Stetson School of Business and Economics at Mercer University

May 17, 2008 Commencement Speech

By Arthur B. Laffer

President Underwood has let the cat out of the bag so to speak and now you know that I soon will be a Distinguished University Professor and the titular head of the Supply-Side Center for Growth Economics at Mercer University. It’s more than a little ironic that I am here today as your commencement speaker to enlighten you on the world you’ll be entering and providing you guidance thereto, when, if the truth be known, you all should be telling me about the Mercer University world I’ll be entering-- and providing ME guidance. Ah well, it is what it is.

You came to the Stetson School of Business and Economics at Mercer University a few years ago for a very straightforward reason to better your lives often summarized in a woefully inadequate phrase, “to make more money.” And now after studying hard and absorbing all of the knowledge your professors and this institution would provide you, you are poised on the cusp to try your hand in the business world that awaits you.

But not only did you avail yourselves of the Stetson experience to better your lives, Stetson has also benefitted from your presence. It’s frightening to imagine what sorrowful plight would befall the Stetson faculty and staff if they were not gainfully employed serving you here in these beautiful facilities. On a more personal note, I shudder to think what would happen to me if I showed up next year and there were no students. Believe me when I tell you that Stetson benefits from you just as you benefit from Stetson. It is truly a win/win relationship.

But there is another purpose as to why you’re here: a purpose far less personal, less private and less intimate but no less important. You are here to make the world a better place, not because of some altruistic motives on your part or the selfless intentions on the part of the Stetson School, but actually as a direct result of your personal motives to better your lives financially. Without you and Stetson, other parts of our society would be less productive and less wealthy. Your efforts motivated by your own self-interest will make a positive difference on many others whether you want them to or not. In 1776, in a book entitled An Inquiry Into The Nature and Causes of the Wealth of Nations, authored by one Adam Smith, these indirect effects of your pursuit of your own self-interest were named “the invisible hand.”

Pursuing your dream of prospering will benefit everyone. If you do well by doing good, as we all hope you will, the whole world benefits.

Never be ashamed of being a business person or of pursuing the enhancement of your own or your family’s wealth. It is a great badge of honor to be wealthy and financially successful if those rewards are achieved morally and legally through hard work. While many people profess to be proud of the fact of their humble origins or that they made it on their own out of poverty, these same people try their darndest to make sure their children’s lives are different from their own. To think otherwise is a mistake, but that mistaken thought is very seductive.

At every stage in life, it is hard to comprehend the wide divergence of economic results: why some people live in abject poverty with broken families and any number of other cruel afflictions and yet other people are wealthy, happy and have all the benefits society has to offer. In the most fundamental sense of the word, it simply isn’t fair. And it really isn’t fair.

To attempt to redress these inequalities through you own personal actions is what I meant by the phrase “doing well by doing good.” Sometimes holding a hand out to those less affluent is the greatest reward of all. But that’s when you do it for yourself.  In fact, the same Adam Smith referenced above in his first book The Theory of Moral Sentiment wrote:

How selfish soever man may be supposed, there are evidently some principles in his nature which interest him in the fortune of others and render their happiness necessary to him though he derives nothing from it except the pleasure of seeing it.

Altruism is part of being a person.

To attempt to redress the obvious inequalities of life, however, by forcing others to give up their wealth is what I meant by mistaken actions. Using the powers of the state to redistribute income or wealth will have massive unintended consequences and will actually hurt those whom the policies were intended to help. 

Good economics should always make common sense. It is as basic as it is right that if government taxes people who work—and pays people who don’t work—there will be less people working and more people out of work as a consequence. Similarly, if government taxes rich people and gives the money to poor people, society will end up with lots of poor people and few rich people. People respond to incentives just as you responded to incentives by attending the Stetson School of Business and Economics here at Mercer University. It’s a simple fact of life, neither good nor bad, but simply what is. But to feel the compassion for the poor is what makes each and every one of us human.

In my own life, I have six children and I love them all equally. I don’t like them all equally but that’s a story of its own for a different time. In my dreams, I want each of my children to succeed equally. When one child has special needs, I divert resources from the other five to provide more resources for the one with greater needs. If one child is exceptionally successful, I’ll withdraw resources from that child. In a very basic and simple sense, I do my very best to redistribute the resources of our family to achieve equal success for one and all.

And to carry the family analogy further, I would personally like nothing more than to see every American be equally successful. If I were the omnipotent ruler of our wonderful country and there were no supply-side responses, I would tax everyone who made more than the average wage 100% of the excess and I would subsidize everyone who earns less than the average wage up to the average wage. I would do this if I may repeat only if there were no supply-side responses, and their existence makes all the difference in the world.

If I actually implemented a policy of taxing everyone who makes above the average wage 100% of the excess and subsidizing everyone who earns less than the wage up to the average wage, I can assure you beyond a shadow of a doubt that the disparities in income will be greatly reduced. Everyone will earn the same—and it will be zero. I can imagine no result worse.

The example I described above may be extreme but it illustrates the point. Any attempt to force a redistribution of income from successful to unsuccessful will make all less successful. The more successful you are, the more successful everyone will be.

When I graduated from Yale University, we had a serious commencement speaker not like the one you are stuck with today. The commencement speaker was President John F. Kennedy. And the point I’m making today is the same point he made all those years ago. He said, “No American is ever made better off by pulling a fellow American down, and all of us are made better off whenever any one of us is made better off.” He concluded by using the analogy that “a rising tide raises all boats.”

Never forget or be ashamed of the fact that pursuing your own self interest furthers everyone’s interest. Without you, the poor would be poorer.

Congratulations Class of 2008.