Kevin Hassett

Vice President Harris and former President Trump clash over the economy….this week on Firing Line

 

When Trump and Harris met for the first time in Philadelphia this week, they debated their records on the number one issue for voters – 

 

TRUMP I created one of the greatest economies in the history of our country.

 

Harris: Donald Trump left us the worst unemployment since the Great Depression.

 

and their agendas for America’s economic future.

 

HARRIS: I am offering what I describe as an opportunity economy.

 

Trump : We’re doing tariffs on other countries. Other countries are going to finally, after 75 years, pay us back

 

Kevin Hassett served in the Trump administration as chairman of the White House council of economic advisers–and could be on the short list to head the Federal Reserve in a second term.

 

HASSETT FL: What you need to do is come up with a policy that will stimulate supply.

 

A PhD known for his traditional free market approach towards economics Hasset remains in Trump’s inner circle.

 

HASSETT: You know, he’s a very inquisitive person who loves to talk about the economy. 

 

After a heated debate this week

 

Harris: You’re going to hear from the same old, tired playbook

 

TRUMP: She’s a Marxist. Everybody knows she’s a Marxist. 

 

What does Kevin Hassett say now?

 

‘Firing Line’ with Margaret Hoover is made possible in part by: Robert Granieri, Vanessa and Henry Cornell, The Fairweather Foundation, and by the following… Corporate funding is provided by Stephens Inc.

 

HOOVER: Kevin Hassett, welcome to Firing Line. You’re an economist and fellow at the Hoover Institution, where I serve on the board of Overseers. And you were the senior advisor to the president and chairman of the Council of Economic Advisers, one of the top economic positions from the Donald Trump White House. Now throughout the campaign Polls have consistently shown that former President Trump is more trusted by voters with the economy than either President Biden or Vice President Harris. In the presidential debate this week, Vice President Harris claimed the Biden administration had to clean up the economic mess that Trump left for them after the pandemic. Your response? 

HASSETT: In the first quarter of President Biden’s first term for the Biden-Harris first term, then GDP growth was about 6.5% and inflation was about 1%. And so the pandemic was just like an awful experience for everybody, of course. And we had the worst quarter that we’ve had since the Great Depression. And through really bipartisan legislation, it passed with unanimous support of Democrats, Republicans and Democrats worked together to repair the economy with a sequence of stimulus bills that were right sized. And so even though we had the biggest decline in GDP since the Great Depression of the second quarter for the year, the GDP was basically just about flat. And then what happened is that because of the recovery, the economy was really taking off in the first quarter. I don’t think any economists would say that they inherited a disaster. In fact, they inherited a recovery that was raging. 

HOOVER: Well, you still argued at that point, though, for continued stimulus support. So the economy was recovering, but it wasn’t fully recovered by the time they took over. Right? 

HASSETT: There’s an interesting history here that I think is important to lay out, when President Biden took office, then we were in the middle of another Covid wave and it was just after the vaccines. And at the beginning of the Biden administration, they crafted a stimulus in anticipation of possible lockdowns. But then it turned out that the vaccines worked really well and that there wasn’t going to be any kind of demand from the health officials for lockdowns. And so they could have and should have withdrawn the stimulus because they ended up overstimulating an already hot economy. By the time the stimulus passed in March, it was clear that it wasn’t going to be necessary.

HOOVER: The post-pandemic U.S. recovery has been stronger and faster than other G7 countries, and we did avoid a recession. To what do you attribute that lack of a recession and that stronger recovery?

HASSETT: I really attribute it to strong leadership of people of both parties in 2020. I was in the White House helping to manage the response to the Covid lockdowns. And one of the things that we did is we went up and we met with Senator Wyden and the Democrats and we said, look, this, this is a very uncertain time economically. We don’t really know, like, how long are things going to be shut down. And so let’s do a sequence of things that by, those things will buy us a little bit of time, like a month or two, and then we’ll talk again in a couple of months and see what we need to do next. And so in the end, they passed a bunch of bills that were sized almost exactly for the harm that was being done by the lockdowns. The problem was that the first quarter ended up being 6% growth. There weren’t any lockdowns. And then they continued another stimulus bill, and that’s where the inflation really started. 

