'VERY GOOD': Former Reagan economist gives his take on the economy

[00:00:00] Speaker 1: Let's move on, talk about the economy, my great friend Art Laffer, former Reagan economist and great teacher of Kudlow Arthur. Wall Street Journal, let me see, they've got inflation rising, they've got growth rising, they've got inflation rising in their survey of economists. We're going to put some of that stuff on the board. 10-year Treasury yields stay above 5%. CPI is going to be higher than thought. Oil prices are going to be higher than thought. Arthur, give me your rundown of the economy. You know, we've got some bad inflation numbers, not the end of the world, not Biden-type inflation numbers, but inflation, you know, is not going away. The Federal Reserve may have to quit printing money for a while, wouldn't be the worst thing in the world, I think. Anyway, give me a little Art Laffer. What's happening to this American economy? [00:00:51] Speaker 2: Strong, weak, prices? You tell me. I think we're in very good shape, Larry. I mean, we've got a great labor market. You know, we should be creating less jobs than we're creating because of the immigration changes. But no, the jobs numbers are staying very high. We're very tight. Labor market, very good economic growth. I mean, I don't see inflation rising. I see inflation falling. And when I look at interest rates, what I see is the expected real return on capital rising quite substantially, which is really good news for the economy. And then when I look at it, we've got the Tax Cuts and Jobs Act of 2017 is locked into stone. That's going to be there for at least the next three years. There's no way that anyone's going to change that, which means the 21% corporate tax, 100% expensing, the personal income tax rate at 37%, the death tax way, way down. That's really good. Then we have workfare in there. We also have education funds in there. I mean, we have all sorts of things in that that are locked into stone. I'm really very bullish about the U.S. economy. And I don't think this war in Iran and this war in Ukraine and Russia is going to last forever. And when it stops, oil prices are going to collapse. I mean, really collapse. They're going to come down to way below where they were before. And no one, no one in their right minds will ever reopen and do oil through the straits of when was once bitten, twice shy. People are going to find alternative ways of doing oil. Scott Besson said it beautifully. He said in two years, there won't be any oil coming out of the Middle East because frankly, no one wants to take those risks. And I'm really very bullish about it. Just bullish in the stock markets sharing my view. So what happens if, shall we say, [00:02:43] Speaker 1: the opposition party comes to power and we decide to spend, we, the Congress, the opposition party in Congress, Democrats, decide to spend at least $50 trillion worth of something called Medicare for all, which, you know, probably are, as Marcia Blackburn was mentioning on the show yesterday, would be even more than that because of Medicaid, state-by-state Medicaid. In other words, a cool $50 trillion over the next 10 years, which is even more than what Biden spent in his big government socialist first term, which generated, what, 21% cumulative inflation. What happens if we go on that kind of spending spree, take over health care, take over Medicare, take over Medicaid, take over, assume all the liabilities for illegal immigrants and so forth? What does that do to the [00:03:36] Speaker 2: economy? Oh, it would do bad things, but I don't think that's going to happen, Larry. I really don't think that Congress is going to let that happen. But what would it do? What would it do? And if it [00:03:44] Speaker 1: were to pass... Where would the problems crop up? Yep. Well, let me just say very simply that [00:03:51] Speaker 2: governments don't create resources, they redistribute resources. And this is a classic case of the redistribution of resources. From those whom they take the resources from, you'll find that they're going to work harder, their incentives to work are going to be reduced, or you're going to have lower production from them. And to the people to whom the resources are given, they now have an alternative source of income other than working, and they too will produce less. What happens with this type of program, which is called a transfer program, always causes output to decline, production to decline, productivity to decline. That's what would happen. And you can see the effects of this over the last 40, 50 years in the U.S. It's really had an amazing effect on economic growth and has done a lot of damage to the economy. If we were to do this, and again, I don't think it's going to happen, but if we were to do this, it would be very detrimental to the growth prospects, the employment prospects, and the prosperity of America. [00:04:47] Speaker 1: Yeah, listen, like you, I don't expect it to happen. But I'm just saying, I mean, the other thing is the printing presses, the Federal Reserve's printing presses, I'm using a colloquialism, but you know, they'd be pumping the money supply up. They'd be pumping the money supply up, at least whole or in part. I mean, that's what happened. Biden spent $7 trillion. He didn't even get to $50 trillion. He spent $7 trillion, and look what the results were. I'm just saying, this would be, I don't know, I'm not sure people look at, we look at Medicare as a matter of health care policy and illegal immigration policy, okay, but it also has very negative economic impacts if they try to pull that off. That's a key point. And if you look at the Fed. Yeah. [00:05:30] Speaker 2: Yeah, and if you look at the Fed and monetary policy, Larry, again, I don't expect that to happen under Warsh. Kevin Warsh is as solid a Fed chairman as we've ever had, to be honest. But I expect him to shrink the balance sheet. But if he didn't shrink the balance sheet, if that balance sheet went up, as you're saying it might do, that would really create the inflation prospects and higher inflationary expectations. And again, lower growth. It would lower growth. It would destroy capital markets and make things much worse. But I really don't expect that to happen under Kevin Warsh. I just don't think it. He's really good. [00:06:03] Speaker 1: I got it. We'll have to wait and see. I just wanted you to lay out the economics of all these crazy things that we're reading about. Our laugher, thank you, sir. As always, great teacher. Make sure to like and subscribe to the latest news on Fox Business on YouTube. And you can catch full shows streaming now on Fox One.