From Voodoo Economics to Evil-Eye Economics

Are Democrats hexing the Trump boom with bad thoughts?

Almost four decades ago then-candidate George H.W. Bush used the phrase “voodoo economic policy” to describe Ronald Reagan’s claim that cutting taxes for the rich would pay for itself. He was more prescient than he could have imagined.

For voodoo economics isn’t just a doctrine based on magical thinking. It’s the ultimate policy zombie, a belief that seemingly can’t be killed by evidence. It has failed every time its proponents have tried to put it into practice, but it just keeps shambling along. In fact, at this point it has eaten the brains of every significant figure in the Republican Party. Even Susan Collins, the least right-wing G.O.P. senator (although that isn’t saying much), insisted that the 2017 tax cut would actually reduce the deficit.

During the 2016 campaign Donald Trump pretended to be different, claiming that he would actually raise taxes on the rich. Once in office, however, he immediately went full voodoo. In fact, he has taken magical thinking to a new level.

True, whenever tax cuts fail to produce the predicted miracle, their defenders come up with bizarre explanations for their failure.

My favorite until now came from Art Laffer, the original voodoo economist and recent recipient of the Presidential Medal of FreedomWhy did George W. Bush’s tax-cutting presidency end not with a boom, but with the worst economic slump since the Great Depression? According to Laffer, blame rests with Barack Obama, even though the recession began more than a year before Obama took office. You see, according to Laffer, everyone lost confidence upon realizing that Obama might win the 2008 election.

But Trump has gone one better. As it has become increasingly clear that the results of his tax cut were disappointing — recent data revisions have marked down estimates of both G.D.P. and employment growth, to the point where it’s hard to see more than a brief sugar high from $2 trillion in borrowing — Trump has invented ever more creative ways to blame other people. In particular, he’s now claiming that the promised boom hasn’t arrived because his opponents are hexing the economy with bad thoughts: “The Democrats are trying to ‘will’ the Economy to be bad for purposes of the 2020 Election.”

Can opposition politicians really cause a recession with negative thinking? This goes beyond voodoo economics; maybe we should call it evil-eye economics.

To be fair, the claim that Democrats are hexing his boom is a secondary theme in Trump’s ranting. Mostly he has been blaming the Federal Reserve for its “crazy” interest rate hikes. And the truth is that last year’s rate increases pretty clearly were a mistake.

[For an even deeper look at what’s on Paul Krugman’s mind, sign up for his weekly newsletter.]

But blaming the Fed for the tax cut’s fizzle won’t wash. For one thing, the Fed has actually raised rates less than in previous economic recoveries. Even more to the point, the Trump economic team was expecting Fed rate hikes when it made its extravagantly optimistic forecasts. Administration projections from a year ago envisioned 2019 interest rates substantially higher than what we’re actually seeing.

Put it this way: The Trump tax cut was supposed to create a boom so powerful that it would not only withstand modest Fed rate hikes, but actually require such hikes to prevent inflationary overheating. You don’t get to turn around and claim betrayal when the Fed does exactly what you expected it to do.

Aside from blaming everyone but himself, however, how will Trump deal with the failure of his economic promises? He has taken to demanding that the Fed roll the printing presses, slashing interest rates and buying bonds — the actions it normally takes in the face of a serious recession — even as he claims that the economy remains strong, and unemployment is in fact near a historic low.

As many people have noted, these are exactly the actions Republicans, including Trump, denounced as “currency debasement” when unemployment was far higher than it is today and the economy desperately needed a boost.

Since the Fed is unlikely to oblige, what else might Trump do? Officials have floated, then retracted, the idea of a cut in payroll taxes — that is, a tax break for ordinary workers, rather than the corporations and wealthy individuals who mainly benefited from the 2017 tax cut. But such action seems unlikely, among other things because top administration officials denounced this policy idea when Obama proposed it.

Trump has also suggested using executive authority to reduce taxes on capital gains (which are overwhelmingly paid by the wealthy). This move would have the distinction of being both ineffectual and illegal.

What about calling off the trade war that has been depressing business investment? This seems unlikely, because protectionism is right up there with racism as a core Trump value. And merely postponing tariffs might not help, since it wouldn’t resolve the uncertainty that may be the trade war’s biggest cost.

The truth is that Trump doesn’t have a Plan B, and probably can’t come up with one. On the other hand, he might not have to. Who needs competent policy when you’re the chosen one and the king of Israel?

Reagan’s Supply-Side Warriors Blaze a Comeback Under Trump

Like perms, Members Only jackets and Duran Duran, their economic theories were big in the go-go 1980s. Now they’re back.