HOOVER: In the debate this week Vice President Harris focused on her plans for the middle class for what she calls an opportunity economy. She talked about tax cuts for families, tax credits for small businesses, support for domestic energy. She did not mention raising taxes on corporations. She did not mention ending price gouging or what many across the political spectrum panned as price controls. She did not talk about taxing unrealized capital gains. Is she adjusting her message to appeal to the middle of America? 

HASSETT: You know, I’m not really sure what her message is, and I’m not really sure which policies she intends to enact if she is elected president. And I think pretty much everybody listening isn’t very sure as well, because she’s said a lot of things that are, you know, very extreme. She’s kind of walked some of them back, said other things that are equally as extreme. And, and honestly, if you were to say, Kevin, discuss Vice President Harris’ policies with me right now, then I would kind of really need, need you, Margaret, to tell me, like, what policy you think I need to discuss because I’m not really sure what she’s proposing. I really am not sure. 

HOOVER: She gave an economic speech in North Carolina to small businesses. She has suggested is that $50,000 tax credit, I believe it would be a tax credit, would go to individuals who start up small businesses. That’s an idea that seems to have resonance with, you know, conservatives and centrist Democrats. How would you analyze that kind of an economic policy? 

HASSETT: So that policy, the small business deduction, it’s $5,000 in the law now. And in 2018, President Trump and the Republicans wanted to expand the deduction to $20,000. It actually passed the House with very little Democratic support. And so, you know, Republicans are on the record as saying that there should be a bigger deduction for the start of a small business. And so this is an example of her reaching into Donald Trump’s playbook and taking one of his policies. 

HOOVER: So you like it? You think it’s a good idea?

HASSETT: So, sure. Yes. Expanding the deduction for startup business is a good idea. And it’s something that Republicans tried to do in 2018, but the Democrats were opposed to it. And so it’s something that she was opposed to before she was for it. And so you could say, well, is she really for it now? Or, you know, could she explain why she changed her mind?

HOOVER: Okay. Let me ask you about the housing policy. Part of the economic plan also says that she would build 3 million new homes by the end of her first term. And the plan includes a provision to give first time homebuyers $25,000 in downpayment support. I’ve heard you argue that this would jack up the prices of houses. How so? 

HASSETT: This is something that I think is a policy error that a lot of people make that they think about like demand I’m going to give and throw money at the problem, but they don’t consider the supply side. Housing affordability is about as rough as it’s been since the 1980s right now. And it’s because there is almost no new supply. And of course, interest rates are a lot higher. And so what you need to do is come up with a policy that will stimulate supply. And what giving extra money, 25,000 to someone does is it stimulates demand, which is going to drive, drive prices higher. And so the reason why supply isn’t really booming is because, you know, regulations are so tight in so many districts that it’s hard to build a new property and so on. And so there are things you can do to stimulate supply. 

HOOVER: How about her proposal to tax unrealized capital gains for households with a net worth of greater than 100 million? Even one of her supporters, Mark Cuban, warned the plan could, quote, “kill the stock market.” The tax would affect about 10,000 extremely wealthy households. Why do you and Mark Cuban agree that this is such a bad idea? 

HASSETT: The fact is that capital gains are realized when you sell something, right, and then you pay tax. And if you have an unrealized gain, then that means that you don’t want to sell the thing. And sometimes you don’t want to sell the thing because you believe it’s a great investment. It’s a very liquid one, like, say, a stock or something, but sometimes you don’t sell the thing because it’s very, very illiquid. Like a house, a family farm that’s really big and expensive. And so the illiquid things if you have to sell them, all of a sudden in order to pay the tax, then it creates a fire sale type scenario. And since you have to sell, then they offer you a really, really low price. 

