleaning of that part of the code later. Get those rates down now. But you're very right, Larry, in terms of the Federal Reserve they've got vacancies there now. It's critically important that we have a stable dollar.

Given the Feds behavior in recent years and one of the things that Jamie Dimon did yesterday when he went on that rant, he made a very good point. He said “eBcause of the crazy regulations and the distortion in the credit markets,” he said “in the last five years there's about one-and-a-half trillion, trillion to two trillion dollars of loans that would have been made but weren't made to small and new businesses.” That's a staggering number.

Imagine how richer the economy would be if the Fed hadn't mucked up our credit markets and Congress mucked up our credit markets. Absolutely, stable dollar, you can start with these appointments to the Fed. That’s why I wished he’ll appoint you to succeed Janet Yellen in January, but I'm not sure you want to move to Washington.

Larry Kudlow: [laughs] Arthur Laffer, you and I have heard Trump say he wished he done tax cuts first and I just heard it again. He is going for a very large tax package including individual tax reform some of which is better than others in my view. The corporate tax reform which Steve Moore and I have taken to calling the three easy pieces. Corporate rate reduction to 15%, full expensing of new business equipment and repatriation of overseas capital.

Also, Trump is saying if he can't get the overall package, he would go for the corporate tax cut that would be his top priority which reminds me, Arthur Laffer, how Reagan used to say “Give me half a loaf now and I'll get the other half later.” I would take the half a loaf on corporate tax cutting right now, Arthur Laffer.

Steve Forbes: Yes, that's what you should do and, Larry, if I can say we got the '81 Tax Bill passed. We phased it and we did all sorts of compromises. But it wasn't until the boom of the ’83, ‘84 period that brought all the Democrats on board to do the real bill which was the ‘86 Tax Act which brought the highest rate down to 28%. We kept the corporate rate from 46 to 34%. That was the . . . That was the crescendo at the end of a wonderful period.

You need a political win big time and the corporate rate cut will get that economy growing. Then once you've got that growing you're going to see all the Democrats join us. But before that, you're not and if we have 10 issues they're going to pick and knit and do all that stuff with it and we'll get nothing.

Larry Kudlow: All right. We should really --

Steve Forbes: Just the corporate right now. Anywhere you read 35, write 15, and that's it.

Larry Kudlow: Yes. He actually believes that. He actually believes that. There's a little more optimism in the White House about a broader package, but I think Trump agrees with you two. All right, folks our historic segment, we've got Steve Forbes. We've got Arthur Laffer. We've got the Larry Kudlow Show stay with us another full 30 minutes right after this break.

Voice Recording: Where money meets politics. It’s The Larry Kudlow show.

Larry Kudlow: Welcome back folks. I'm Larry Kudlow. We're here with some historic radio, two economic giants in recent decades. Steve Forbes, chairman, editor-in-chief of Forbes media, former republican presidential candidate and Arthur Laffer, founder, and chairman of Laffer Associates and Laffer investment and a former top adviser to President Ronald Reagan. Steve Forbes, you ran for president in 1996 and 2000. We backed you, of course.

You basically ran on a flat tax, I believe something near 20%, 17% and a strong dollar. Strong steady dollar. That was it. You caused a lot of trouble in the primaries because you had Dole, '96. Not much there. 2000, George W. Bush. Both hard-fought. I think you influenced the GOP a lot, Steve. Unfortunately, in the last campaigns, several campaigns, your mix, which was the Reagan mix or the Kemp mix or the Laffer-Mundell mix, we've lost that thinking except for a few of us old guys who keep pushing it.

Steve Forbes: Yes. The amazing thing, Larry, well, this country was still thrashing trying to get this right. 40 countries in jurisdictions around the world in the last 20 years have adopted the flat tax and it's worked fairly well. We've got to just keep at it. One of the things I take encouragement from Donald Trump is whatever happens on this round of taxation . . . what Arthur Laffer talked about and what Ronald Reagan did in his second round is that they can take another bite out of this apple and I think he would be very amenable to being when he starts to think about legacy.

Even if we get to this two years down the road, I think he'd be amenable to doing something radical like a flat tax. He would be the kind of a person who would do it and not be constrained by establishment bugaboos and baggage.

Larry Kudlow: All right. Laffer, if we don't get the corporate tax cut soon, what do I mean by soon? By the end of this year. Maybe early next year at the latest. I have the sense Art, that large and small businesses that would get this tax cut, they've got money and cash but they're not going to pull the investment trigger until they see these tax cuts take hold. Art, the latest numbers, latest data coming in the last couple months actually show a softening economy. The question I want to ask you is, are we going into recession if we don't get the corporate tax cut?

