“[L]et’s have Bretton Woods again.” Arthur Laffer 1982

And maybe other folks, up for the Fed? Well, Judy Shelton says gold might be the way to go…

That’s from an interview Erik Brynjolffson, Tod Loofbourrow and I conducted back in 1982 for the Harvard International Review. So, if Obama’s November 2008 election could’ve caused the Great Recession that started in December 2007 (and the Lehman Brothers collapse in September of 2008) as Laffer has claimed, why not Bretton Woods redux?

16 thoughts on ““[L]et’s have Bretton Woods again.” Arthur Laffer 1982”

  1. pgl

    Laffer’s claim about why the election of Obama caused the Great Recession:

    “as we got closer and closer to the election, the market collapsed”.

    FRED’s Wilshire 5000 Total Market Full Cap Index

    The market began declining as of December 2007 but yea – the bring collapse came in the fall of 2008. Of course there was something called the collapse of Lehman Brothers as well as the fear that GM and Ford would go bankrupt. I guess Laffer thinks these are non-factors. But is the village idiot not aware that candidate Obama supported Bush’s efforts to assist GM and Ford whereas McCain would have allowed them to collapse too?

  2. pgl

    A call for fixed exchange rates in 1982 – huh? What was happening the value of the dollar during the early 1980’s. FRED?

    https://fred.stlouisfed.org/series/DTWEXM

    Oh yea a massive appreciation during Reagan’s first term which did seriously lower net export demand. Of course all real economists (which Laffer is not a member) realize it was that stupid fiscal stimulus that Laffer pushed combined with the FED’s offsetting monetary policy that gave us this macroeconomic mess. I was on a panel with Laffer a year later and this two-faced clown could bring himself to conceded his advocacy of junk economics was a major driver of the massive appreciation.

    BTW – the dollar later devalued as the FED pursued monetary stimulus once Volcker killed inflation and Martin Feldstein convinced Reagan to raise taxes. Now had we gone with a fixed exchange rate regime like Laffer advocated, then the Hume Specie Flow would have led to more monetary restraint which of course would have made the Reagan recession worse.

  3. noneconomist

    That Art Laffer! Does he know his history, not to mention his economics!
    It took Donald Trump only short time to rescue the economy from ruin. Unless you count the 180+% increase in the Dow and dramatically lowering the unemployment rate, (and reducing FY deficits by almost half), the Obama years were economically disastrous .
    Why, when Obama left office the unemployment rate was 4.7%. In only one year, Trump was able to reduce that by .80% to 4.1%
    And, lest we forget, with a strategic tax cut, paid for by increasing the deficit, he’s been able to get us back on track by borrowing more (Hey, China! We’ve got more notes and bonds for sale! Get ’em while they’re hot!) Before you know it, we’ll be running trillion SSS deficits again and the debt won’t be just inching upward. It’ll be galloping.
    So, here’s to Art Laffer, the guy who convinced Republicans that deficits don’t really matter. That nearly tripling the national debt in the 80’s didn’t matter either.
    And he did it all while conning the gullible into believing in fairy tales. Only question remaining? On which side and in which area to pin that Medal of Freedom.

    1. pgl

      “tripling the national debt in the 80’s didn’t matter either.”

      James Tobin used to remind us to do inflation adjust this – in real terms, the debt only doubled. He would say this with his famous grin.

  4. Moses Herzog

    It was one of the great aggravations of my university education having to “learn” the Laffer curve (or rather regurgitate as an answer on an exam when I didn’t believe in it), as even before I had entered college I had heard about and read about it and saw it as a joke. This is one of the reasons some people become cynical about institutionalized education in the same way they become cynical about organized religion.

    I also once gave an answer on a finance exam related to diversification stating that Warren Buffett had more than once referred to it as “di-worse-ification”. The professor (who I detested both as a person and as a teacher) took great leeway as to how he scored exams, including points deducted on individual questions and literally slaughtered my score on the exam with that one question. As it was a finance course and I was a finance major who refused to give the answer that professor wanted you can just imagine my anger level when I received a D minus on that exam. To this day it grates on me when I think about it.

  5. Moses Herzog

    @ Menzie
    Menzie, tell the truth, did you feel you had somehow gotten dumber by the time the Laffer interview had concluded??
    https://www.youtube.com/watch?v=79HLnTPxMho

    http://www.cc.com/video-clips/m0dbcb/the-daily-show-with-jon-stewart-in-cramer-we-trust

    Yeah, Jim Cramer has great “intuition”. And also every time Cramer sticks his head up his A$$ it smalls like roses, lilacs, and potpourri. And next time you need enough pills to be a dead-ringer for bald Gary Busey high on cocaine for the last 3 weeks straight, give Jeff Macke a phone call and ask him which doctor he recommends to get prescriptions from.

  7. Moses Herzog

    Overall Net Capital Flows number for the USA coming in tomorrow afternoon. Going to be interesting. I assume there could be some “return to the mean” type math there that could get you a pretty close number, with some bias more towards the downside, although I don’t know exactly how that math would be carried out. Does anyone know if some of the larger investment banks forecast these US Capital Flow numbers (monthly) and where these forecasts can be found?? Maybe in tomorrow’s hardcopy WSJ?? But I assume some investment banks have already thrown out some guesses. If anyone knows a link for that or a regular source for those forecasts it would be appreciated.

    1. Moses Herzog

      Looks like sales of $7.8 billion in U.S. assets by foreign investors on the “U.S. capital flows”. (As illiterate Okies like to say “damned furners!!!”). The expectations were for purchases of $17 billion. This latter number must have been on the website yesterday and I wasn’t intelligent enough to figure out “consensus” was the investment banks’ expectations number. Based on the tariffs and based on the recent gyrations, I sure as hell would like to know how the banks thought that number was going to be positive towards purchases, because I would have bet a lot of money that the June released number was going to be negative (more sales than purchases). I think we can safely assume investment banks don’t take any pleasure in being shown to be wrong on important economic barometers, so I sure as hell would love to see what their rational was for an expectation of net purchases there.

  9. Julian Silk

    Dear Folks,

    Those who want to analyze the Laffer Curve seriously will do well to consult

    https://home.uchicago.edu/~huhlig/papers/uhlig.trabandt.jme.2011.pdf

    and, most easily, (since there are other versions of it)

    https://pdfs.semanticscholar.org/19ad/cfaf4f74c8947a22fdf651efa718a4a45df4.pdf,

    as well as

    https://www.federalreserve.gov/pubs/ifdp/2012/1048/ifdp1048.pdf

    The best bet for finding an economy’s taxation on the “wrong” side of the curve seems to be Swedish capital gains taxes.

    The expectation of easy gains from tax cuts and subsequent disappointment may also be relevant to the notion of fixed exchange rates, with or without the gold standard. Edward Bernstein, in “Bernstein, Edward. 1991. “Epilogue: Reflections on the Fortieth Anniversary of the Bretton Woods Conference (1984).” Pp. 97–115 in ‘A Levite Among the Priests: Edward M. Bernstein and the Origins of the Bretton Woods System’, ed. Stanley Black. Boulder, CO: Westview.” is a good source on the issue.

    Julian

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