On a Tuesday evening earlier this month, several dozen Washingtonians gathered in a ballroom at the Trump International Hotel, ostensibly to enjoy an open bar and watch a new PBS documentary about money. In reality, the event also served as a rally for a small clique whose fierce devotion to supply-side economics made them influential figures in the 1980s, and has won them renewed clout and access under President Donald Trump.

Invitations listed the hosts as Stephen Moore, a habitué of conservative think tanks, and Art Laffer, the supply-side economist, who did not end up attending. Larry Kudlow, the director of Trump’s National Economic Council and one of the president’s closest advisers, showed up in a pinstriped suit. “Larry Kudlow is my best friend in the world,” gushed Moore in opening remarks, noting that Laffer and Kudlow served as co-best men at his wedding to his second wife, Anne, who sat in the front row. Taking the floor next, Kudlow gazed out at the room and offered a shoutout to Adele Malpass, a RealClearPolitics reporter and former chairwoman of the Manhattan Republican Party, whose husband, David, has just taken over as president of the World Bank on Trump’s say-so.

Those decades of free-market machinations are now paying off, as a quintet of Ronald Reagan administration alumni — Kudlow, Laffer, Forbes, Moore and David Malpass—united by undying affection for each other and for laissez-faire economics, have the run of Washington once more. Members of the tight-knit group have shaped Trump’s signature tax cut, helped install each other in posts with vast influence over the global economy, and are working to channel Trump’s mercantilist instincts into pro-trade policies. Blasted by their critics as charlatans and lauded by their acolytes as tireless champions of prosperity, there’s no denying that the quintet has had an enduring impact on decades of economic policy.

Most recently, in late March, and partly at Kudlow’s urging, Trump announced his intention to nominate Moore to one of two open seats on the Federal Reserve Board of Governors, the body that sets the tempo of the global financial system.

The announcement prompted protests from economists across the ideological spectrumGeorge W. Bush’s top economist, Harvard’s Gregory Mankiw, said Moore lacked the “intellectual gravitas” for the job—who warned that appointing Moore, a think-tanker with no Ph.D., would politicize the Fed. Soon, it emerged that Moore had made a mistake on a 2014 tax return that led the IRS to place a disputed $75,000 lien against him, and CNN dug up scathing comments Moore had made about Trump during the presidential primary.

Whether Moore can survive the scrutiny and pass muster with the Senate will be a test of the supply-siders’ renewed cachet. They believe they can pull it off.

“I understand there are imperfections,” Kudlow told POLITICO. “I think it can be worked out.”

Moore described some of his recent conversations with Trump, which often turn to Fed Chairman Jerome Powell.

“I think his criticism of Powell is excessive and could be counterproductive,” Moore said, because it could actually provoke Powell to prove his independence by defying Trump’s wishes. Generally speaking, Trump wants Powell to keep interest rates low to decrease the chances of any economic slump before the president faces voters again next November.

Moore also recounted how he and Laffer, who began advising Trump in 2016, helped place Kudlow in his current posting.

Roughly a year into Trump’s term, as Trump’s first NEC director, Gary Cohn, prepared to depart the post, the duo sprang into action. Moore said that during this period, whenever he and Laffer engaged in their semiregular consultations with Trump, they would have some version of the following exchange:

“You know, Mr. President, you’re missing one thing,” Laffer or Moore would say.

“What is that?” Trump would ask.

“Larry Kudlow,” Laffer or Moore would tell him.

We just drilled the message over and over,” Moore recalled. “‘Larry, Larry, Larry, Larry.’”

At the same time, Moore said, the pair worked the press. “We made a concerted effort to make it seem like a fait accompli that Larry would get the job.”

That included knifing a few of Kudlow’s rivals. “We had a campaign to say ‘this person’s completely unqualified,’” he said, though he declined to name their targets. “I think we took them down,” he added.

It proves that in Washington, appearance is reality, sometimes,” Moore continued. “So that was highly effective.

During that same period, following the 1974 midterms, Laffer first drewhis famous Laffer Curve — a representation of the idea that at a certain level of taxation, lowering taxes would theoretically spur enough growth that government revenue would actually rise—at a meeting near the White House with Wanniski, Dick Cheney, then an aide to President Gerald Ford, and Grace-Marie Arnett, another free marketeer active in Republican politics.

Reagan would go on to fully embrace supply-side theory, a shift from the party’s traditional emphasis on fiscal discipline, appointing Laffer to his Economic Policy Advisory Board.