Steve Forbes: Yes. Let me just say though, I was the first contributor, Steve, I think, to your campaign in '96 and you are my hero. You have taken the place to where the rubber hits the road. Larry's completely correct. You led all of us back then and congratulations and thank you.

Steve Forbes: You're very kind, Art, but the fact of the matter is, you should've had long ago when we chatted about this Nobel Prize for economics. You made it possible what Regan did.

Larry Kudlow: Yes. Absolutely.

Steve Forbes: Well, thank you. Let me just say Larry, I don't think that's true. I don't think we're going into a recession or if we do it'll be very small. Obama was so, so bad with the increasing . . . problems all the time. So just stopping doing damage, I think will help this economy. What Trump has also done a lot with executive orders, and some of the bills he's passed as well, has really removed some of the regulatory burden as well on that.

I really think growth rates in the US are going to increase even if we don't get the corporate rate. What the corporate rate will do is put us in supercharged position to really get that growth way, way up like it was under Reagan. People don't realize, Larry, that from January first 1983 until June 30th 1984, 18 months period, Larry, a year and a half, the US economy grew by 12% or at a little bit less than an 8% annualized rate over a year and a half. That does miracles.

It was that growth that got us to win the election in '84. We only won 49 states. Won in just a landslide and that's why the Democrats finally saw the light because we hit them with a sledgehammer. That's why we got the '86 Tax Act. I think we're on the projectile to really do something like that as well. I'm not really worried about a recession. I just wanted to have faster growth rather than slower growth.

Larry Kudlow: All right. Just a quick follow-up on this. Why is it that our democratic friends, at least in the economics profession but also elsewhere. You have friends and then party. I do, too. Steve Forbes does, too. Guys were on my TV show and radio. They're Obama people and Clinton people but they're pretty smart people. Why is it that they work so hard to discredit the Reagan idea of lowering marginal tax rates so the extra dollar earned--why is it? Why won't they acknowledge the actual facts, Art? That's what I'm asking.

Steve Forbes: Let me put it just succinctly, if I can, in political terms. Very simply, Larry. It's pretty straightforward. These people are willing to rebut arguments they know to be true in order to curry favors with their political benefactors. When you're an employee of a president, you're going to carry the water for that president. That's why I never took a job with Reagan because once you take a job with Reagan you're all of sudden an employee and you've got to agree with him no matter what his decision.

These guys are bought and sold in the political process. Republicans are not, because, frankly, we don't believe in large government. Therefore, a lot of the Republicans don't ever hold jobs in government.

Steve Forbes: Larry, I want to add on to that. A lot of these far-left ideologues would rather have a smaller economy and more government power than a bigger economy and a smaller government.

Steve Forbes: Exactly. That's exactly right, Larry.

Larry Kudlow: Sort of crude simple terms but nonetheless germane. They really will be willing to shrink the pie, the economic pie, give everybody smaller slices but Art, the government would get the biggest slice of all. That's really-

Steve Forbes: Yes, but Larry these guys make their reputations get their pleasures by being in control. You and I and Steve get our pleasures by watching the economy perform. I stand in awe before this economy. I'm not looking for a government job. These guys love controlling other people. They're very control freaks. I like observing prosperity rather than being a part of poverty.

Steve Forbes: Larry, remember in 2008 when Obama was running and he's asked, I forgot which TV show really put it to him, about the capital gains tax. Showed him whenever you'd cut the capital gains tax you would instant increase in revenues and Obama just sort of shook his head and said it's still immoral to cut the rate.

Larry Kudlow: Immoral. What does immoral mean? Immoral.

Steve Forbes: It means they'll never have control of it.

Larry Kudlow: Immoral. I thought prosperity was moral. Life's liberty in the pursuit of happiness.

Steve Forbes: It's really not to these people. They would rather be sitting there in charge of a poverty system than they would--that's why none of these poor countries ever get out of it is because once these people get in control they want to stay in control and they keep it down.

Larry Kudlow: Steve Forbes, one of the prosperity killers, when I was out there in the far reaches of San Diego, actually I was 22 years almost to the day, working for Arthur Laffer, who was the only human, all right, to give me a job offer. God bless him. We talked about prosperity killers and one of the prosperity killers was trade protectionism, Steve, which is a form of taxation. Now, inside the Trump administration there is a.) a lot of talk about trade protectionism.

