Arthur Laffer
It was one of those moments that supposedly sparked the Reagan revolution. But don't ask Arthur Laffer if he remembers drawing what's now known as the Laffer Curve on a napkin at the Two Continents Restaurant in Washington, D.C., in 1974. "It was a doodle," says Laffer, known to many as the father of supply-side economics, or as former President Bush once called it, voodoo economics. "Do you remember what you doodled 20 or 30 years ago?"
The drawing in question was a graph that illustrated a theory now widely embraced by conservatives: If tax rates are lowered, tax revenues can actually grow as economic activity is spurred. As legend has it, Laffer first drew it at a dinner attended by Donald Rumsfeld and Dick Cheney, among others. Some time later, he sketched it for Ronald Reagan. "I don't remember that moment either," confesses Laffer.
After serving as a key economic adviser to the Gipper, Laffer tried his hand at elective office, with an unsuccessful bid for the U.S. Senate from California in 1986. After that, he focused on his consulting business and fell somewhat out of the public eye until recent weeks following the former president's passing, when Laffer's name surfaced in obituaries and articles chronicling the impact of Reaganomics.
Now Laffer is putting his economic theories to the test in a retail stock fund that launched in May. The fund, the Huntington Macro 100, is anything but conventional. Consider how Laffer picks stocks. He weighs, among other things, how well stocks have responded historically to different interest-rate environments, how much they stand to benefit from currency fluctuations, and how much exposure they have to high- and low-tax states and countries.
Meanwhile, Laffer openly admits that he does not read the balance sheets or income statements of the firms he invests in. "I never visit the companies," he says. "I don't even know the names of some of the companies."
It's an unexpected admission from a fund manager, but Laffer has always done the unexpected. For instance, Laffer, who meets with current Bush administration officials about once a quarter to consult on economic matters, says he voted for Bill Clinton twice for president. He also helped Democrat Jerry Brown devise his flat-tax proposal in the 1992 presidential election. "He's a weird guy, but he would have made a great president."
This story appears in the July 19, 2004 print edition of U.S. News & World Report.