HOOVER: Let me ask you, in the debate this week, former President Trump called Vice President Harris a “Marxist”. She says she wants to create a, quote, “opportunity economy.” By the way, that’s the language Paul Ryan used to help the middle class and build small businesses. When you look at her economic agenda, even some of the points that we’ve just discussed. Do you see Marxism at its core? 

HASSETT: You know, I wrote a book called, The Drift Stopping America’s Slide to Socialism. And I think that, you know, we are, as a society, very, very rapidly closing in on being a mostly socialist society. And that’s why I wrote the book. And so, you know, Marx, you know, did write Das Kapital. He was a socialist. Like when you’re, you know, forgiving student debt, having the government set prices, you know, basically these are all things that are consistent with the socialist playbook. And so I don’t know if she would want to call herself a Marxist, but I know that there are a lot of Democrats who warmly embrace the idea of socialism and don’t consider it an insult for someone to say, hey, that’s a socialist idea. When the government sets prices, then that’s socialism. 

HOOVER: I mean, are there, are there gradations here, Kevin? Socialism, you know, as we all know, has never been properly realized. Do you really think that that is her goal and her end or do you just think it is more of a European economic sort of democratic socialism that– 

HASSETT: I would say that it’s absolutely an objective to have the government have a lot more say over every decision that we make because folks on the left tend to think that the government knows better than individuals. 

HOOVER: Let’s talk about President Trump’s economic policies. You’re close with President Trump. You served with him in the White House. You speak to him frequently. He mentioned you at his economic speech recently in New York City. Should he win a second term, Trump is proposing blanket tariffs, ten or even 20% of all imports and up to 60% on Chinese goods. Vice President Harris says this is essentially a national sales tax. If Trump wins and puts tariffs like that in place, what would the effect be on the average American consumer? 

HASSETT: First of all, just remember that President Trump proposes a lot of things. You know, big supply side tax cuts, reduced government spending, deregulation, tariffs. If you look at one in isolation, then you’re not necessarily getting an accurate picture. But with tariffs. That policy was specifically mostly targeted on China. And people say, well, who did it hurt? I think it clearly hurt China. What happens is that imagine if there’s a company, a Chinese company that has 100% of its sales in the U.S. and they only have 1% of the market in the USA. Then if we put a tariff on them, that company goes out of business. But it doesn’t really affect anyone here because we could just buy it from the other people that we’re already buying it from. And so what happened in the first term is that the tariffs were designed to maximize the odds that the incidents would be on the Chinese. And they were very effective at doing that because the tariff rate went up to 14% and inflation stayed in the 1s. And so how we analyze tariffs, what happens depends on what’s the second best place to buy? How much more expensive or less expensive is it? Why does the Chinese have that market and so on. And so I just reject the idea that it’s going to be anything like a sales tax.

HOOVER: Tell me, though, Kevin, you said when we slap these tariffs on China ends up paying and suffering the brunt of, the effect of the tariff. But the, the argument, of course, that the Harris campaign makes is actually those costs are passed on to consumers, American consumers. And so they end up paying more, which is why they’re calling it a sales tax. 

HASSETT: Suppose there’s a product that we only buy from the Chinese. Then if we put a tariff on it, then they’ll pass it through in terms of a higher price to us. And if there’s a product that we can buy from other people and we put a tariff on the Chinese, then they won’t. And so, so her analysis is assuming that we don’t have any opportunity to buy stuff from somebody else or from ourselves. 

HOOVER: In your book, you write that several members of Trump’s braintrust, including Wilbur Ross, Steve Bannon, Peter Navarro and Stephen Miller, wanted Trump to be quote, “slapping tariffs like a supermarket clerk firing off price labels.” I mean, are there tariffs that are unacceptable to you as, a free market economist? They’re not all created equal, as we both know. So, you know, make the case for why these tariffs are your good tariffs, not bad tariffs. 

