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Business Observer Thursday, Mar. 18, 2010 12 years ago

No Laughing Matter

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A nationally renowned economist blames the federal government for much of the current financial mess. But hope, says Arthur Laffer, will be renewed in 2012.
by: Mark Gordon Managing Editor

Arthur Laffer, the famed economist and creator of the Laffer Curve, is convinced the federal government's interventionist ways are a disaster.

The good news: Laffer says it could be a temporary disaster.

Laffer said as much to a small group of Sarasota business leaders during a recent breakfast chat sponsored by Caldwell Trust Co.

“Don't tell me we can't undo every penny of it,” says Laffer, who runs Laffer Associates, a Nashville-based institutional economic research and consulting firm. “Every tax they raised, I can cut. Every program they put in, I can take out. And every company they nationalize, I can privatize.”

Laffer says President Barack Obama and his policies are so bad that the president has morphed into Jimmy Carter in the sense that the next president, like Ronald Reagan after Carter, will be an all-time great. Laffer predicts Obama's Reaganesque replacement will be elected in 2012.

In the meantime, Laffer, in his March 11 presentation in Sarasota and in his recent research, argues that the current economic path Obama has put the country on has been and will continue to be painful. Indeed, Laffer, in his Jan. 6 report for clients entitled Economic Outlook: 2010 and Beyond, says 2011 could be a “train wreck.”

In the short term, he wrote, the economy could grow by at least 4% by the end of 2010 and the unemployment rate could drop to 7%. But the trouble, warns Laffer, is that Obama plans a double whammy in 2011: That's when he will allow the Bush tax cuts to expire and impose a litany of tax increases on businesses.

That kind of tax policy goes against the Laffer curve, a celebrated economic theory centered on the belief that a higher tax rate doesn't necessarily equate to more taxes for government coffers. The idea, according to Laffer, is that neither a 0% tax rate nor a 100% tax rate will generate any money, because at the latter rate there is no incentive to earn income.

Laffer famously drew up his curve theory on a napkin one day in 1974 for a pair of Ford Administration officials — Dick Cheney and Donald Rumsfeld. He has previously said he learned the idea from economist John Maynard Keynes. Other political leaders, including Reagan, have since embraced the concept.

Laffer says Obama and his economic team have ignored those ideas and instead implemented policies that will lead to economic ruin.

“Over any extended period of time, no economy can be prosperous if the government is overspending, raising tax rates, printing too much money, over-regulating and restricting international trade,” Laffer wrote in January. “It's imperative to remember the U.S. economy cannot have prosperity given the policies of the Obama administration and Congress.”

Laffer, 69, is familiar with the Gulf Coast, having vacationed in Venice and Captiva Island with his family when he was a young boy. He has also consulted on investment strategies with Roland and Kelly Caldwell, the father-and-son team behind Caldwell Trust, for many years. The independent trust firm has offices in Sarasota and Venice and more than $440 million in client assets under management.

Laffer is also intimately familiar with another Florida staple: No state income tax. It's the main reason why Laffer says he recently moved his business and family to Tennessee from California.
— Mark Gordon

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