America’s pollsters and forecasters deployed Big Data, super-sophisticated sampling techniques, and complex models for gauging voter turnout to predict the winner in Nov. 8 presidential race. On election day, the RealClearPolitics average of national polls gave Hillary Clinton a 3-point edge, and brainiac prognosticator Nate Silver of political website 538 awarded the Democratic nominee two-to-one odds of becoming America’s 45th president.
But the master number-crunchers were no match for a seventy-six-year-old economist best known for scribbling on a napkin.
In 1974, following a meeting with President Richard Nixon’s economic braintrust, Arthur Laffer sketched a sloping graph on a napkin that became renowned as the “Laffer curve.” It illustrated the concept that lowering personal tax rates would boost growth and incomes, hence raising the amount of tax dollars the Treasury collects. Whether this actually works as theorized has been a subject of political debate ever sense. Still, for decades, Laffer has been revered by mainstream conservatives as the father of what the Laffer curve came to symbolize, “supply side” economics.
As it turns out, Laffer is also a master-forecaster of elections who relies on a highly contrarian, damn-the-experts approach. As Trump stood on the verge of securing the Republican nomination in early July, Laffer predicted, in an interview with conservative magazine The Weekly Standard, that the Donald would cruise to victory on November.
Laffer reasoned that in politics, big historical trends repeat themselves with overwhelming regularity. “I don’t look at polls,” he told Fortune on November 9th from his offices in Nashville, where he runs a economic consulting and money management firm. What drove Trump’s victory, he says, were two grassroots trends which, along with a sluggish economy, made the race’s outcome virtually inevitable. First, Republicans had been making huge gains in Senate, House, statehouse, and local government races. “It was a 180-degree change that showed a huge shift toward Republicans,” Laffer explains. “Elections for governors and the House are accurate predictors of presidential races. It was a movement working from the ground up. One office was left to change, and the highest office in the land, and it went Republican on November 8.”
Second, Laffer noted that the Republican turnout in the primaries far outstripped the ranks of Democrats who voted in the same state contests. “That just showed a huge enthusiasm gap that was bound to carry over to the presidential election,” he says. A third major driver was the lackluster economy, which, though well into the 8th year of an expansion, has never really caught fire with rapid growth. America was in a bad mood, and it was all about lost jobs and flat incomes.
President Obama had prevailed in spite of the struggling economy in 2012, and the polls were predicting that Hillary Clinton would win, even as she vowed to perpetuate Obama’s policies. But Laffer viewed 2012 as a one-time freak occurrence, because of the gigantic Democratic turnout that could only happen for Obama, and he felt strongly that the longer-term trends would take hold. “Clinton was blamed along with Obama for the economy,” he says. “That was bound to kill enthusiasm for her candidacy, while Republican enthusiasm, judging from the historic turnout, was tremendous.”
The enthusiasm from the primaries didn’t fully carry over into the general election. In fact, Trump won fewer votes than Mitt Romney in 2012 or John McCain in 2008, and about 230,000 fewer votes than Hillary Clinton. Still, bringing new, energized voters into the Republican fold helped Trump do well enough to win, and Laffer’s view that the tides of history “trump” the daily data proved amazingly prescient.
Laffer, who served on President Reagan’s Council of Economic Advisors for eight years, vehemently disagrees with Trump’s protectionist stance on trade, but strongly endorses his proposals to lower corporate and individual tax rates, the bulwark of supply-side thinking. Most of all, he believes that Trump will grow into a Reaganesque reformer. “Remember, Ronald Reagan wasn’t always Ronald Reagan,” he recalls. “He had to evolve into Ronald Reagan.” In 1981 and 1982, says Laffer, Reagan resisted lowering tax rates as Laffer and likeminded advisors were advocating: “Reagan was very resistant and afraid of the unknown at first.” It wasn’t until the historic tax legislation of 1986 that Reagan become a committed supply-sider.
“Reagan was a promoter, a circus-barker, a cheerleader who didn’t understand all the detailed arguments. Neither does Trump. ” says Laffer. “But Trump’s being advised by Steve Moore and Larry Kudlow,” he adds, referring to two prominent conservative economic commentators, “so with control of the House and Senate, he’ll be a great supply-side president. And once the benefits start to roll, those growth rates will feed on each other, just like in the 1980s.”
That’s still another long-shot prediction that mainstream Republicans doubt will happen, and that Democrats claim would disinter an economic creed that’s pure bunk. We’ll soon see whether Laffer’s forecast on how the new promoter-in-chief will govern is as prescient as his call about the election.
