Did He Act Alone? Kevin Hassett On The Death Of Curiosity, The Birth Of Economic Policy

>> Bill Whalen: It's Thursday, April 20, 2023, and welcome back to Matters of Policy and Politics, a Hoover Institution podcast devoted to governance and balance of power here in America and around the world. I'm Bill Whelan. I'm the Hoover Institution's Virginia Hobbes Carpenter distinguished policy fellow in journalism. But I'm not the only Hoover fellow who's podcasting these days.

I recommend you go to our website, which is hoover.org. Go to the tab at the top of the homepage. It says commentary, then head over to multimedia and up will pop 18, no excuse me, 17 audio podcasts and all, including matters of policy and politics, which is the top of the page.

Joining me today for a conversation about economics and a few other things on his mind is Kevin Hassett. Kevin is a Hoover Institution distinguished visiting fellow. He's also a former chair of the White House's Council of Economic Advisors, a post held by two Hoover Institution senior fellows, Michael Boskin and the late Eddie Lazier.

Kevin's also an accomplished author of books. He's written, including Dow 36,000, Bubble Ology, The amazing science of stock market bubbles, and most recently, the Drift: Stopping America's slides of socialism. That could never happen in America, Kevin.

>> Kevin Hassett: Yeah, we'll never stop it, probably.

>> Bill Whalen: Hey, thanks for coming on the podcast, my friend.

You and I may be the only two sober people in California at this hour, as it is literally 4:20 in the afternoon on 4:20 here, and people are out imbibing and having a rather good time. But let's talk about more serious matters, shall we?

>> Kevin Hassett: Absolutely.

>> Bill Whalen: So we're gonna start with something not economic here, Kevin, and I think it's appropriate, seeing as you and I are children of the new frontier, ultimately.

You mentioned the other day you happen to run into our Hoover colleague Paul Gregory, and Paul's inside a mention because Paul recently filmed an episode of Hoover's uncommon knowledge with Peter Robinson. The topic of all things was Lee Harvey Oswald. Long story short, Paul's father was an émigré from Siberia.

He spoke Russian. Paul and his family lived in northern Texas, and they socialized in a circle that was called the Dallas Russians. Eventually, in the early 1960s, they came across Lee and Marina Oswald. Paul ended up getting tutored twice a week from Marina Oswald then ended up doing all sorts of chores with the Oswalds.

They didn't have a car, so they drove around. In short, he spent a lot of time in the company of Lee Harvey Oswald and kinda got a read on his character, the thrust of the book, and I recommend you purchase it. It's called Oswald: An untold account of Marina and Lee is, in Paul's estimation, this guy did it, and he did it alone.

Paul's reasoning is that Lee Harvey Oswald was secretive. He was prone to angry outbursts, had an inferiority complex. He wanted to impress his estranged wife. In short, all the makings of a lone wolf assassin. And you, Kevin Hassett, you ain't buying it.

>> Kevin Hassett: Yeah. And I have to say that people really should read everything that Paul writes, that he's just absolutely one of my most treasured colleagues.

And my story, and I'm just an economist, but this is the kinda thing we do on podcasts, right? As we talk about hobbies as well, is that I grew up in Massachusetts in a family that is Irish Catholic and that absolutely worshipped JFK. And so basically, my dad, who's no longer with us, sadly, was obsessed with conspiracy theories.

And I've kinda grown up with, I guess, a curiosity about it, and I've read a million books about it. And so I think that Paul's point, just to summarize it slightly differently than you did, Bill, is that he knew Lee very well because he was over their house all the time, getting tutored by Marina.

 

>> Bill Whalen: Yeah.

>> Kevin Hassett: And that Lee was, in addition to being the kinda guy who potentially might be a lone wolf assassin, he was not the type of guy that was a leader of men. So he wouldn't have been able to recruit someone to go do something with him because he was a guy who did not make you feel confident in his competence.

And he was also very unpredictable. And so, therefore, if you were like the CIA or the FBI or whoever, Castro or whoever people say maybe did it, then he's not the kinda guy that you would recruit because he's just unpredictable and unreliable. And so Paul's point about that is very solid.

But the thing is that there are just so many mysteries surrounding the death of JFK that I still feel like there's something else going on. And the thing that I would commend to our listeners is that there's a book called Mary's Mosaic about Mary Pinchot Meyer, who, about a year after the assassination of JFK, was herself assassinated by, the police concluded a trained assassin.

It was a bullet to the head and a bullet to the heart. Boom, boom. She was on the towpath, which is the nice hiking path next to the Potomac river, when this happened. And she was the childhood sweetheart of JFK and was his mistress. And that's not a theory.

That just is. But she was also divorced, and her husband was in the CIA. Her ex husband was in the CIA. And when her sister, who was married to Ben Bradley, of all people, who ended up-

>> Bill Whalen: The Washington Post.

>> Kevin Hassett: Blaming the Washington Post, when they went over to her house, they found the CIA had broken into her house, and they were strafing through all of her books.

These are all things that are kinda known. And, a childhood friend of one of her sons spent his life obsessing over this, and he wrote a book called Mary's Mosaic. And it's extraordinarily thought provoking. And I think that he more or less proves to me that the CIA killed Mary Meyer or was somehow engaged in that.

The evidence for that is that first it was a trained assassin. But in the trial, they tried to frame a homeless man, and then the guy got off because they didn't have any evidence. But there was a jogger who was part of the effort to frame the homeless man.

And the author of the book, Mary's mosaic, was able to track that guy down over time and demonstrate that he was very, very likely a CIA agent and presumably then a trained assassin. And so all that kinda stuff suggests to me that there is something in there going on.

And as economists, what we do is take the facts and then think about, well, what's the theory that explains it. And we don't have to go into the grassy knoll part of the whole thing. It just seems to me that, again, Mary's sister says in the book, is quoted by the author, that Mary had a diary that the CIA stole and burned.

