Government Spending Cuts Will Create Economic Boom: Art Laffer

Thursday, 5 Apr 2012 | 8:28 PM ET

President Obama’s recent criticism of the Republican budget plan misses the mark, former Reagan economic advisor Art Laffer told CNBC Thursday.

Arthur Laffer, former economic advisor to the Reagan administration and inventor of the Laffer Curve.
Arthur Laffer, former economic advisor to the Reagan administration and inventor of the Laffer Curve.

“What Obama is missing is that government spending doesn’t create jobs, it destroys jobs,” he said. “The tooth fairy doesn’t work on the Treasury staff.”

Earlier in the week, Obama attacked Rep. Paul Ryan’s budget plan for slashing the deficit by gutting government programs, while offering lower tax rates for the wealthy.

“Disguised as deficit-reduction plans, it is really an attempt to impose a radical vision on our country. It is thinly veiled social Darwinism,” the President said.

Kudlow: Thou Shalt Cut Spending!
The Kudlow Report's Larry Kudlow discusses how spending cuts equal tax cuts for the economy, with Jared Bernstein, Center on Budget & Policy Priorities and Arthur Laffer, Laffer Investments.

However, Laffer told “The Kudlow Report” Obama is the one who has it wrong. Laffer, the man behind he Laffer Curve economic tax theory, believes spending cuts amount to a tax cut to grow the economy.

“When you cut government spending, you get a boom in the economy,” he said. “When you increase it, the economy collapses, and it’s exactly what happened under [President George W. Bush] and Obama. They were two peas in a pod.”

However, President Clinton got it right, he said.

“Clinton cut government spending as a share of GDP,” he said. “Look at the boom that occurred under Clinton. That’s what we’re talking about.”

It also happened after World War II, Laffer said, when a massive cut in government spending as a share of GDP sent the private economy "through the ceiling."

To help ease the burden, Laffer thinks the retirement age for Social Security should be extended “way out.”

“We’re living longer. We’re living much healthier,” he said. “Let us be productive without being on Social Security.”

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  • Lawrence Kudlow is a CNBC senior contributor. Previously, Kudlow was anchor of CNBC's prime-time program "The Kudlow Report"