The latest is tariff's on China's -- well, on China. Tariffs to protect American steel producers. Tariffs on German automobile imports even though a lot of German companies are already in the US. That's not decisions, I want to say, because there's a very healthy debate going on about whether to do any of this and how far. Where does trade protectionism fit in in this model we're discussing?

Steve Forbes: Well, it doesn't. As you have pointed out, Larry, if you go for a big trade protectionism you're going to blow up the stock market as we saw in the 1929, 1930s. There's a right way of going about trade and wrong ones. Like Social Security and healthcare. As Jack Kemp pointed out you can take the root canal approach. Having your operations without anesthesia, throwing people off the rolls or you can do the smart approach on trade.

The smart approach is get this economy moving through these tax cuts and deregulation and the like, but big thing on tax cuts, and then having a stable dollar and then you sit down with country by country and remove trade barriers. If we get a level of playing field we do extremely well so we should play to our strengths and not do what we did in 1929.

Steve Forbes: Can I paraphrase Steve on that one, Larry, if I may?

Larry Kudlow: Well, you're going to anyway, so you may as well. [laughs]

Steve Forbes: I will, I will. Don't just stand there, undo something. [laughter] I love it, Steve, you're so right on all of these things.

Larry Kudlow: I remember that one.

Steve Forbes: Cut taxes, stabilize the dollar, reduce tariffs, reduce regulation undo, undo, undo and undo the damages these other guys have done.

Larry Kudlow: Donald Trump wants to drain the swamp. He's coldly right. He wants to overturn the prevailing elites. He's totally right about that. But, Steve, I can't figure somebody got to him a while back. Steve Moore and I did our best during the campaign but it's still around. Somebody got to him about trade protectionism and somebody got to him, Steve Forbes that the idea, if we have a large trade deficit globally or if we have a large trade deficit with another country, let's take China, that's bad for our economy.

I don't know where that comes from but that's one of these things that has to be undone. I'm not sure where it was done in the first place but Steve, this could be an uphill climb.

Steve Forbes: Well, I think we've got to take the camp approach and that is, yes these trade agreements need to be updated. They always do. And removing barriers especially China which does real discrimination against a lot of our products and companies but to go for a stable dollar. If you have a stable dollar then you're not going to have a situation like you have with Mexico where it's a currency falls out of the bed, at least temporarily. They think they're going to get a trade advantage or what the Bush administration did in the early part of last decade.

They thought weakening the dollar give us a trade advantage. So, say, yes. Well, here's here's a better way to solve the trade problem and make America more prosperous and in terms of trade deficits. Say we want a capital import surplus and by getting rid of the border tax or getting it down to 5% or whatever it is, you'd have money flooding in. So Germany can have its trade surplus. We're going to have the capital surplus and use that capital to boom up the economy.

Larry Kudlow: All right. I got to take a quick break. We have Arthur Laffer. We have Steve Forbes and historic 45-minute interview and discussion of the big ideas that will restore, growth and prosperity and optimism I'm Kudlow, we'll be right back.

Voice Recording: You're listening to the Larry Kudlow Show. [Music] From Wall Street to Washington to your wallet, you're listening to the Larry Kudlow Show.

Larry Kudlow: Welcome back folks, our historic 45-minute interview with two of the Greats Arthur Laffer and Steve Forbes. Gentlemen, let's just switch gears slightly. Steve Forbes, is this Republican health care reform plan such as it is worth defending, worth voting for, a good thing or a bad thing?

Steve Forbes: Yes, I wish they had kept the tax cuts in, which would have been a great tonic for the economy even before the big tax bill later this year. But I take the attitude I've just swallowed a lot on this. Let's get something good done, get rid of the individual mandate, get rid of that employer mandate which is a killer on the economy and a hypocritical thing, Larry, is give governor's give States flexibility on Medicaid. That's how you're going really get reform on that instead of top-down.

So, get as much as you can and realize what the Democrats realized, Larry. You do this often, sometimes with great leaps but sometimes step by step but you keep pushing. I see this is the first step not the final thing on health care.

Larry Kudlow: Do you agree with that, Art? And let me just--

Steve Forbes: Larry, I do a 100%. the question to ask, do you want your country to be more like Texas or more like Illinois? Do you want your country more like Florida or more like New York?

Larry Kudlow: Or Connecticut?

Steve Forbes: more like Tennessee or more like Kentucky?

Larry Kudlow: Or like Connecticut?