And her sister had looked at the diary, and in the diary, she said that JFK was very worried that the CIA was gonna try to kill him. These are things to puzzle about, like, why would the CIA want to do it? What was going on back then? And I think we'll never know the answers.

But I think that the lone wolf gunman thing is probably a reasonable explanation for what happened that day, sadly. Although I myself have some questions about that. But our colleague, one of our colleagues, who's a General, said, yeah, that's a shot that any trained marine can take, and so on.

But I think that there's so many other things, like why was JFK's mistress assassinated thereafter, that I think we're still gonna be digging into those things for hundreds of years, probably before we get to the bottom of it.

>> Bill Whalen: I know, and we're approaching the 60th anniversary of it.

And let me ask you a question though. Since you have worked at the upper levels of government, you go back and you look at JFK's time in Washington as presidency. That's a very kinda clubby, chubby town. There are a lot of people high up in government who went to the same set of schools.

And they all kinda live in the proximity of each other in Georgetown,. And they're so socializing together and they're partying together, and they're just kinda a very close faction. But how does that stack up versus the Washington of today?

>> Kevin Hassett: It's very, very similar and that basically there are two elite private schools.

Well, actually three, but St. Albans and the national Cathedral School, it's almost like the same school. The school St. Albans is for boy and then there's Sidwell. And probably a large fraction of the children, of political people you see on TV go to one of those schools and the parents hang out with each other from elementary school on at the school baseball games and things like that on the sidelines.

So there really is an enormous amount of clubbing as just even like for myself, one of the Biden's top advisors. For example, Bruce Reid is his son, Nelson played on the soccer team I coached.

>> Bill Whalen: Bruce goes back to, I think Clinton in the DLC days, doesn't he?

 

>> Kevin Hassett: Absolutely and I'm a big fan of Bruce's. But again, it's just like it's a small world in Washington. It's a small town. Everybody knows everybody else, I live there. And yeah, you see it all the time. And in fact, the Biden officials are constantly playing tennis at the tennis court across the street from my house.

And so I see them there and say hi.

>> Bill Whalen: Funny, so we crossed paths on the Stanford campus the other day. And Kevin, you told me that something that's been on your mind lately is the death of curiosity. What are you getting at here, the death of curiosity?

 

>> Kevin Hassett: Yeah, I think that the thing that I love about your podcast, Bill, and I love about being at Hoover, especially in the faculty lounge, is that everybody here just seems so curious about everything. And so we brought in this new scholar who was a curator of the San Francisco Art Museum.

And his name's escaping me right now, but we could google it while we're doing it. But he was just hanging out, having a coffee and then I sat down and talked to him for 45 minutes. And I was so intrigued by all this stuff that's going on at the Museum of Modern Art and how to think about modern art.

If you're curious about, well, why are people paying $200 million for this splotch, right, is a really wonderful thing. And the thing, though is that I think that the Democratic Party, the Democratic intellectuals seem to have lost their curiosity and I've been stewing about what that means and why that is.

But I have two examples of it that I think kind of stoke the imagination for that question. One is just that that because of deregulation and fracking that happened during the Trump administration, there was a massive increase, very well documented in natural gas production and consumption in the US.

Yeah, Neil.

>> Bill Whalen: Neil Benezra, right?

>> Kevin Hassett: Neil Benezra is a brilliant man and really fun to talk to and I look forward to seeing what he does here. But the fact is that because of the explosion of natural gas production, then natural gas became more commonly used by utilities when they're generating power and then natural gas substituted for coal.

And so it turns out that during the Trump years, the CO2 emissions went down in the US by more than any other country. And in fact, they went down by more than was the simulated effect of President Obama's clean power plant. And so perhaps for republicans, unintended consequence, if you think that they don't care enough about climate change, of their deregulation was a big positive impact on climate change.

And so, you know, there are a lot of people out there very emotional about the climate change issue. If you were to say you don't care at all about climate change on the Stanford campus, there'd probably be you'd be assaulted by 19 year olds, right? But it feels like the idea that we made all this progress during the Trump years because of natural gas is like, a taboo subject.

And then of course, those policies that led to all the progress on climate change were reversed immediately by President Biden and nobody's talking about it. And so my point is if you really do care about climate change, you really do think that CO2 emissions are contributing to global warming in a way that's extremely harmful.

Then shouldn't you be curious about what it was that made CO2 emissions go down in the Trump administration and what you can do to take advantage of those effects that we now know are there?

>> Bill Whalen: Are you saying that thinkers, intellectuals, Kevin, are not intellectually curious or they're afraid to be intellectually curious because politics today is very tribal?

Social media has made things very harsh, so there's kind of a distinction here. Are people actually thinking these thoughts or are they afraid to express these thoughts?

>> Kevin Hassett: That's exactly the kind of thing that I'm wondering about, right? But I could say though, that you can't really state that you're a person who cares about climate change.

 

>> Bill Whalen: Right.

>> Kevin Hassett: Without referencing basically the progress that was made in the Trump administration, if you're an honest scientist and then thinking about why that happened,and it could be that all the coal that can be replaced by natural gas has been. And so that going forward, that effect that we saw over those years can't be reproduced.

I mean, it could be, right? It's not something that we've studied, but you would think that people would be curious about it. And the second thing is that, and we could talk more about this, but for social justice, one of the things that seems like it's a point of conflict between the left and the right is their ideas about income inequality.

I think conservatives generally care about equal opportunity and believe that if there's inequality than it's mostly because there are people that work hard and people who don't, right, like to maybe form a caricature of the conservative view. And then the liberal view is income inequality is really, really important, needs to be addressed by government policy and is the result of the power the rich have over the poor.