Then as now, supply-side economics was criticized for favoring the rich and derided by critics as unrealistic “Voodoo Economics.” The critics got an early boost from a 1981 Atlantic cover story in which Reagan’s budget director, David Stockman, aired his doubts that this novel theory was working in practice.

The piece ruined Stockman’s standing with Reagan—Laffer calls him “the traitor of all traitors”—but Stockman’s young aide, Kudlow, now 71, remained a loyal supply-sider and struck up a relationship with Laffer.

Reagan would go on to appoint Forbes as the head of the Board of International Broadcasting, which oversaw Radio Liberty and Radio Free Europe, and Moore worked as the research director for Reagan’s privatization commission. Malpass, meanwhile, worked in Reagan’s Treasury department. Representatives for Forbes and Malpass said they were not available for interviews.

In the 1988 presidential primary, another supply-sider, the late New York congressman Jack Kemp, lost out to George H.W. Bush, curtailing the crew’s influence within the party.

But they stuck together. Moore, now 59, first became close with Laffer and Kudlow in 1991, after he recruited them to participate in an event celebrating the 10-year anniversary of Reagan’s first tax cuts for the libertarian Cato Institute.

In 1993, Kudlow and Forbes teamed up to craft a tax cut plan for New Jersey gubernatorial candidate Christine Todd Whitman, who went on to unseat incumbent Democrat James Florio.

Meanwhile, Kudlow hired Malpass to work for him at Bear Stearns, where he had been flying high as the investment bank’s chief economist.

The next year, Kudlow crashed to earth—he left the bank and entered rehab for alcohol and cocaine addiction. Laffer stuck by Kudlow, hiring the investment banker to work for his consulting firm in California when he emerged.

In 1996, Forbes, backed by Moore, entered the Republican primary and lost out to Bob Dole, but the group takes credit for getting Kemp picked for the bottom half of that year’s ticket, which lost to incumbent Bill Clinton.

At some point, Forbes, Kudlow, Moore and Laffer became inseparable in the eyes of their peers.

You could call them the Four Musketeers of the supply-side movement,” said Avik Roy, an editor at Forbes involved in some of the group’s advocacy. Or you could call them the “the supply-side Beatles,” as Moore does—or “the four amigos,” as anti-tax crusader Grover Norquist does. “There’s a fourness to them,” observed Jack Fowler, vice president of the conservative National Review.

Malpass, 63, who has maintained a lower public profile over the years, qualifies as something of a fifth musketeer.

“They’re a little rat pack. There’s no doubt about that,” said one New York financial world player who keeps in touch with the group. “They’re all pretty straight guys. They’re not criminals. They don’t do anything weird, outwardly. You know what I’m saying? They like talking about supply-side economics. They get hard talking about tax cuts.”

Whatever you call them, there’s no denying their impact on American society. The group has argued that the best way to manage the economy is to make life easier for the producers of goods and services—by limiting taxes and regulations—so that producers are incentivized to supply more of these goods and services to the market, and that taming deficits is less important than spurring growth.

Before Reagan took office and empowered the supply-siders, the top marginal federal income tax rate in the U.S. had remained somewhere north of 60 percent since the Great Depression. Under their influence, Reagan briefly pushed the top rate below 30 percent, and it has not returned to anything near the pre-Reagan status quo since then.

Before Reagan, the national debt-to-GDP ratio had been declining since World War II, thanks in large part to the old Republican school of fiscal discipline. Since Reagan, the debt ratio has been climbing back toward its wartime peak. Trade and migration barriers have also come down. American society has become both wealthier in real GPD terms and more unequal. These trends have persisted thanks to a post-Cold War, bipartisan free market consensus, and to the bipartisan Keynesian response to the last financial crisis—but it was the supply-siders who really got the party started.

And they have not stopped partying since. Members of the group have continued to actively socialize with each other over the decades, with some spending New Year’s eves together. At one birthday party for Laffer in New York, they presented the aging economist with a signed poster of the Jedi master Yoda. “I’m short, a little bit fat. I’ve got big, green ears,” Laffer explained. “I look sort of like Yoda.”

In 2015, Forbes, Laffer, Kudlow and Moore created the Committee to Unleash Prosperity, a group intended in part to counter the emergence of the “Reformicons,” a rival gang of Republican eggheads who felt the party had gone too far in the direction of laissez-faire policies favoring the rich.

Among the other 29 committee members listed in a press release were both Malpasses, Kevin Hassett, now chairman of Trump’s Council of Economic Advisers, and Andy Puzder, who was Trump’s initial pick for labor secretary until allegations of domestic abuse unearthed by POLITICO derailed his nomination.

