The Best Is Yet to Come

We Have the Data to Prove That Things Are Looking Up

By Art B. Laffer

There is little that I can say or write about the current wonderful state of affairs of the U.S. that Debbie Downers can’t rebut. If you are hell-bent on making the negative case, there’s no changing your mind. But if you’re open to facts and logic, there’s one hell of a good case to be made for being grateful for all we do have and to be optimistic about the future. And as an 80-year-old economist, I firmly believe that the glass is half full…

I was born in Youngstown, Ohio in 1940 and raised in Cleveland on the shores of Lake Erie. During my formative years, the greater Cleveland City Council coined the statement that Cleveland was “The Best Location in the Nation.” Our rebuttal was Cleveland is “The Mistake on the Lake.” In fact, the joke back then was that if Christ were to come back to Earth in Cleveland, in order to prove that he were the Christ, he wouldn’t have to walk on the water – heck, anyone could walk on the polluted water of Lake Erie – he’d have to sink in the water.

A quote from the time:

“Anyone who falls in the Cuyahoga does not drown. He decays.”

(Cleveland citizen quoted in Time magazine, August 1, 1969)

The growth of the 19th and 20th centuries was borne by the waterways that transported goods, people, and unfortunately, waste. The Cuyahoga River became so polluted with industrial waste that it caught fire 13 times! Due in part to the 1969 Cuyahoga fire, Congress passed the National Environment Policy Act (“NEPA”) in 1970, which led to the creation of the Environmental Protection Agency (“EPA”) and the Clean Water Act – the last of which mandated that water be clean enough for humans and fish to safely swim in and devoted funds to cleanup efforts. By the 2000s, the Cuyahoga River and Lake Erie met or exceeded most EPA benchmarks.

Today, Lake Erie is clean. The Cuyahoga River no longer catches fire, and each breath of air in Youngstown is no longer five calories… Even the Hudson River isn’t so polluted.

Taxes, Walmart, and Uber

In 1946, the highest federal marginal income tax rate was 94%. That’s right, 94%! Imagine the debates in Congress that had to approve such a number. The Conservatives argued that 94% was okay, but 98% would be “gouging.” All the while, their Liberal counterparts argued that 90% would be a giveaway to the fat-cat richies. President Harry Truman actually signed that legislation into law.

Today, the highest federal personal income tax rate is 37% and had fallen to a low of 28% under President Reagan. The same pattern applies to the corporate tax rate, which is now at its lowest level (21%) in a century.

In 1976, only one state, Nevada, did not have a state estate tax. Today, 32 states have no estate tax, including California where the inheritance tax was eliminated in June 1982 by a vote of the people (62% support).

The state inventory tax has also all but vanished in the U.S. In 1946, there were only two states that allowed workers to choose if they wanted to belong to a union (the right to work) – Arkansas and Florida. Today, more than half of all states are right-to-work states, including Michigan and Wisconsin if you can believe that. In fact, the percentage of union workers in the U.S. has tumbled.

In the 1950s and 1960s, it was against the law for any store to sell products at a discount below the manufacturer’s suggested retail price (“MSRP”). There was no Walmart, Costco, or Home Depot. Deregulation worked miracles, and we’re a lot better off as a result. Today, retail price competition is the standard, and consumers are the winners.

Airlines and trucking were deregulated under President Jimmy Carter and championed by Senator Ted Kennedy, if you can believe it. Forty years later, real airline prices have dropped by half, and Americans travel by air five times more frequently. To boot, the reduction in airline prices has not come at the cost of safety, reduced wages, or lower customer satisfaction. And if you think air travel is better, just look at what Uber and Lyft are doing to make taxi prices and services better… Wow!

Zillow, Hospitals, and Alexa

On May 1, 1975, the 183-year era of fixed commissions for stock transactions ended. Negotiated commissions on Wall Street brought commissions for buying and selling a share of stock in a company from 20 cents to way less than a penny. Due to the deregulation, barriers to enter the market were torn down, allowing many more households to invest in the stock market.

Only around 15% of households had some degree of exposure to equities in 1975. Three decades later, this figure would skyrocket to around 50%. Now, it’s almost the industry standard to have zero-commission trading. Soon the brokerage industry for stock traders will be emulated by real estate brokering firms. Zillow is the future…

After some 40 years of literal stagnation, real median household income is at the highest level ever recorded as of 2019, and just posted the largest year-over-year increase at 6.8% from 2018 to 2019. Purchasing power for Americans is rising to unprecedented levels…

Almost 20% of the U.S. economy is medical services, which is about as backward and inefficient as an industry can be. Virtually no one – not even your doctor – knows what the true cost or true quality of medical services are. People entering emergency rooms are not told anything about prices or services, and then three weeks later, they get outrageous out-of-network bills… It’s called surprise billing.

All of this is on the cusp of changing. Medical transparency, eliminating surprise billing, and true competition are the wave of the future. I can’t wait to see a competitive future medical market.

Not only are Americans able to buy more with their dollar, but the products and services we purchase are making our lives much more efficient. Take, for example, the telephone… I can remember rotary phones and needing an operator to reach the party I wanted to call.