And there's almost like a Marxist kind of abuse, capital abuse of labor. But I can tell you, though, that income inequality throughout my lifetime has been one of the main things that you see democrats talk about when they're talking about economic policy. And so if there's a reduction in the corporate tax rate or something, it's a giveaway to the rich, right?

And all the subsidy programs for low income people are meant to reduce inequality and so on. Well, once again, I, you know, based on the academic work, the literature that I actually helped start, where we looked at the impact of corporate taxes on blue collar wages, you know, we said in the Trump administration, before our tax cuts were passed, that they would lead to a big increase, that the corporate tax cut would lead to a big increase in blue collar wages.

And then what actually happened after the fact is that wage growth for people in the bottom 10% of the wage distribution was more than double wage growth for people at the top. And the Gini coefficient which is the measure economists have for overall inequality, declined pretty sharply. Something that it hadn't really, there's been a sort of trend of increased inequality that's been going on, at least since the Second World War.

And so once again, wheres Thomas Piketty when you need him? We've got interesting break in a long historical trend of increased inequality and inequality went down. And then once again, the Biden administration comes in. And rather than thinking about, well, we actually care a lot about income inequality.

It just went down. Let's study why that happened and think about if we can accelerate that effect and how we could do that instead. It's basically, again, taboo to talk about the fact that Donald Trump presided over being a decrease in inequality, that he was a very powerful force for social justice as measured by the left.

And you just can't talk about it. And we're not even curious about it. We just don't talk about it. And so my view is that there are a lot of, you and I both have a lot of friends who are Democrats that aren't writing about these issues, who we have high regard for.

But my question is that, where is the curiosity? Why is it not there, and what can we do to rekindle it? Because I think it's essential. I think that to the extent that there are bipartisan successes over time, and there have been a lot in policy history, like the opportunity zones that Jared Bernstein, Biden's nominee to be CEA chair, and I, we wrote the first paper on.

We invented those things, helped invent those things. There are a lot of bipartisan success stories, but they, I think, tend to come from conversations like you and I had with Paul, right? All of a sudden, you're sort of saying, well, how does one affect it? When did inequality go down?

Why did it go down? What do we do to make it, we both agree we want to do that, so what can we do to make it happen? But we've somehow entered a world where that doesn't happen. And I think that that's a metric, my final sentence, that's a metric of what's really, really wrong in society right now.

 

>> Bill Whalen: Yeah, but when did the lemmings show up in Washington? And by that, I mean, somebody runs for president, a president has an issue, he puts out, and you get the obligatory group letter that signed. I'm looking, for example, this Fortune article for September 21st, 2021, headline, 17 Nobel Prize Winning Economists Back Biden's $3.5 Trillion Build Back Better Plan.

Have they looked at the plan? Do they really believe that they're writing here, or are they doing it just because it's their camp? And a caution, by the way, both Republicans and Democrats play this game.

>> Kevin Hassett: Yeah, of course. And I think that one thing that you have to recognize is like a backdrop.

But this is something that I talk a lot about in The Drift: Stopping America's Slide to Socialism, is that the left more or less controls American universities, but they also control, awards, most of the prizes. And Jeremy Bentham has this marvelous essay called On Argument. I'm sure you've read it, Bill.

And in there, he goes through, like, what's a good argument? What's a bad argument? And he states that appeal to authority is the lowest form of argument. And so if you, Bill, were to say, well, why is it someone says Bill? Why is that true? And then you were to say, well, because Kevin Hassett says it's true.

Yeah, that's not an argument, right, is what Bentham's saying. But the left very often is proposing things that there's little evidence to support, right?

>> Bill Whalen: Right.

>> Kevin Hassett: And when there's little evidence to support stuff, then you don't really have an argument. But if you have a Nobel Prize winner who's like, trust me, I'm smarter than you, and we should do it, then basically you can potentially have a political impact.

And so one of the things that the left does is that it annoys authorities. And then those authorities make strong, unsubstantiated assertions about far left policies in order to help give cover to politicians that pursue them. And I view that behavior as pretty unethical. You might recall that when that 3.5 trillion was passed, John Cochran and I came out almost the next day, wrote an article saying that this is going to cause runaway inflation, which it did.

And the fact that you can have a Nobel Prize and ignore that, it doesn't seem plausible to me. I think that these people were playing a political game. They harmed the economy, and they can't be so stupid, they got a Nobel Prize, that they didn't know that they were gonna harm the economy.

So I have really low regard. The one thing for the people who did this, but it is a club of people that use their Nobels as authority. Not every Nobel Prize winner, like Gene Fama is a good friend. There are a lot of Nobel Prize winners that deserve it.

There are a lot of left wing Nobel Prize winners that deserve it. Like Joe Stiglitz is a genius and he wrote a lot of great papers. But now that they have it, the Nobel Prize is a big net negative. They should just shut it down. Because you create people like Paul Krugman, who engages in a lower form of argument than Jeremy Bentham ever envisioned, which is that he uses appeal to authority as his only argument.

Really, the only argument that he has and the authority he appeals to is himself.

>> Bill Whalen: Yeah, and don't get me started on Barack Obama getting a Nobel Peace Prize one year

>> Kevin Hassett: It's what the left does to try to basically give themselves respectability and withhold it from conservatives.

 

>> Bill Whalen: But, Kevin, we've come a long way from growing up and seeing three out of five dentists recommend this toothpaste and things like that. And it seems we have some real institutional problems here with intellectuals. I'd point you, for example, to the Hunter Biden laptop saga. And what, you had 51 former intelligence officials writing a letter saying that, no, this is fake.

Well, they didn't know otherwise. They just did it to provide cover for the guy they planned on voting for.

>> Kevin Hassett: Right, and those people, basically, have very, very low regard for them, and we should stop listening to them. I have a friend that's involved in a kind of controversy.

He's being charged with doing something wrong in his taxes, and it's costing him a lot to defend himself. And I'm highly confident that he didn't do anything wrong. I'm not going to say his name, though, of course, to respect his privacy. The point is that the power of government is significant.

