• With: Art Laffer

    This is a rush transcript from "Your World," December 31, 2014. This copy may not be in its final form and may be updated.

    NEIL CAVUTO, HOST: Heading into 2015, the president is taking a big vow for the outgoing 2014 and taking plenty of credit for the six straight year of gains and, he tells NPR, real job gains too.

    He credits his policies, which is exactly what worries former Reagan economic adviser Art Laffer.

    Why, Art? More government?

    ART LAFFER, FORMER WHITE HOUSE ECONOMIC ADVISER: Well, I hope he doesn't do good government, but I don't think he's going to be successful with that.

    If he wants to increase stimulus spending of any sort, I think the Republican House and the Republican Senate will hold him back. Now, there are some areas where I think we will get a little bit more government. I think, for example, the sequestration and military will be removed and we will be able to get some military spending in there to go after ISIS and this.

    But, in general, this is not going to be a period of stimulus spending in any way, shape or form.

    CAVUTO: But the president is going to go back and, as you and I know, any president, Republican or Democrat, goes back on the metrics, the measures by which we all look at how a president's term fared.

    LAFFER: Sure.

    CAVUTO: He will talk about the performance in the markets, big run-ups.

    LAFFER: Sure.

    CAVUTO: He will talk about the improvement in jobs from when it was when he took office and say, under his stewardship, things turned around mightily, and you can credit stimulus, you can credit my programs for that.

    Do you?

    LAFFER: Yes, I don't think that those are correct metrics that he's using.

    I mean, if you look at employment as a share of the adult population, which is about as broad of a metric as you can get, it fell continuously from2000 down to where it is now, a little bit above 59 percent. It was at64.5 percent when Clinton led office -- left office.

    It's been a very bad period and there's no sign of it really rising rapidly at all. And the other thing, if you look at GDP, the broadest measure of output of the country, real GDP vis-a-vis trends is at the lowest level it's been since 1947. We're about $4 trillion, $4.5 trillion below that trend.

    Now, those are the two broadest measures that I can think of. I'm sure in Iowa one corn farmer is producing more than last time, and you can always pick and choose these numbers, Neil. But in the broad sense, this is the single worst recovery in U.S. history. And there's no covering it. There's no sugarcoating, there's nothing that is going to make this president look like a good president for the economy. It just didn't happen.

    CAVUTO: But, you know, Charles Payne mentioned something interesting at the outset of the show, the idea that we might not be firing on all cylinders, but we're kind of like the tallest midget in the room.

    LAFFER: That's true.

    (LAUGHTER)

    CAVUTO: In a world where things are meager -- he didn't use the midget analogy. I did. I apologize to those height-challenged folks out there.

    LAFFER: Is that -- are you poking at me, Neil?

    (LAUGHTER)

    (CROSSTALK)

    CAVUTO: Well, you know, but there is something to be said of that, right, because, now, these foreign markets, many of them advanced, right?

    (LAUGHTER)

    CAVUTO: But now, all of a sudden, we look good by comparison.

    LAFFER: Yes.

    CAVUTO: How long will that last?

    LAFFER: Well, you know, they are just doing a lot of awful policies as well.

    What happens when these bad economics get into place, they spread the world over. I mean, bad economics is the most tradable product in time and space imaginable. And if all of these people are trained at the same universities, Harvard and MIT and these others, it's no wonder that these policies are -- I mean, look at what is happening in Japan with Abe.

    I mean, it's just crazy. They had a -- they had a quantitative easing program the absolute size of ours, and their economy is one-fourth our size.

    CAVUTO: That's right.

    LAFFER: I mean, it's just amazing.

    You're looking at what is going on with Draghi in Europe wanting to do a big quantitative easing and more stimulus. You know, these policies don't work. I have never heard of a poor person spending himself into wealth. It makes no sense whatsoever.

    And the reason we're now coming out is because all of those stimulus dollars spent are now drying up and government spending as a share of GDP that is falling very sharply, which is leading to a modest recovery right now.

    And I think it will continue. And I'm very optimistic about the long term. But the reason why we're having any growth now is because of stimulus spending running off...

    CAVUTO: All right.

    LAFFER: ... and not being there anymore.