The group sought, with considerable success, to vet Republican presidential candidates for their supply-side credentials and to influence their platforms, holding large private dinners at Manhattan venues such as the Four Seasons and the 21 Club, so that committee members and other notable invitees—like Rudy Giuliani and Roger Ailes—could feel out the candidates.

Before meeting with the larger group, candidates would huddle with the committee’s founders to receive economic tutorials. Or in the case of Ohio Governor John Kasich, to give one. “We were all sitting there, and he would talk for an hour,” Moore recalled. “We’re like, ‘No, we’re supposed to be talking to you,’ and he’s talking to us.” Moore called the episode “Classic John Kasich.”

Though the events were supposed to be off the record, journalists often attended, and an otherwise lackluster February 2015 dinner for Wisconsin Governor Scott Walker made headlines when Giuliani barged in, proclaimed he did not believe that President Barack Obama “loves America,” and insisted a POLITICO reporter could print the quote.

Almost every serious Republican candidate participated in the dinners—but when Trump’s campaign first came calling early in the mogul’s bid, Moore said the committee passed.

It just seemed like a joke to me that he was even running. I was like, ‘No, we’re a serious organization,’” he recalled. In hindsight, Moore said, “That was stupid.”

Meanwhile, Trump defied the committee’s free market orthodoxy on issues like trade and immigration, drawing public criticism from both Moore and Kudlow, and feuded with the laissez-faire Club for Growth, which Moore had co-founded in the late ’90s.

At the same time, Kudlow—who spent two decades in media as a National Review editor and CNBC host—was also eyeing a 2016 Senate run in Connecticut, but he did not jump in.

As the voting started, it became clear that Trump was emerging as the likely nominee, but he continued to have trouble attracting experienced advisers. In March 2016, then-campaign manager Corey Lewandowski invited Kudlow and Moore to meet with Trump at the candidate’s midtown office. (Laffer—who moved from California to Tennessee in 2006 for tax reasons—had already met with Trump and begun advising the campaign on a tax plan.)

The duo hit it off with the apparent nominee, and Trump asked them to help refine his tax proposal, which he had first unveiled in September 2015. According to “Reagonomics,” Trump wanted the pair to make his plan “bigger and more beautiful” than Reagan’s tax cut, but he also needed to trim the projected cost of his original proposal, which was about $9 trillion. The populist Steve Bannon, the book says, pushed Trump to trim the cost by jacking up his original plan’s top income tax rate. The supply-siders fought back, making charts for Trump that showed when Reagan slashed taxes on the wealthy, the share of tax revenue paid by the top 1 percent actually went up. Ultimately, Trump’s new proposal reflected a compromise position between the two camps, with a top tax rate that was higher than the original plan’s, but lower than the current effective rate.

At the March meeting, Trump also mentioned he was planning a trip to Capitol Hill to confer with congressional Republicans. Moore had heard a similar recent meeting with lawmakers had gone badly—they complained Trump was “arrogant”—and suggested that he and Kudlow, who personally knew much of the caucus, accompany the candidate to help “break the ice.”

Apart from a confrontation between Trump and Arizona Senator Jeff Flake, Moore said the approach “worked like a charm.”

After Trump won, the trio continued to advise on the tax plan. Kudlow and Moore pushed the plan on Capitol Hill, drawing on the same relationships with Senate Republicans that they hope will ensure a smooth nomination process for Moore. Malpass, who had begun advising Trump during the campaign and then went into the Treasury Department, also helped craft the plan.

After the tax bill’s passage in December 2017, Laffer and Moore turned their attention to their campaign to install Kudlow in the White House, which succeeded last March. (Two other members of the Committee to Unleash Prosperity, the grocery and real estate billionaires John and Margo Catsimatidis, were dining with Kudlow and his wife at the Italian restaurant Cipriani when Trump called to formally offer Kudlow the job.)

Once inside, Kudlow returned the favor, ensuring that Moore’s and Laffer’s writings regularly made their way to Trump’s desk.

The supply-siders began pushing Trump on trade, advising him to encourage a lowering of trade barriers on all sides, rather than raising them. Last June, Kudlow persuaded Trump to float the idea of the world governments eliminating all tariffs at a G-7 summit in Quebec.

Last month, Kudlow showed Trump an op-ed co-authored by Moore in the Wall Street Journal that criticized Powell. The op-ed reportedly pleased Trump so much that it prompted him to offer Moore the Fed job.