They're, basically, making him have to spend a lot of money for lawyers. And then he said to me, well, do you think that any friends might get together and pool their money and help me pay for my lawyers? Cuz I've already spent half a million dollars on lawyers, I'm running out of money.

And I, basically, said to him, no, because you never know if somebody's innocent, right? Even if you really like someone, like the serial killers that are most famous, right, were charming people. That's how they lured people away, like Ted Bundy lured people away by being so charming. And the fact that he's a serial killer, you know, certainly surprised people right before they were being killed.

And so the point is you don't know if somebody's innocent, even if they're a person that you've known your whole life. And so this idea that people would come out and say, Hunter's innocent, this stuff is Russian disinformation. It's something that even if Hunter were Mother Teresa, you shouldn't do, right?

Because you don't know. You just don't know. And the fact that they did it means that they're untrustworthy, frankly, malicious people, immoral people who are willing to lie to the American people, just like those 17 Nobel Prize winners. The final thing about the Nobel Prize winners, by the way, just as an aside, Bill, is don't forget that George Akerloff very justifiably won a Nobel Prize for his market for Lemons paper, which we could talk more about if you'd like.

But it's a wonderful, creative paper that absolutely is worthy of a Nobel Prize.

>> Bill Whalen: What is the premise?

>> Kevin Hassett: Yeah, I'll finish the thought, and then I'll say, the thought is just that he's married to Janet Yellen, and so I excuse George being political. His wife's the treasury secretary.

He's gonna defend his wife, I respect that. But everybody else, I'm not so sure. The market for Levin's paper is very interesting. It makes the point that the facts. So think about it as used cars. So there are all sorts of cars that are three years old in America, and you might have a car that's three years old.

I actually have a car that's about three years old right now that I'm driving. But then a subset of those cars get put up for sale, right? And George's point is that when a subset of something is being put up for sale, then those things are probably the lemons, because you owned a car and now you're selling it, and so you must not like it.

And there are a lot of markets like this. So classic application of George's insight. Suppose you have two companies that appear to have about the same type of business and the same earnings. And for one of the companies, the CEO has been selling the stock, and the other one he hasn't.

Which one do you want to buy? The answer is, if the CEO is selling the stock, then there must be a lemons problem. And so the fact that something's for sale can actually signal that there's something wrong with it and the conditions where that ends up being super economically meaningful and everything.

There's a lot of fancy math in George's paper, but it was a really, really tremendous insight that it's a challenge when you're thinking about markets and how they work, if the mere fact that something's for sale might signal that it's not very good.

>> Bill Whalen: Since you brought up Janet Yellen, I want to go back to Jack Kennedy and the new frontier for a minute.

And this ties in, really, the death of curiosity. And it's also in Washington, the lack of, I guess I would say, intellectual dexterity or to put another way, just a willingness to think outside the box. If you look at Kennedy's administration, Kevin, his treasury secretary, this is how it ties into Janet Yellen, his treasury secretary is a fellow named Douglas Dillon.

Douglas Dillon was a Wall street investment banker. Can you see a democratic president bringing up a Wall street investment banker as a treasury secretary? Now, Elizabeth Warren would machine gun that person on a confirmation hearing. But if you go deeper into the Kennedy administration, Kevin, here's what you find.

Kennedy was urged by his CEA, his council of economic advisors, to spend money like crazy, to basically do another new deal to address unemployment, and Kennedy said no. Why? He didn't want to jack up the deficit. He was already thinking about 1964. There was, I think, we'll laugh at this, a $7 billion deficit at the time of the country, but he did not want to have that head hung around his neck in 1964.

What does he do instead? He proposes tax cuts in 1963, income tax cuts cutting from a range of 20% to 91%, down to 14% to 65%. Kevin he wants to reduce corporate tax rates from 52% to 47%. If you go deeper in the weeds with Jack Kennedy, he gave a speech on October 31, Halloween of 1960.

You weren't around yet, but I was. I was just a newborn by then, on the eve of the election, and you know what he's talking about? He's not talking about missile gaps, a new frontier, Kevin, he's talking about balance of payments. But it's a fascinating speech to read because in it, he lays out a problem with an import export balance.

He talks about inflation being a problem in the country. Steel prices had doubled during the 1950s. He wants to loosen restrictions on investment capital. Kevin, it's kind of an evergreen speech for Republicans. Somebody running in 2024 could pretty much give that speech today, and that's by John Kennedy in 1960.

 

>> Kevin Hassett: Yeah, I mean, John Kennedy was a great man, he really was. And I think the Democrats that remind us of what a great President he was in order to bring back the glory years of their party or remind that the Democratic president can be very successful. They point to him, but but they don't point to his policies.

I have a funny Jack Kennedy story, which, so Professor Richard Musgrave, who's a Harvard tax professor, he's really a pioneer in the economic modeling of taxes, was at the CEA under Kennedy. And at one point at a economic conference, he told me the following story, that Kennedy was worried about a recession, and he wanted to do something about it.

And he asked Musgrave, well, what should I do about it? And Musgrave said, well, we could do accelerated depreciation, sort of the progenitor of the expensing that everybody always argues we should do today. That was part of the tax cuts and jobs Act. And Kennedy said to him, accelerated depreciation, I can't give a speech about that.

It can work, is there some other way to get the same effect? So then, knowing the math of how the cost of capital works, Dick just thought about it for a minute. He said, well, yeah, we could just, instead of tying it directly to depreciation, how long you're allowed to write off the value of the machine, we could just give people a credit that's equal to the present value of the write-off.

And then Kennedy said to him, yeah, you're right. We could call it the investment tax credit. I can give a speech about that.

>> Bill Whalen: Yeah.

