"REAGAN WILL COME BACK!" INTERVIEW WITH ARTHUR LAFFER


En esta crisis, hay quienes defienden que la austeridad es mala porque supone recortar gasto público cuando más se necesita. Hay otros que la atacan desde otro lado: porque implica subir impuestos. Arthur Laffer, asesor de cabecera de Ronald Reagan visitó nuestro país invitado por la Fundación Rafael del Pino. este economista de 72 años asegura tener la receta para acabar con esta crisis: bajar impuestos. Os ofrecemos una versión extendida de la entrevista en versión original que tuvimos con él (emitida en Noticias Cuatro el día 16 de diciembre, a 21 minutos del final). 
Foto: Fundación Rafael del Pino

Foto: Fundación Rafael del Pino

You talk about bad policies, are we applying them as well?
Yes. Governments are raising taxes for austerity and that doesn’t work. Poor people cannot spend themselves into wealth and governments cannot tax their economies into prosperity. If you tax people who work, and pay people who don’t work, don’t be surprised if you find a lot of people not working…
Because they have a bad incentive…
Both sides have a bad incentive. The people you tax, who do work, they are going to stop working. The people who learn to live getting income without working, they are going to work less too.
Do you really think that workers in Spain will stop working because they have to pay higher taxes?
The business then won’t hire them, then. There won’t be jobs created. Let me imagine this: I get rid of all Spanish taxes and you have two low rate flat taxes: one of them on VAT, and the other one personal unadjusted gross income. That’s it. Low rate flat tax, let’s say 10 per cent tax on each one, nothing more.
How about corporate tax?
No tax corporate. No payroll taxes. No welfare taxes. No taxes except those two flat rate taxes. That’s it. What do you think will happen to job creation? You go to the ceiling with creating jobs. That is what you need. And you don’t tax people into jobs. You don’t pay welfare payment people into jobs either. The best form of welfare it is still a good high paying job. And jobs should replace welfare and not add to it. And that is how you create the prosperity you so desperately need here in Spain. I can show you tons and tons of examples in other countries where good tax reforms, have led to great growth. Look what we did in the 80’s with Ronald Reagan. I mean, we created more jobs than… We couldn’t find enough people to fill them.
But some economist like Stiglitz and others believe that the very root of the problems we are having right now resides in the tax cuts that Reagan did during the 80’s.
There is not enough amount of foolishness that people won’t be able to discover to try to discredit good policies. ut if you look at history, you are going to find out that low rate flat taxes, spending restraints, sound money , free trade and minimum regulation really do work.
Minimum regulation?
Everyone knows that you need regulation. The question is that you want to have just the amount of regulations that solve the problem at hand, and doesn’t go beyond it and destroys economic growth.
What was the case a few years ago? Underregulated or overregulated?
What you had was a partnership between government and business which was completely wrong. When you have the head of Goldman Sachs as your Secretary of the Treasury… You have a problem.
You were a guest of FAES foundation last summer. You cannot be very happy with the Popular Party because they are raising taxes: VAT , income tax, corporate tax… everything.
I did not come here to bless them. But yes, I don’t want to raise taxes now in Spain. It doesn’t make sense.
Why do you think they are not listening to you now? Because they did listened to you in the 90’s.
You are going to have to ask them not me… But my advise is the same as in the 90’s, how to create prosperity.
Warren Buffet has asked for higher taxes for rich people because he thinks he should be paying more taxes.
No, that is not true. He has all the tax advantages in the world. He has suggested that we raise all the taxes he doesn’t pay.
Should a fiscal system be progressive?
I don’t think taxes should be progressive at all. I would much rather see income redistribution done though spending rather than through tax rates. When you do it though taxes people try to avoid or otherwise not report taxable income.
So, that would tackle the problem we have in Spain with the black economy?
That would get rid of the black economy. Not higher tax rates but broader tax base.
Did you suggested to our government to set a fiscal amnesty?
I have suggested that all my life. You want to listen to people who actually work in the real world. Sometimes and most often it takes a PHd in Economics not to be able to understand the obvious. Have you ever heard of a poor person spending himself into prosperity?
Isn’t that what the government is for?
Where do they get their resources? They take them from other people. If you have two people in the world, Farmer A and Farmer B, nothing else, if farmer B gets unemployment benefits, who do you think pays for him?
So you are not in favour of unemployment benefits?
Not beyond a certain reasonable amount… No! Unemployment benefits cost people not to work.
Is that the case in Spain too? With unemployment rate above 25%?
If unemployment benefits helped people, let’s make a million dollar a year for every unemployed person. So we so stimulate the economy that they will have to take back their 30.000 dollar year job back.
France is helping the youth unemployed creating jobs, is that a good idea?
Sure…Let’s have an interview two years from now and see how it worked.
Are you being sarcastic?
Of course I am. Look what happened when Cameron and Gordon Brown raised tax rates on the rich. From 40% to 50%. I was talking to reporters all the time then! Don’t do that. What will happen is that you will tax these people away. The money you are going to get will go down, not up, and you will cause a recession and that is what happened: revenues went down, welfare costs up, and they had a recession. And now they are angry because these people tried to get around the tax laws.
But don’t you think that what you do with taxes depends very much on the business cycle?
This is the cycle! It is caused by government taxes.
Is it?
Yes! It is not some magical first order difference equation created by God on this earth. Business cycles are caused by governments When you raise taxes you cause a downturn when you lower them you cause an upturn.
How about bubbles?
Bubbles? There are bubbles in industries. That does happen. Governments should get out of these bubbles. Business should be allowed to fail.
But our economic situacion is a consequence of bubble…
Government spending.
Do you think our deficit is the cause of this crisis and not the consequence?
Yes. Of course I do.
We didn’t have spending deficit three years ago. We had a surplus.
We had a downturn like the one we had in the 2000’s. But the reason why it became a recession is because government policies coming in, increasing spending and raising taxes. That is what has caused the great recession. And that is why we are not getting out of it. Governments do not create prosperity.
So, the deregulation and the lowering taxes of the 80’s is not the root of the problems we are having right now.
How many thousand years back are you going to go before you lose that root? If it doesn’t happen within a year, it is not the root.
What you do you think about austerity?
Austerity on tax increases is silly. It is wrong. It is bad. Austerity of cutting some spending is right. So austerity on balancing a budget is not right. I want to raise taxes a lot, but not tax rates. You have to create economic growth first and then you balance your budget.
We are not doing that…
No you are not. Nor are we. But once you get my economics, you will. Clinton will come back, Reagan will come back! We will move back to a political economy of growth. I guarantee you that. But unfortunately you have to go through this nonsense first.
Don’t you think Reagan and Thatcher are quite discredited today?
No! Reagan is right now next to George Washington, the greatest president ever! Why? Because he created prosperity. It is not monopoly capitalism that I like.
Neither Stiglitz, Krugman or Skidelsky, for example.
Nonsense.
Why?
Stiglitz and Krugman want big government crony capitalism. They want to determine who gets the money and who doesn’t. Stiglitz and Krugman don’t work in the private sector and never have. I got my PHD as good as anyone of them: and I have been as famous as anyone of them when I was an academic. I worked with governments as closely as anyone of these people ever has. I have more experience in the White House than they do combine times five! Our job is to make economics actually work for the people.

Macroeconomía

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