Volume XCIII, Number 17
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University of Southern California
Thursday, February 3, 1983
Economist claims Reaganomics caused recession
By Steve DeSalvo
Assistant City Editor
Arthur B. Laffer, a leading advocate of supply-side economics and a university professor of economics, said Tuesday that his theories did not cause the nation's recession and instead put the blame on the Reagan administration.
Laffer, a frequent advisor to President Reagan, said supply-side theory was “put through a political grinder, and it came out smelling awful.”
Speaking at a colloquium sponsored by the college of continuing education entitled ' The Troubled Economy” held at the University Hilton, Laffer said the administration has made “two serious mistakes.”
“The President should never have compromised by delaying the tax cuts,” he told a large audience.
Laffer, 42, also said the S98 billion dollar tax increase and 5 cent gas tax will offset any effects that a tax cut may have had.
“When the tax cuts were postponed, people decided to postpone their investments until the lowest tax rates went into effect,” he said, noting the third-year tax cuts did not go into effect until this year.
“1982 was a disaster because people decided to wait until the 1983 to make their to make their investments,” he added.
He also said people were waiting for interest rates, which had declined for 16 straight months, to fall even further before they made their investments.
LaffeT predicted that falling interest rates and declining fuel prices would spur a recovery for this year and for 1984, unless “Washington loused things up again.”
The projected $186 billion defecits were not caused by the tax cuts, but were a consequence of the delay of the tax cuts, he said. The lack of investments caused a slack in production, which in turn resulted in unemployment,” he said. “If unemployment decreased from 10.8 percent to six percent, the deficit would decrease SI75 billion.”
Referring to congressional attempts to either
raise tax cuts or postpone the third year tax cut, scheduled to go into effect July 1, Laffer said, “You don’t balance budgets by raising taxes. I don’t know of any economist who advocates raising taxes in a depression.
“Even my daughter understands what (House Speaker) Tip O’Neil can’t comprehend,” he added.
Laffer said that attempts by Congress to cut defense spending in order to shrink the federal budget do not make any sense.
“Defense spending should not be considered a budgetary matter,” he said. "If we need it, spend it.”
In remarks after his speech, Laffer said, “I like Reagan, but he doesn’t make the decisions. He’s come to depend on just a few close personal advisors around him to make the decisions, like (Michael) Deaver (deputy chief of staff) and (Edwin) Meese (special assistant to the president).
“His economic advisors bring out these complicated charts and you can see (Reagan's) eyes just glaze over. They expect him to understand something in a few minutes that would probably take me a half an hour to figure out.”
Laffer also had unkind words for David Stockman, the White House budget director, who once said supply-side economics was a revival of the old “trickle-down” theory.
Laffer called Stockman “kooky” and said "all he’s done is some graduate work in divinity school.”
In his speech, Laffer also addressed the troubled Social Security system. He said the “blue ribbon” panel’s recent recommendation to cut benefits and raise payroll taxes was wrong.
“It’s immoral to cut benefits to people who can't fend for themselves,” he said. “And the npvmll taxes are really low-wage worker taxes, low-wag workers have already been deeply nurt by the recession.”
The Social Security problem could be solved by postponing the age of retirement, he said.
“The system is based on life expectancy tables from the 1930s. It’s outdated,” he said. “We should raise the retirement age from 65 to, say,
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Coastal Arab nation offers students 'window' to study
By Steve DeSalvo
Assistant City Editor
What does the university and a tiny island nation in the Persian Gulf have in common?
At first glance, the answer seems obvious — not much.
But Bahrain, an Arab nation off the coast of Saudi Arabia, is considered by the university as its “window in the Middle East,” a tiny country that allows graduate students to study and conduct research about the Middle East while living with the native population.
In return, the university’s faculty serve as consultants to the country, assisting in studying and solving problems unique to the island. It is through these services that university students conduct their research.
The unique relationship is bound by a contractual agreement signed in 1977. The agreement states that the university must provide Bahrain
with expert faculty when needed.
The Bahrain government pays the university a general fee of $150,000 per year. The university also bills the government for faculty salaries, transportation and any other expenses incurred in the country.
Bahrain is not an oil-rich country. “The university has no designs on getting any oil or anything like that,” said Ted Thomas, university coordinator for the Bahrain project.
“It’s a beautiful little country that is rapidly developing,” he said.
The island, which is within eyesight of Saudi Arabia, is only about 250 square-miles in size. Most of the land is dry desert, similar to land in Sourthern California, Thomas sdld.
However, the northern part of the island is a major oasis and is considered by some biblical historians to be the Garden of Eden.
“That program hosted by Leonard Nimoy [In Search
Of...) recently did a story on the Garden of Eden, and they filmed most of the program in Bahrain,” said Thomas.
Approximately 360,000 people live on the island, and about one-third of those are expatriates. The rest are native Bahrainis. Thomas said the people are governed by “something close to a constitutional monarchy.”
Thomas said the relationship between Bahrain and the university began in the early 1950s, when several Bahraini students, including the son of the prime minister, attended school here. He said some of those students eventually became government officials and w'hen they needed help in developing government programs, they approached John Hubbard. then the university president.
The university has conducted two major projects on the island, Thomas said.
In 1981, the university’s population research laboratory assisted the government in de-(Continued on page 6)
ARTHUR LAFFER
Idyllwild decided; Dennis named V.P.
By Michael Molinski
Assistant City Editor
The board of trustees unanimously passed a draft resolution Wednesday stating that the university will close the Idyllwild School of Music and the Arts after the 1983 summer session unless a “viable plan” is achieved this spring.
The university is asking the school to justify its large operating deficit, which it has steadily grown, and to decrease its financial dependence on the university or increase the revenue of the school.
The 1982-83 budget for the school is $1,419,012. It is currently projected to have an operating deficit of some $250,000, said Jon Strauss, vice president of administration.
The university acquired the financially troubled school in 1964, assuming more than $400,000 in liabilities. The picturesque 205-acre campus, located in the San Jacinto Mountains 150 miles from the main campus, was once hoped to become the “Tan-glewood of the West.”
Officials from Idyllwild are expected to meet later this month to discuss the resolution and to formulate a response.
It is estimated by the Idyllwild board of trustees that the school needs over $3 million to get its operation back on solid financial footing-
NEW STUDENT AFFAIRS CHIEF
In other board action Wednesday, President James Zumberge announced the appointment of Jim Dennis as the new vice-president for student affairs.
The decision is the result of a nationwide search which began in October, 1982. More than 50 applicants and nominees were considered for the position.
Dennis, 38, has been acting vice-president for student affairs at the university since June of last year. Prior to that he served as assistant and then associate vice-president.
“I’m delighted to have the opportunity to serve the university in this role,” Dennis said. “I look forward to continuing to strengthen an established student services program.”
As vice-president, Dennis will be responsible for the administration of Student Health and Counseling Sevices, the Office of International Students and Scholars, Campus Life, Learning Skills and Career Development, Minority Consortium, Residential Life, and Student Publications. He will have a direct relationship with
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Staff photo by Ather All