>> Kevin Hassett: And so then Kennedy invented the investment tax credit. And so then it was, you know, which is really just like a different way to do the expensing that republicans love today.

But the investment tax credit came on and off during recessions and every recession after that, either in the form of an investment tax credit or accelerated depreciation. But it's an example of Kennedy's academic vigor, that he was willing to sit there with a Harvard professor and figure out a cool way to redo the math so that it not only had the same positive effect but also had a better title so that he could give a speech about it.

 

>> Bill Whalen: Did you purposely choose vigor, because Kennedy loved to say vigor. That was a big new frontier term, viga, yeah, viga.

>> Kevin Hassett: His accent, I'm from Massachusetts, and his accent's a lot different from mine, I can say that.

>> Bill Whalen: What happened to poor Vaughn Meader? So you look at today's Washington, Kevin, is there a Jack Kennedy out there in terms of ability to not think like the rest of his party does on economics at least?

I know you could probably point to Joe Manchin, but Joe Manchin is doing parochial west Virginia stuff. Kennedy is looking at big picture, national topics.

>> Kevin Hassett: I think that, yeah, there probably is, but we don't know who they are. You had mentioned, could you get a Wall street person confirmed today if you were a Democrat, because of Elizabeth Warren?

Elizabeth Warren played all sorts of dirty tricks against me when I was up for Senate confirmation, despite the fact that I had the support of the vast majority of Democrats, even in the Senate. She held me up, really, for months with dirty tricks. And she gave a floor speech opposing me when I finally came to the Senate floor for a vote.

And she said that you should oppose me because I'm a tool of Goldman Sachs. And when she said that, I didn't actually watch the debate. I read the transcript after because it was going to be too upsetting for me to watch people beat up on me. But when she said that, I thought to myself, where I saw, she said that, geez, I'd be a lot richer than I am if I was a tool of Goldman Sachs right?

It's almost like, I wish, but you're really right, but Bob Rubin was a really good Treasury Secretary, a very fiscally responsible Wall Street guy. Gary Gensler, who's running the SEC, is doing a lot of stuff I disagree with, but he's got a Wall Street background. And so I think that there are people, you know, in the party that they can draw on if they're willing to.

And the sad thing is just that Joe Biden is in a position of significant power. He was part of the Obama administration, he worked closely with Bob Rubin. And so why is he giving us people who are being so reckless instead? It's a real shame. What's going to happen, though, is that we can spend a little bit of time on this, is the economy is going to fall apart because of all of their policies.

And at that point, the Democrats are going to ask themselves, well, why did the economy fall apart? What did we do wrong? And at some point, I think that there'll be room for another Bill Clinton who came Came in and he just sort of said, hey, guys, you can't spend so much right now.

They've increased spending so much, for example, Bill, that interest payments are set to be a trillion dollars a year over the next ten years, and the defense budget is like, what, 800 billion? And so they've run the debt up so much since they came in, about $6 trillion.

And interest rates have gone up so much because of the inflation that the Nobel Prize winners told you couldn't happen, that we're now spending more on interest than we are on defense. And the point is just, that's a recipe for disaster for an economy just because you're not buying.

If you spend money on defense, then it's actually not a negative for GDP, but if you're paying interest to the Chinese, it is. And so it's like Ross Perot's giant sucking sound, it really is there. And so my guess is that what happens to the Democratic party when, when the economy finally hits the wall, which I think it's sorta doing right now, do they decide that they want to be even more socialist?

Or do they go back and find a Bill Clinton type person who's willing to hire Bob Rubin?

>> Bill Whalen: Yeah, so I think the next time you're in the company of our boss, Condoleezza Rice, Kevin, you should maybe mention your confirmation experience and then do this. Ask her about her confirmation experience.

Her confirmation vote for secretary of state was 85 to 13. See if she can name all 13 who voted against her. I know that she remembers Barbara Boxer in her own state voting against her.

>> Kevin Hassett: Yeah, I had 83 votes, but there were two people absent that were gonna vote for me, so we actually ended up with about the same vote.

But I can tell you, though, that I really, as Condi, of course, did, took my job very, very seriously, that my job was there. I wasn't working for Donald Trump, I was working for the American people. And I was working for the senators, too, that I was there as the CEA person whose job it was to tell people honestly, if you do this, here's what happens to the economy.

And I had the congressional record of my vote framed and put next to my desk. And when I got called by senators, which happened practically every day, then if it was somebody who voted for me, I thanked them for the vote. And if it was somebody who voted against me, I told them that, hey, no hard feelings, you know, I understand that we're not gonna agree on everything and you voted against me, but it doesn't mean that I'm not gonna do my best to work effectively with you.

And I think having that list, remembering the names, is actually pretty important. Cuz I actually really respect, Senator Cortez Masto from Nevada really did a good job of which I didn't expect any one of them would be able to do. I'm kind of, you know, the irish guy from Massachusetts is always overconfident.

Right. But she did a really good job. Her staff did a great job of researching, like, the stupidest things I ever said. And it turns out we've all said stupid things if we're out in public for as long as you and I have been. And I thought that that's exactly what the founders envisioned, right?

Was that you have a confirmation hearing and the senators stress you and put you on the spot. And if you can't handle having a senator basically say, well, why the heck did you say this? One of the things I said at one point was the Dodd-Frank act was the stupidest bill in the history of the United States.

And the point is the Dodd Frank act is a really terrible act, right? But, you know, there are a lot of things that were worse than it, like the fugitive slave.

>> Bill Whalen: Stupid's a pretty strong-

>> Kevin Hassett: So it's a really bad thing for me to have said, and I just apologize for it.

But I think that if you can't take that, if you can't take that kind of abuse, then you shouldn't have a high ranking job, right? And it's not abuse, even, it's just challenge. And so I really respected the people who voted against me and tried to work with them.