Steve Forbes: This saying it's so correct "Life is a marathon, it's not a sprint". And with any type of change that we can make in the right direction is, never let the best be the enemy of the good. I totally graded that 3.8 %, that 0.9 % really suck the big-- They're just awful but we need to start the ball rolling and get it going and then two years out, Larry, We're going to win the election in huge amounts. Then, we'll be able to do the big reform like the 86 Tax Act.

Larry Kudlow: Democrats want single-payer, Art. They want government-run health care. In fact, they want to use the Medicaid model which exploded under Obamacare and basically, that's a totally government-run operation and it is the worst health care model ever known.

Steve Forbes: You're right.

Larry Kudlow: What are we going to do? If we lose-- I'm just very worried here. This is one of these turning points. I wish they had not gone here first of all.

Steve Forbes: Me too.

Larry Kudlow: I mean better to do this stuff during a prosperity-

Steve Forbes: Yes, you got it.

Larry Kudlow: -not during a stagnant period where people are so unhappy. But having said that, Steve Forbes. If the Republicans can't get a win in their own Senate conference, they're going to go to the Democrats and you know what that means? You're talking about a few votes at the margin. That a single-payer government-run Medicaid model health care. That's where this thing -- A lot of Republicans, governors included, want that. I mean they want more Medicaid money. That's one of the key points of this debate, governors, Republican governors.

Steve Forbes: Larry, they talk about opioids. Money for governors of the old event opioids which is why people like Governor Keith suggest a feast on this stuff. the thing of it, keep in mind about Medicaid, is the more they spend, the worse the outcomes are for the people it's supposedly helping. That, as you pointed out it's the worst system in the world. Spend more, hurt people. Really . . . really good work.

One of the things we have to say is, we don't want to do to the rest of the population what the VA did to so many of our veterans, another single-payer system. Throw that at him and say, "Yes, we got to get the patient in charge, not the bureaucrat".

Larry Kudlow: Arthur, I'm thinking about global influences. Reagan was shunned in his first G7 meetings because he had all these weird ideas about lower tax rates and stable money, weird ideas to shrink the size and power and scope of the state. However, since Reaganomics worked, all of a sudden the Europeans and others in Latin America and Asia moved to that what I will call "Free market model".

Now my question is, this is an intellectual question it just seems like the free market model is in decline in Europe for example and in important parts of Latin America including, by the way, Chile which was a fabulous reform now it looks like it's going the wrong way, certainly in Brazil and Argentina have and maybe Asia, too. I mean intellectually, is the free market model losing ground?

Steve Forbes: No, it's not. But let me correct a little bit back there if I can with you and Steve. It's not Republican. It's not Democrat. It's not liberal. It's not conservative. It's not left-wing or right-wing. It's economics and economics works in the downside and in the upside. If you get a socialist administration, you drive your country into the ground just like we got driven into the ground under W and Obama.

Places like France now it seems like they might even be discovering new growth economics and maybe even Britain as well. So, this thing always ebbs and flows, Larry. I've got to tell you, Reagan at first was dissed by all the foreign leaders except for Thatcher. And once our success story came in, he's now virtually a god. That's going to happen again, believe me. I hope it's the US that leads us out of it.

Larry Kudlow: Well, okay. But, Steve Forbes, you and I spent some brief prison terms and some Ivy League Eastern colleges and I wouldn't exactly say--

Steve Forbes: Princeton, Princeton, I'm a Yale, Larry. It was Princeton that did the damage.

[Laughter]

Larry Kudlow: Whatever, we're all guilty. But the point is, I wouldn't say the economic guild or the economic profession, Steve Forbes, and Art, has done itself proud, okay? That's where I'm going. Art, you're right. This is a battleground of ideas. In this case, it's economic ideas. I'll start with Steve. We've got 45 seconds. What the hell is wrong with these Eastern schools? What's wrong? Why are they so on the wrong track?

Steve Forbes: Because they bind to the status model. Going back to the Great Depression which we know is government policy that brought it on but free markets got the blame. Free markets, we were told, are inherently unstable and so the mandarins want to be in charge. Whether it's in an academic institution or a government bureaucracy.

Larry Kudlow: All right, all right. Laffer, when you're going to reform Yale?

Steve Forbes: Let me just tell you, these people are paid by either government employees or by tax-exempt contributions from people they don't know and they never are forced to bear the consequences of their own actions. And as long as they have no consequences for being stupid, they will continue being stupid.

Larry Kudlow: The great Steve Forbes and the equally great Arthur Laffer, I am honored. What a great segment. I'm Larry Kudlow. Folks, we'll be back after this show.