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Larry Kudlow: Big economic ideas from Art Laffer and Steve Forbes

I participated in perhaps a bit of radio history last week when Steve Forbes and Art Laffer joined me on my syndicated radio show. It may have been the first time these supply-side-economics giants were ever together over the airwaves.

Forbes, of course, is chairman of Forbes Media and twice ran brilliant issue-campaigns for president. And Laffer, once a key advisor to President Ronald Reagan, is father to the ground-breaking Laffer curve, for which he should have won a Nobel prize. In our discussion together, they didn't disappoint. (For a full transcript, click here.)

Con Edison employees confer while working on a steam pipe on First Avenue in New York City.
Getty Images
Con Edison employees confer while working on a steam pipe on First Avenue in New York City.

We started with "one big idea." That's how the late Jack Kemp approached economic-policy reform back in the 1980s. And his big idea, embraced by Reagan, was a mix of low marginal tax rates to spur economic-growth incentives and a sound, reliable dollar to conquer inflation and create confidence. (This duplicated the Kennedy prosperity model, which Brian Domitrovic and I wrote about in "JFK and the Reagan Revolution.")

But these days, if you adhere to that big idea, you're ridiculed as clinging to the past. My guests would have none of it.

"We need it now more than ever," said Forbes. "To say that just because it worked 40 years ago, therefore, it's old, is like saying the Declaration of Independence and the Constitution are old, therefore we can cast them aside."

Forbes's version of "one big idea" is a flat tax and a sound dollar linked to gold. If we have that, we'll be the "land of opportunity again."

Laffer agreed. "Our economic verities have remained forever," he said. "They go back to caveman, pre-cavemen. Incentives matter: If you reward an activity, then people do more of it. If you punish an activity, people do less of it."

But for the tax side of "one big idea," Laffer would like to see corporate tax reform. I agree. Reagan used to say, "Give me half a loaf now, and I'll get the other half later." Well, I'd take the half loaf of corporate tax cuts right now.

And that would work for Forbes, who can see income-tax reform following corporate-tax reform. "Even if we get to this two years down the road," he said, "I think [Trump would] be amenable to doing something radical like a flat tax."

But why is it that our Democratic friends in the economics profession and politics work so hard to discredit the idea of lowering marginal tax rates on the extra dollar earned to spark the positive incentives that lead to prosperity?

"Let me put it just succinctly," answered Laffer. "These people are willing to rebut arguments they know to be true in order to curry favors with their political benefactors."

To which Forbes added: "A lot of these far-left ideologues would rather have a smaller economy and more government power than a bigger economy and a smaller government."

From that sad truth we moved to prosperity killers, in particular trade protectionism, about which there is still much talk within the Trump camp. Where, I asked, does trade protectionism -- including tariffs on China -- fit into the low-tax-rate, strong-dollar prosperity model?

"It doesn't," said Forbes, who offered an alternative: "The smart approach is get this economy moving through. . . tax cuts and deregulation. And then having a stable dollar . . . you sit down country by country and remove trade barriers." Anything but the trade protectionism that blew up the stock market in 1929.

To which Laffer added the great line: "Don't just stand there, undo something!"

"Cut taxes, stabilize the dollar, reduce tariffs, reduce regulation," he said. "Undo, undo, undo -- and undo the damages these other guys have done."

One of those damages is Obamacare. And the fear now is that it will never get undone.

But my guests were optimistic, if philosophical. How will we get true, free-market, health-care reform?

"You do this ... sometimes with great leaps, but sometimes step by step," said Forbes.

To which Laffer added: "With any type of change that we can make in the right direction ... never let the best be the enemy of the good."

Finally, I asked, "Is the free-market model losing ground?" We've seen its decline in Europe, Latin America, and elsewhere.

"This thing always ebbs and flows," said Laffer. "Reagan, at first, was dissed by all the foreign leaders, except for Thatcher. And once our success story came in, he's now virtually a god. That's going to happen again, believe me."

The limits of this space have forced me to drastically abbreviate what I do believe was a historic radio event. Two economic giants met and discussed the big ideas that will restore growth and prosperity. They offered the "how," and were confident that the "when" is near.

Commentary by Larry Kudlow, a senior contributor at CNBC and economics editor of the National Review. Follow him on Twitter @Larry_Kudlow.