And even Elizabeth Warren, who really did, I believe, hold up my confirmation for quite a long time, I worked effectively with her once I was in the White House. I went up to her office. We talked about economic policy. She respected the confidences of our conversations and was a real pros pro.

And anyway, so I think that that's an important reason to keep that list handy so that you know that there are some people maybe that might wonder, am I gonna be able to work with Kevin? I voted against him, maybe he holds a grudge. And you have to make sure they know you don't.

 

>> Bill Whalen: So I wanna talk about the economy, Kevin, and I wanna talk about how one should talk about the economy with an eye on 2024. And let's go at this premise, let's assume President Biden's running for a second term. He still hasn't announced, but let's assume he's seeking a second term.

The question is going to be, how do you run against Joe Biden on the economy? You don't have the r word to use right now. You certainly don't have the d word to use. I go back to Mitt Romney in 2012, and what did Mitt Romney do, Kevin?

59 point economic plan, 160 page booklet. It was a lot of things beyond economics, but just that whole 59 point plan, that was just, you couldn't digest, it was just too much. Here we are a decade later. Americans have an even shorter attention span than they did in 2012.

You're running against this guy and trying to explain the economy. It's, you know, to me, it's kind of a classic half empty, half full economy in terms of which side you want to take. Let's talk about, actually, let's do it in two ways. Let's, first of all, talk about how you run against Donald Trump if you're on the republican side.

And then we'll segue to Biden. So let's begin with Trump, the Trump record pre Covid, and you were part of the Trump team for a while. It's an impressive pre-Covid record, I must admit. Just kinda doing some research for this in terms of all that the Trump did.

In February 2020, unemployment was a 3.5%, that was a 50-year low. There was growth of about 2.5%, I think the White House had forecasted 3, but it was 2.5. Median household incomes had grown, inequality diminished. Poverty rates among black americans fell below 20% for the first time in post world War two.

Good record to run on if you're Trump and then COVID comes along and smatters at all. But if you're a Republican, going up against Trump right now. And, yeah, running against Trump is complicated, there's the whole cult of personality. And how do you react when he comes after you, but how do you speak on economic terms?

 

>> Kevin Hassett: Sure. And I just want to preface my answer by just stating that I consider President Trump a friend. I spent almost four years in the Oval Office interacting with him, seeing what a good guy he is on the personal level with my staff. When somebody in my staff got sick, he would send him a note, that he hopes they get better and so on, and-

 

>> Bill Whalen: Let's qualify one other thing also. You take your past role at CEA very seriously. You don't endorse candidates, you don't come out and fight for candidates.

>> Kevin Hassett: Yeah, that's right, that's what I was about to say. So even for President Trump. Of course, if he wants to talk about how the economy is doing or what he should do or what arguments I would make against Ron DeSantis, then I would help him think about that.

But if Ron DeSantis called me up and said, you know, if I'm running against Trump, what would you say? Then I'll help him think about that as well. And Joe Biden called me up and said, what can I do to make the economy better? I'd, of course, talk to him, but I don't expect that phone call.

But he should make that phone call. And not necessarily to me, but I think he should get a diversity of opinion. But to get to your question, I think that Donald Trump, that his and people will look back and you hear this all the time and say just about what you said, that I like his policies, I don't like the guy, and that his policies were really successful until Covid.

But I think that even during COVID we could spend a whole podcast on that. But even during COVID, he was incredibly successful, getting tests to be developed quickly with smart economic policies that lit a fire under firms to have a competition to get tests ahead of the other guy.

He got the project warp speed, really worked in developing a vaccine about a year faster than anyone thought possible. But again, it was because he signed off on incentives that made it so that everybody. Was in a race, but they also had the money to be in the race.

So I think that given what we didn't know, given the alarmism of the epidemiologists, that he did a way better job than Joe Biden would have, I don't think we would have got a vaccine as fast. I don't think we'd have got tests as quickly and so on.

But I think that Covid is such a negative thing. Our experiences of being locked in our basements and watching our kids fall behind because they can't go to school. And losing loved ones because of COVID especially when it's for stupid reasons, like we didn't protect the nursing homes enough and things like that.

That I think that one of the things that is likely to happen for President Trump when he runs in the primary and he's up on the stage with people is that people are going to say to him this. They're gonna say, you're the person who created Tony Fauci.

And I think Americans, for the most part, except for maybe NPR listeners, have recognized how awful Tony Fauci was, both as a human being and as a doctor, and the harm that he did psychologically to our kids. If you look at the suicide data and economically to all the businesses that shut down, we're still recovering from that.

And so I think that the biggest policy weak point for President Trump will be, even though I think that he managed the COVID thing probably better than most presidents could have. But I would expect he's gonna get attacked for the lockdowns, especially if you compare, there's this wonderful study out that compares COVID mortality across countries.

And the country that had the lowest per capita death rate in the whole civilized world was Sweden.

>> Bill Whalen: Right.

>> Kevin Hassett: Right, which was actually just open the whole time. And so, President Trump was taking the advice of experts when he argued for the lockdowns. And he did open up or allow states to open up faster than Fauci and those people wanted.

I think probably if Fauci were still there and anyone was still listening to him, we'd probably still be shut down. I mean, this guy was really giving bad advice to the president. But anyway, that's what I would, if I were going after him, in addition to the personal things reminding people of his conflicts with John McCain and who's kind of a beloved figure for me and for many Republicans and then that kind of stuff, I'm not an expert in.

But in terms of policy he has so many successful policies that it feels like the main thing to do is to go after him for the lockdowns and sort of say we, if I were there, we never would lock down. And I bet you that gained some resonance with Republican people in the primaries.

 

>> Bill Whalen: Let's play along and assume that if you're in the general election against Joe Biden, you do wanna talk in economic terms, what is the soft underbelly of the Biden economy, Kevin?

>> Kevin Hassett: Yeah, as you said, that in campaigns you gotta pick the thing that you wanna say.

