His ideas were promoted with evangelical fervor in the 1970s particularly by two economists: Arthur Laffer, who became known for the “Laffer curve,” postulating that lower tax rates would generate higher government revenues, and Jude Wanniski, an editorial writer for The Wall Street Journal, whose opinion pages took up Professor Mundell’s cause after a series of lunches and dinners at the Midtown Manhattan restaurant Michael’s, which were later described by Robert Bartley, The Journal’s opinion editor, in his book “The Seven Fat Years” (1992).
Professor Mundell’s argument gained ground in part because mainstream Keynesian economists were on the defensive, having a hard time accounting for the unexpected combination of slower growth and rising inflation during much of the 1970s. Professor Mundell argued, in contrast to the conventional wisdom, that low tax rates and easy fiscal policies should be used to spur economic expansion, and that higher interest rates and tight monetary policy were the proper tools to curb inflation.
That approach, with results that are still being debated today, was embraced in the 1980s by President Ronald Reagan, who, in policy moves that came to be known as Reaganomics, cut tax rates sharply and backed the Federal Reserve Chairman Paul A. Volcker as he raised interest rates to bring inflation under control.
Stepping on ‘Intellectual Toes’
Throughout his career, Professor Mundell frequently battled with the giants of the profession, including Milton Friedman of the University of Chicago and Martin Feldstein of Harvard. But he also craved recognition and welcomed the prestige — and the $1 million award — that the Nobel Prize conferred.
In his 2006 interview, he said that winning the Nobel “was particularly pleasing to me as my work has been quite controversial and no doubt stepped on a lot of intellectual toes.”
He added: “Even more than that, when I say something, people listen. Maybe they shouldn’t, but they do.”
At the Nobel banquet, Professor Mundell, dressed in white tie and tails and accompanied by Ms. Natsios-Mundell and their 2-year-old son, Nicholas, ended his speech by serenading the surprised but delighted guests with a verse from Frank Sinatra’s signature song.