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MUST-READ: Art Laffer on Monetary and Fiscal Policy

A fantastic interview of our esteemed CTUP co-founder in the Financial Times:

CG: Instead of the monetary base, the Fed thinks that the US economy has been through a whole bunch of supply shocks — there was Covid, then we had an oil price shock and Europe had a natural gas price shock — and these shocks primarily caused inflation. Have they got it wrong?

AL: Yes. I mean, they’re completely correct on the shocks. But they blame anything that’s happened to be nearby for their foul-ups. You know, these people at the Fed — nice people — are not well trained. They’re not Paul Volcker, they’re not McChesney Martin [chair between 1951 and 1970], they’re not Alan Greenspan [chair from 1987 to 2006].

The way I see it, chair Jay Powell’s a fine guy but he asks his staff, “What’s the right policy?” Volcker told his staff what the right policy was. This Fed thinks they control interest rates, and so they use interest rates to change policy. Volcker used interest rates to follow market rates not to lead them…

CG: If we could talk about fiscal policy. The US has been running a deficit of 6 per cent of gross domestic product for quite a long time now. What’s going on?

AL: It’s higher than it should be, but it’s nothing to make you go, “Oh my god, I’m jumping off a cliff.” When you look at public debt, the way I ask the question is, how much would you borrow if I would lend to you at 2 per cent and let you invest at 10 per cent risk free? Or how much would you borrow at 10 per cent, invest at 2 per cent? It depends on the spread and if your spread is positive, debt is great for the country, but if your spread is negative, it’s awful for the country.

CG: One thing the Trump team has said is that you are a candidate to be Fed chair in 2026. What do you think?

AL: I’m 83. Unfortunately, George Shultz talked me into being his right-hand person in 1970 in the Nixon administration’s Office of Management and Budget. I was in the most anti-free market administration on Earth. I found out what I don’t do well. So I made a vow that I would never, ever work for a government again. Ever. And I’m going to stick to that.

Dr. Laffer is still our top pick for the job! Click the photo below to read the entire interview.

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