-Caveat Lector- http://www.polyconomics.com/searchbase/10-22-99.html Fall Semester: Supply Side University Economics Lesson #5 Memo To: SSU students From: Jude Wanniski Re: Theory and Policy; Mundell to Reagan exerpts This semester’s emphasis is on the political side of the political economy, which affords me the special opportunity this week to discuss Robert Mundell’s Nobel Laureate in economics and how his theories elected a President and changed the world. and Only one week earlier, Laffer and I had met with Dick Cheney, the deputy White House Chief-of- Staff, to make the case for a Ford tax cut instead of his promised tax increase. Cheney’s boss, Donald Rumsfeld, had not been chief-of-staff at the time Ford swallowed the advice on a tax increase to fight inflation, so he was open to switching to a tax cut, especially after the GOP lost four dozen seats in the November off-year elections. I had explained to him that the voters were not blaming congressional GOPers for Nixon or Ford’s pardon of him, but for Ford’s promise of a tax increase. The Dow Jones Industrial Average was in the 500s, its lowest point in decades. When Cheney could not grasp the concept of two tax rates producing the same revenue, one at a higher level of production, Laffer grabbed a cocktail napkin and drew his famous curve... which I named for him in 1977 when I wrote "The Laffer Curve" as Chapter Six of my book, "The Way the World Works." and Reagan’s research director, Jeff Bell, had read the Mundell-Laffer Hypothesis and he saw in it a winning issue for his boss. Bell, though, had to fight the Old Guard politicos around Reagan, who would not buy the idea of a self-financing tax cut. Bell came up with a $90 billion tax cut that would be financed with $90 billion in spending cuts, a zero-sum approach that was doomed from the start, made worse when Bell let slip a proposed list of the spending cuts. Ford’s camp attacked the cuts as harsh and cruel and the outcry forced Reagan to drop the plan altogether, thereby losing his lead in the New Hampshire poll, and in the end losing the nomination fight by a handful of votes. and He took these findings to Reagan and argued that in 1980, Reagan should embrace the supply-siders and run not on a zero-sum plan, but on the dynamic model implied by the Laffer Curve. --------------- also by the same author, Jude Wanniski: http://www.polyconomics.com/searchbase/07-26-00.html exerpt Cheney also understands and appreciates supply-side economics better than any of the other veep candidates, having been present at the Creation, so to speak. I would not call him a supply-sider, because he is not that confirmed in his policy views, but it would be much easier with him on the team to persuade a President Bush to name someone like Steve Forbes to be Treasury Secretary. This would be necessary to force badly needed reforms of the IMF and World Bank. By the way, the Laffer Curve was first drawn by Laffer to demonstrate to Dick Cheney, then deputy White House chief of staff to Rumsfeld, in December 1974, that tax rates could be lowered without loss of revenue. I was sitting at the table at the Two Continents Restaurant with Laffer and Cheney, saw the Curve sketched on a cocktail napkin, realized its importance, and subsequently named it the "Laffer Curve." At the time, the message got through to Cheney at least to the point he and Rumsfeld persuaded President Ford to drop his push for a tax increase and switch to a tax cut, albeit one poorly designed by the Treasury. It was actually a "tax refund," with no supply-side effects. ----------------------------- http://www.nationalreview.com/kudlow/kudlow072400.html National Review On-Line Kudlow's Take 7/24/00 Cheney the Supply-Sider He was one of the original tax-cut crusaders exerpt After the session broke up, I was collecting my papers, feeling kind of lonely, when Dick Cheney came up to me to chat. By then the Wyomian was Republican Whip in the House. He told me that he really enjoyed my talk and agreed with me that the Reagan tax cuts worked successfully. We were standing alone drinking coffee when President Ford walked over. Cheney told Ford, "You know, Mr. President, Kudlow here is right." Ford responded by looking me straight in the eye saying, "Kudlow, you're my favorite supply-sider. But I don't believe a word of it." --------- Samantha <A HREF="http://www.ctrl.org/">www.ctrl.org</A> DECLARATION & DISCLAIMER ========== CTRL is a discussion & informational exchange list. 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