And so, for example, when we were arguing for the Tax Cuts and Jobs Act, you might recall that relying on academic work that I had published in peer reviewed journals, that we estimated that the corporate tax cuts would increase the blue collar wage by between 4 and $8,000, and so that was the result.

The range of estimates from the literature that I presented to the president, he said, well, let's tell people, pass the tax cuts, you get $4,000. And then you'll remember that that talking point which came right out of academic work, it's sort of exactly why Hoover exists, right, is that we write papers like that and then policymakers know what to do.

That $4,000 talking point was pretty much repeated a million times, and then it worked. As you know, that by 2019, the wage had actually gone up by 6000. So it was right in the middle of the range that I gave to the president. And so I think the tax cuts worked.

Biden's been pushing to reverse them. And I don't think that that's necessarily the kind of thing that you can repeat over and over. It's like, my policies worked and then you've backed away from them. That's not catchy, right? So for me, I think that if I were running against Biden, what I would do is I would say this.

And I've seen some polling on saying this, that we increased government spending enormously under COVID because we had all these things, the PPP and everything, and Biden and the Democrats irresponsibly have kept spending that high. And so if you ask Americans, Covid is over, do you think government spending should go back to normal?

Your life is going back to normal. So shouldn't government go back to normal, too? Then everybody of both parties says yes. And yet Biden says no. He's got spending basically in 2025, it's gonna pass the COVID peak. That's how much they're spending. I would basically, and it's really easy to talk about how we're on a path between now and 2050 to be in a worse fiscal situation than Weimar Germany before the hyperinflation.

There are just so many things that you can point to about how this irresponsible spending has created inflation and harmed the economy. So thing one that I would do is I would just sort of say, spending needs to go back to normal. Spending needs to be cut cuz then it sounds like you're this person who's gonna starve orphans to death or something like that.

It's just like, let's just take spending back to normal. We're spending $1 trillion a year more than we thought we'd be spending now in 2019 when we forecasted spending today. We need to get back to the path of 2019. And so I think spending is normal, should get back to normal, is something that definitely is appealing, is appealing to voters.

But then the other thing is that, you know, wages move slower than prices. It's like sticky wages, they're part of every economic model pretty much. And it's what that means is that the real purchasing power of Americans has been declining. And basically, the average hourly earnings, which is like the wage measure in the employment report, has declined in real terms for 24 consecutive months.

And that's the longest streak in American history. And so weve had the longest negative streak for workers in american history. And while were doing that, when we know why were doing it, its cuz the runaway spending is causing inflation. So its not like a really hard thing to connect.

But while were doing that, Weve got Secretary Yellen and the president out there telling you youre stupid. Its great out there, you just don't understand. That kind of disconnect is what cost HW, I think, the White House. And I think that that's the place that if I were running against Joe Biden, I would try to steer him in an economic debate.

 

>> Bill Whalen: So the third tier, there are three Ts here. One is Trump, one is taxes, and the third one is temporary, as in things go off the books in 2025, the 37% top individual rate, the estate tax exception, the AMT, alternative minimum taxes, so forth. What do you fight for here?

 

>> Kevin Hassett: I think making the Trump tax cuts permanent is something that'll be a rallying cry for Republicans. And, you know, a lot of it phases out. Not all of it. Some of the individual stuff was made permanent, which required basically weird Senate machinations because of something called the Byrd Rule.

But there are some things that are permanent, some things that aren't. But they should all. They worked. It's been proven that they worked. They didn't cause the country to go bankrupt. We're raising more corporate revenue now than we were before. The tax cuts, because growth it turns out, helps you with that over time.

And so I think that making that step permanent and that again, is kind of like an easy thing to say, right?

>> Bill Whalen: Right.

>> Kevin Hassett: We got these things, they worked. You remember how good it was in 2019 compared to how it is now. And then let's just make those policies that work so well permanent.

That's the kind of thing that I'm sure that the Republican, I'm really sure that the Republican who is the nominee and is at the convention is going to say, we need to make those tax cuts permanent. And if it's deSantis, he probably won't call them the Trump tax cuts.

He'll probably call them the Republican tax cuts or something. But that's for sure where we are. And it goes back to one time I was at an event with George W Bush, and I was backstage talking to him before we were both going out on stage. And, and we got to talk about the tax cuts because that's what I love, right?

You'd probably talk to him about the Iraq war first or something, right? I don't know.

>> Bill Whalen: I'd talk to him about baseball, actually, but.

>> Kevin Hassett: Baseball yeah, that's right too. Yeah, you would, in fact I can attest to that. But one of the things he said to me was, and then if you watch, if you go back and watch the way I talk about economic policy, I try my best to take his advice on this.

He says that one of his biggest regrets when looking back at his time in the White House is that he allowed the tax cuts to be called the Bush tax cuts because as soon as they're the Bush tax cuts, then Democrats are gonna hate them for partisan reasons.

But if they're just the tax cuts, then maybe some of them don't have to hate them. And so he thinks that we should really avoid naming policies after politicians because then that creates the tribalist response to the policy. And he really regretted the fact that the Bush tax cuts.

But I gave a talk at Brookings when John Kerry was running against President Bush, where I attacked my democratic friends there. And one person came up and actually literally was physically threatening towards me at the conference. Not that I was too worried about it. Brookings people, just like AEI people and Hoover people are all nerds.

They're not really that dangerous, except for the generals, right? But what I said to them was at the time that if I were running for president, I would do it because I thought I could make the country a better place. If you're a patriot, you could see things that are broken and you really desperately want to fix them because you can have a chance to improve people's lives.

But economic models are not that precise. Economists are pretty good at knowing some stuff, but they haven't solved the problem of the economy. And so if you were to gather, know John Cochran and a couple of other Hoover scholars from the first floor, including me, I'm on the first floor.