Now, we have smartphones with speed-dial, Siri, Alexa, and video-calling. We basically have a computer in the palm of our hands. We can search for almost anything we’d like in a matter of seconds. Information which was once contained in the archives of old libraries is now publicly available and ready to be scoured.

Smog and Crime

On January 20, 1981, when my personal hero Ronald Reagan took office, the 30-day Treasury bill yield was 21.5%. Today, it’s virtually zero. In the late 1970s and early 1980s, the rate of inflation was well in the double digits. Today, it’s less than 2%. What’s not to love?

Arthur Okun, a Yale professor of economics, coined the “Misery Index,” which is the sum of inflation and unemployment at any given time. Just look at how this index has evolved over the years (below). It’s got to make you a little proud given where we were just prior to the pandemic. We haven’t had it this good since the mid-1950s…

A running joke used to be a charcoal-gray postcard entitled, “L.A. on a Clear Day.” In 1943, Los Angeles documented its first cases of smog. The smog, which scientists tied to automobile use, made irritated eyes, irritated respiratory tracts, chest pains, cough, nausea, and headaches regular occurrences and led to long-term lung damage. In 1947, things became so bad that the city started the Air Quality Management District (“AQMD”) and began monitoring smog levels.

The AQMD passed rules limiting emissions from cars, factories, and farms (back then, tires were often burned to keep crops warm). The guidelines were enormously successful in reducing smog levels. A 2016 study found smog reduction was critical to improving the health of children in Southern California.

It wasn’t all that long ago in Los Angeles that the calendar was riddled with three-stage smog alerts where students in the valley were required to stay home. No longer! Just look at the chart of air pollution in the L.A. Basin. Air quality has improved so much that the AQMD had to change their scales of measurement.

Over the 30-year period ending in 2006, the percentage of days per year in the L.A. area that violated federal air quality standards fell from more than 50% to less than 10%. In addition, the number of federal “health advisory” days per year in California had fallen from 166 to 11 over the same period.

The U.S. withdrawal from the Paris Agreement has been used to label the U.S. as anti-environment… But the chart above gives us a fresh perspective. We’re doing a great job protecting our environment.

According to the National Highway Traffic Safety Administration (“NHTSA”), in 1966, there were 25.89 motor vehicle fatalities per 100,000 people. As of 2018, that number plummeted to 11.17. Highways are better, cars are more advanced, and drivers are safer.

In the 1950s, the joke was that if you’re too drunk to walk, then drive. Alternatively, if you’re so drunk you see two roads, then close one eye. Drunk driving today is known for being the killer it is, and law enforcement has made a huge difference.

Violent crime has also dropped dramatically over the past 30 years. According to FBI statistics, in 1991 there were 758 violent crimes per 100,000 people. As of 2019, this statistic was cut in half – only 379 violent crimes per 100,000 population. And believe me when I write that crime statistics are more accurate today than they have ever been.

COVID-19

Everyone knows how much damage the coronavirus pandemic has caused worldwide. But from my perspective, the U.S. has done an amazingly good job given how dangerous this virus is.

The story of the coronavirus pandemic and the economy is not one of whether things have been bad or not. Things have been bad… But as of today, the U.S. is way off its earlier lows from both an economic and a health perspective. The real story revolves around just how bad the coronavirus’s impact has been on U.S. health and on the economy, and how quickly both are recovering.

And here again, the news is positive. The impact of the coronavirus on both U.S. health and the economy could have been a lot worse than it was for two reasons. First, the economy was in an exceptionally strong state when the virus hit. If the economy had been in a state of depression or recession, the impact would have been a whole lot worse. Second, the medical facilities in the U.S. were also up to the challenge of a pandemic and responded quickly and effectively.

In early 2020, the U.S. economy was in as good a shape as could be hoped. The unemployment rate was at its lowest level since 1969, and the economy was experiencing its longest period of uninterrupted economic expansion in history, lasting 128 months from June 2009 to February 2020. And as long as the expansion had lasted, there still was no sign that it was slowing down. On the medical front, the U.S. was better prepared than most other OECD countries, as illustrated by the number of ICU hospital beds per 100,000 of population.

The economy, in conjunction with the medical community, performed as well as any economist could have hoped. To represent what has already happened and as a harbinger of things to come, we present two graphs that illustrate the chain of events in the U.S. economy…

We have recouped over half of the jobs lost at the onset of the pandemic.

For a quick summary of all the advances we’ve had in medicine to combat the coronavirus, I’ve plotted the weekly case fatality rate for the U.S. to give a quick glimpse of how well the U.S. medical community has responded…

Case fatality rates are descending rapidly. Medical advances such as vaccines are near at hand, and treatment remedies for those afflicted have improved immensely. We can’t, at present, anticipate a pandemic, but once there is one, we know how to respond.

Lastly, to go full circle: The bald eagle is back, black-footed ferrets are making a rebound, and the blue whale is once again roaming the seas in large numbers. The best is yet to come for America…

Arthur B. Laffer, PhD is known as “The Father of Supply-Side Economics.” Dr. Laffer was a member of President Reagan’s Economic Policy Advisory Board for both of his two terms (1981-1989).  In 2019, Dr. Laffer was awarded the Presidential Medal of Freedom by President Donald Trump. Dr. Laffer currently sits on the board of directors or advisors of a number of private and public companies and has authored numerous books.