The Way the World Works

"Yes. Incentives matter. Hard money matters. When the government inflates the currency, when the government raises taxes…it explains why high tax rates drive decisions by individuals and therefore collectively the sum of decisions by people in the country. It makes the practical argument for limited government. Yes. It was the rejection of limits to growth, one of the reasons for tyranny. The other team always has different reasons for tyranny. Why do we have to live under statism? One was, the Soviet Union is inevitably going to win, so we might as well give up and learn to live with it. Or the watered down version of that is, there’s going to be this convergence between us and East Germany and the Soviet Union and we’ll all live in some version of Switzerland and Sweden and East Germany combined. You also have it with the limits to growth stuff: we’re not creating any more wealth, we’re not going to have more growth, now it’s just a question of divvying it up and the state will do that. The idea that the amount of economic growth that we can create in the world is not a fixed thing, that we can double our GDP, and make more people have money and be less poor – it was a refutation, at the time, of the left’s strongest argument for statism. The Laffer curve was not written as a PhD thesis, it was written on a napkin, for crying out loud! I didn’t find it difficult to understand. I was 21 when I graduated from college in 78. It struck me as reasonable to the extent that it was a new argument in the national debate. It just struck me as self-evident. When you read it you said, ‘Yes of course.’ You couldn’t have had a successful Reagan without Wanniski. Remember, Reagan ran in 76 saying, ‘I’m gonna cut the budget by 80 billion dollars by sending stuff out to the states.’ What Wanniski, and from that the supply-side revolution, did was to say: in addition to austerity on the spending, we’re going to have a pro-growth approach on taxes and tax rate reductions as our alternative to the Works Projects Administration [a New Deal public jobs programme] and to make work. So Reagan adopted this supply-side approach after 1976. He wasn’t particularly big on Proposition 13 [a 1978 California tax-cutting referendum]. He wasn’t against it, but he wasn’t one of the leaders for it. But then Prop 13 hit in June of 78 showing people do care about taxes and they are mightily pissed about taxes. Then Jude Wanniski made the argument that not only are people mad about taxes, but if you cut taxes it creates economic growth. That’s an important reform. Yes, that’s correct. Yes. Keep taxes low and cut them. If you have to have one thing that divides people it’s their understanding of taxation."