Kudlow also championed his former Bear Stearns protege’s World Bank ascension. “For Malpass, I worked very, very hard,” he said.

Moore has predicted that Malpass will gradually bring the supply-side gospel to the World Bank, which influences the economic policies of governments around the world.

To their friends, the prospect of the rat pack getting back at the economic levers is wonderful. “The economy is the best it’s been in a long time!” John Catsimatidis exclaimed.

Trump considers media personality Larry Kudlow as top White House economic adviser

Media personality Larry Kudlow, a loquacious and energetic advocate of low taxes and free trade, has emerged as a leading candidate to replace Gary Cohn as director of the White House’s National Economic Council

.. Kudlow was an adviser to Trump during the 2016 campaign, working closely with Treasury Secretary Steven Mnuchin on the design of an initial tax plan. But Kudlow, in media appearances in the past month, has been critical of President Trump’s new plan to impose tariffs on steel and aluminum imports

.. Trump’s close relationship with Kudlow — and Kudlow’s experience speaking on television — have bolstered his candidacy for the job.

.. On March 3, Kudlow joined Steve Moore and Arthur Laffer in a column for CNBC.com that was sharply critical of Trump’s proposal to impose the new tariffs.

“Trump should also examine the historical record on tariffs, because they have almost never worked as intended and almost always deliver an unhappy ending,” they wrote.

.. It is unclear if Trump wants his next NEC director to advance an ambitious agenda or spend more time with the media defending the changes that have already taken place, such as tax cuts and efforts to roll back regulations.

Why Are Republicans Making Tax Reform So Hard?

One day there is a trial balloon for a value-added tax. The next, the idea of a carbon tax or a reciprocal tax. And now we are hearing the curve ball of a payroll tax cut. Steve Mnuchin, the Treasury secretary, has thrown cold water on the idea of any tax bill meeting the August deadline.

.. we believe the Republican Party’s lesson for tax reform is this: Don’t try to rewrite the entire tax code in one bill.

.. Instead, the primary goal of Mr. Trump’s first tax bill should be to fix the federal corporate and small-business tax system, which has made America increasingly uncompetitive in global markets and has reduced jobs and wages here at home.

  1. First, cut the federal corporate and small-business highest tax rate to 15 percent from 35 percent, which is now one of the highest corporate tax rates in the world.
  2. Second, allow businesses to immediately deduct the full cost of their capital purchases.
  3. Third, impose a low tax on the repatriation of foreign profits brought back to the United States. This could attract more than $2 trillion
    • raising billions for the Treasury while
    • creating new jobs and adding to the United States’ gross domestic product.

To help win over Democratic votes .. infrastructure funding ..

financed through the tax money raised from repatriation of foreign profits.

Conservatives Against Border Adjustment Tax

Former Rep. David McIntosh, the club’s president, said the House GOP was wrong to chase after the goal of revenue-neutral tax policy. “Instead of trading one tax for another, the GOP needs to focus on cutting rates, and cutting spending and the size of government to match,”

.. Make no mistake, the BAT will inflict American working families – the very people critical for Donald Trump’s election – a whole lot of hurt … The BAT is absolutely unnecessary to attract businesses and capital to our shores. Cutting the profits tax to 15 percent and minimally taxing – or not taxing at all – overseas earnings would lead to a flood of money pouring into the U.S. Countless foreign companies would be eager to set up shop here

.. Former Reagan Economic Advisor Arthur Laffer:

I think the border tax adjustment is a major mistake to put into legislation. It’s a huge bureaucratic mess to be honest with you. If it’s done ideally, Maria, which would be a tax on imports matched by a subsidy on exports of the equal size, it would have the same effect as devaluing the currency which would lead to domestic inflation. But if you look at it, there will be all sorts of nuances, all sorts of political grab bags going in the process and I just think they should just do tax rate reductions, get rid of this pay-for notion and don’t touch a border tax adjustment. It just makes no sense.

The Overlooked Menace of ‘Gangster Islam’

.. The sections I found most eye-opening were how the jihadist movement is flourishing not among the particularly religious but among the angry young men who are looking for a justification for their preexisting violent and aggressive impulses.

[Former Brussels Mayor Philippe} Moureaux told me, “we never had any evidence that the trouble eminates from the mosques.” Geraldine, mother of Anis, said that her son never attended mosques but was radicalized by people “on the street.” Her opinion was echoed by almost everybody I met in Molenbeek. “The people that do this,” one source told me, “are more familiar with a bar stool than a prayer mat.”

.. The networks responsible, he said, are dominated by a Tunisian mafia.