Tyler goes to John Cochran and Kevin and sort of say, so what should we do? We could come up with an agenda for you, for sure, that we all agreed on. It would take a while, but then if you went to the second floor and he asked John Taylor and Mike Boscense to develop policies for you, then they would do it too.

But they probably come up with different policies, right? And the thing that I said at the conference was that, the thing that really stuns me is that there are sort of like, back then, before Kerry got the nomination, there were like seven candidates, and for every single one of them, their tax policy was to repeal the Bush tax cuts.

And so there wasn't a single person who said, I've been thinking a lot about tax, I think this is the tax code for the 21st century let's do that. Everybody, they just had like the simple thing, let's repeal the Bush tax cuts. And what I said to the crowd was, this shows you're not intellectually serious, you guys who are advising democrats, because there's no economic model that says that we are at the bliss point for taxes before the Bush tax cuts.

That if we could just get there, then we're gonna optimize social welfare in America. There's no model that says that. And so there's no reason why repealing the Bush tax cuts should be like the optimal economic policy that you're so excited about that you run for president. And that was what I said at the conference.

The point is that, sadly, I think we're in another time like that. And so now the Trump tax cuts, Democrats have to hate them, Republicans have to love them. And I can think of a lot of things that could take the Trump tax cuts and improve them. But my guess is that's not the conversation that we're gonna be having.

 

>> Bill Whalen: Well, if you're a republican president, you're not getting a lot of, you will not get a lot of favors from headline writers. They're gonna call it the Hassett tax cut whether you like it or not. But I'm shocked to hear that you could not get behind a democratic candidate, a democratic presidential candidate and senator from Massachusetts with the initials JFK, which by the way, just shows you how superstitious people get with presidential policy.

I can't tell you how many people I talked to in 2004 who were just convinced John Kerry would win, why? Because his initials were JFK. Because he was from Massachusetts, like Kennedy. Because the convention was in Boston. The stars aligned, they would tell me. But it doesn't work that way, does it?

 

>> Kevin Hassett: You know, it'd be interesting, like a counterfactual history, that if you had a president Kerry, then you wouldn't have probably had a President Obama, at least not when you did. I think President Obama was a big disappointment to me. I was so excited when he was elected.

I thought that it was a sign that maybe we are going to be able to heal our racial divide. We've elected a black president. It kind of shows that racism at least is on the decline in the US because the majority of Americans voted for an African American guy for president.

And then he proceeded to come in and basically divide us on racial ground and make the conflict worse. And created all this negative feeling that, like, so you think about who is really the person responsible for the turning point that got us to here. I think it was Barack Obama, and I don't think that John Kerry would have done that.

 

>> Bill Whalen: So it's really funny. I guess this is a window to how Hoover fellows think. But I was on a deep walk across the campus not long ago, Kevin. I was thinking along the same lines about tipping points. And I actually went to 2012 with Romney and Obama, because if Romney wins in 2012, maybe he gets reelected in 2016.

We then have an open election in 2020. I don't know if Donald Trump is running in 2020 or not. Maybe there's a Democrat in the White House right now, so things aren't all that different. But you maybe avoid the Trump experience if Romney wins in 2012. So who knows?

 

>> Kevin Hassett: Yeah, it's possible. And I know Mitt Romney, I'm from Massachusetts. He was governor of Massachusetts. He knew my mom. And, yeah, he's a good man and he would have been a good president.

>> Bill Whalen: Okay, final question for you Kevin, and I'll let you go, going back to 2012 and Romney one last time.

So he had the 59 point plan, and then he quickly realized he could not go around the country giving speeches, laying out 59 points. It just didn't work. So his campaign came in with five themes from the plan to talk about. And I'm going to read you the five themes and let's talk about what is applicable in 2024 and what you might swap out.

So here we go. First one, Kevin Romney proposed a $4.8 trillion tax cut spread out over a decade. Secondly, he proposed capping federal spending at 20% of GDP. Third, he called for energy self sufficiency. Fourth, he called for better schools. And bullet point number five, getting tough on China vis a vis the trade imbalance.

 

>> Kevin Hassett: Yeah I mean, and remember, I was an advisor of Governor Romney's and now Senator Romney's at that time and was one of his main TV surrogates. And so I was out there talking about all those things, and when you look at them, you can sort of see that, geez, that's pretty similar to what president Trump did when he was in the White House.

And it's because there's a very strong economic literature support for each of those things, right? And that was, you know, it was true then. And it was something that, if you go back and look at all of the reports that my team produced when I was running the council of economic Advisors, you know, we basically made a very academic, scientific case for each of those things.

And it's really quite strong, and it's a nice place to end because Romney saw that. Trump saw that. The two of them aren't exactly best friends, but they agreed on that because both men are curious. They wonder, how can I make the country a better place? And the thing that disturbs me is that the people running the Democratic Party now, although certainly not all Democrats, appear to have lost their curiosity, and it's a very disturbing development for me.

 

>> Bill Whalen: Okay, Kevin, we're gonna leave it there. I sure appreciate your time, and I hope we have at least satisfied some of your curiosity by having this podcast today. Really a pleasure to have you on my friend. Great to have you on the campus.

>> Kevin Hassett: Thanks, it's great to be here, Bill, thanks.

 

>> Bill Whalen: You've been listening to matters of policy and politics, a Hoover Institution podcast devoted to governance and balance of power here in America and around the globe. If you've been enjoying this podcast, please don't forget to rate, review, and subscribe to our show. And if you wouldn't mind, please spread the word.

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>> Kevin Hassett: No, I'm kind of opposed to Twitter. It's like a whole another show. But yeah, I've never tweeted once in my life. When I was at CEA, I had a chief of staff who tweeted for me, kind of but yeah, I don't tweet.

>> Bill Whalen: Maybe one reason why you always have a smile on your face, my friend.

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