As Bush Sets Up Shop, Art Laffer Is Just Watching : Supply-Side Crusader Is Far From Center of Power
When Ronald Reagan moved into the White House eight years ago, it’s a safe bet he was toting at least one paper written by Arthur B. Laffer.
The crusading economist, who touted the virtues of lower tax rates, voiced a message that the President liked to hear. Laffer’s mathematical “curve” gained the folklore status--if limited acceptance by other analysts.
But this week, when a new Republican President sets up shop, Laffer and his fellow “supply-siders” will be far from the center of power.
“We were a group of people who fit a time and place,” Laffer, 48, said last week during an interview in his South Bay office, which is home to a gopher snake from his back yard, two snapping turtles and artifacts from all over the world. “To expect us to fit another time and place is not to understand us.”
Laffer’s fame came at a time of great upheaval in national policy, a period when Reagan sought--and won--extraordinary tax cuts. During Reagan’s tenure, for instance, top individual rates plunged to 33% from 70%.
A key weapon used to persuade members of Congress to cut tax rates was the so-called Laffer curve, which calculated that the cuts would spur new business activity--and thus new sources of government revenue.
Laffer, an enthusiastic promoter of ideas, emerged as a general in the supply-side movement, an unorthodox band of analysts who stressed business incentives as the key to prosperity.
“Art was sort of the godfather of the group, the intellectual contributing ideas,” recalled Jerry Jordan, chief economist at First Interstate Bancorp and an early economic adviser to Reagan.
These days, Laffer continues to offer his views to investors, politicians and executives. His Lomita-based financial consulting business has 300 clients, mainly professional investors.
But he is often far from his Italian marble desk. A sought-after speaker, he says he typically logs more than 10,000 miles a week in travel to forums as varied as the Oklahoma Chamber of Commerce, the Wisconsin Bankers Assn. and the Pat Sajak show.
Home is a 17-acre, mountain retreat in San Diego County that he shares with his wife, Traci, four children and a menagerie of pets including a deer (Bambi), a horse, numerous turtles, tropical birds, a fox, four dogs and two cats.
“If somebody offered me the presidency of the San Diego Zoo, I’d take it,” said Laffer, a wildlife enthusiast who likes to read books on physics and biology.
The pets and the politics do not always mix, a lesson Laffer learned in the 1970s when one of his daughters innocently tossed a pet weasel named Fern toward Nancy Reagan.
“She didn’t want to make it seem like she would have a heart attack or anything,” Rachel Laffer, 16, recalled during a recent lunch at her father’s favorite sushi restaurant. She noted that Mrs. Reagan caught the pet and handed it back.
Laffer’s own attempt at politics, a quest for California’s 1986 Republican senatorial nomination, proved unsuccessful. He does not rule out a future bid but maintains that running for office is “not a driving ambition.”
Yet if years in the political trenches have left Laffer with a wealth of memories, they have also left an aura of controversy around his economic views.
Critics seize on the $155-billion federal budget deficit as proof that the tax cuts he advocated were excessive. They also dismiss the supply-side claim that a tax cut could pay for itself by stimulating new business activity, a claim Laffer says that others exaggerated.
“History has contradicted, not confirmed, the Laffer hypothesis,” said Robert Eisner, an economics professor at Northwestern University and past president of the American Economic Assn. “Certainly, I think it made no contribution to professional economics.”
Lawrence Chimerine, chairman of the WEFA Group, economic consultants in Bala-Cynwyd, Pa., said the tax cuts aggravated America’s financial ills, including the trade deficit. He described the benefits promised by Laffer and others as “way, way overblown.”
But in some ways Laffer’s efforts are less easily dismissed. The U.S. economy remains in the longest peacetime expansion of the century. There is evidence that income tax revenues have grown even faster than the overall economy in recent years.
And Bush, of course, has said he will not seek tax increases as a way to combat the deficit.
Laffer concedes that his optimistic budget deficit projections were “far off,” but with characteristic lack of doubt he asserts: “The supply side won. We won.”
Although that view is far from universal, Laffer is not alone. “The legacy of the supply-siders is in place,” agreed Lawrence A. Kudlow, chief economist at the Bear Stearns investment firm and a former official at Reagan’s Office of Management and Budget.
“I think economic policy has been and will continue to be influenced by the thinking of Art Laffer and (other supply-siders),” he maintained.
Whether that thinking will reach the inner levels of the Bush Administration is uncertain. The incoming President seems to be relying more on middle-of-the-road thinkers than on ideologues to solve the economy’s problems.
Laffer, a national co-chairman for the Bush campaign, sees a logic in this. Reagan, he reasons, sought vaulting changes in tax and other policies. By contrast, Bush will aim more for careful consensus with the Democratic-controlled Congress--and will turn to advisers with a similar approach.
“I think Bush is the perfect guy to succeed Reagan,” said Laffer, describing the incoming President as a “manager” and the outgoing one as a “peaceful revolutionary.”
Intellectual thunder and lightning may draw Laffer more than the methodical fine-tuning of management, but he acknowledges that “I would love to be a (Bush) adviser as I was with Reagan.”
Asked whether that will happen, he said: “I think I’ll be fine with the Bush Administration. I don’t see why I wouldn’t be. That doesn’t mean they want me to be a Cabinet secretary--but I don’t want to be one either.”