HASSETT: Right. Well well, when we started to really dig into trade policy at the beginning of the Trump administration. We just started studying, you know, what the Chinese were doing with their trade policy, and it was really pretty chilling. It was like they were preparing for war. So, for example, they have pretty much three times the steel capacity that they need. And, you know, steel is really important if there’s a war because just about everything that you use in war has got steel in it. And they’re, you know, dumping steel into the U.S., trying to put our steel companies out of business. And so President Trump decided for national security reasons, to protect the U.S. steel industry. Another example of a vulnerability is that most of the antibiotics that we consume in the U.S. come from China. And so if they were to, you know, threaten Taiwan and then say, well, you know, let me have Taiwan or I’m not going to give you any antibiotics, well, jeez, that’s a very difficult situation for us to be in. There’s this external harm to us of being vulnerable to, you know, a potential bad actor if we allow them to capture our market in something. The models will find that the optimal tariff is certainly not zero. I also remind that our trading partners all charge pretty high tariffs on our stuff. And that’s something that I think disadvantages American workers for sure. And so one of the things that President Trump advocated in first term and still advocates, he advocated it just at the convention, is that we pass a reciprocal trade act, I think reciprocity is something that I think most Americans agree with, like, shouldn’t we charge the same tariff they charge us? 

HOOVER: So, Kevin, are you for the blanket tariffs on imports that Trump is promising? 

HASSETT: You know, he, he hasn’t said what the rate is and he’s speculated on some rates. And I would have to analyze what the rate is, but it certainly could be higher than I would like. So if he gave me a specific policy to model, I’d model it. And if the rates were were low and close towhere our trading partners are, then, then that’s one thing. I think, I don’t think there would be, I don’t think that there would be much of an inflationary effect, and I think that it would onshore production and jobs. 

HOOVER: I think he did say between 10 to 20% on all imports and 60% for imports from China. How would you feel about that without having your models at your fingertips? 

HASSETT: Yeah, 10% is a, is a place where I could see the benefits would be pretty significant for onshore and eliminating, you know, the external effects of, like supply chain disruptions and so on. 

HOOVER: But not 20%?

HASSETT: I would, yeah, I think what 20% is then, then it started, it would be perhaps more disruptive. But, but again, like, what President Trump would do is just like he did last time is that when we’re starting to have these policy discussions, that we’ll all get the models on them and, and then we’ll look at his options and then he’ll pick he’ll pick the right number

HOOVER: As you know, William F. Buckley Jr, host of the original Firing line between 1966 and 1999. But in 1989, Buckley hosted a firing line debate on the merits of capitalism and socialism. And during the debate, former Reagan U.N. Ambassador Jeane Kirkpatrick argued against protectionism. Take a look at this clip. 

HASSETT: Oh gee!

 

KIRKPATRICK: The Reagan administration believed that consumers’ well-being should take priority, and the consumers’ well-being is served by permitting as free trade as possible, which will guarantee lower prices, better goods at lower prices, and they were not, therefore, as concerned with reciprocity, strict reciprocity, as you are because they did not believe that it delivers the goods at the highest quality, lowest price to the consumer.

HOOVER: Help me reflect, Kevin, you know, Ronald Reagan did use targeted tariffs against Japan. George W Bush’s tariffs on steel. Trump is proposing something much broader. How do you reflect on the Republican Party’s shift on trade?

HASSETT: You know, Jeanes’ discussion right there is a discussion that is 100% admissible in a world where all of our trading partners, you know, have our own best interests at heart. They’re not ramping up their militaries, getting ready to invade other people, stealing the intellectual property from the U.S. And so if you think back to a world where there were never any countries that had malice towards others, then absolutely the Adam Smith free trade answer is the optimal answer in economic models. But if you look at what happened when China entered the WTO, China came in and basically created distressed communities by shutting down factories throughout the U.S. because the Chinese were outcompeting those factories. And those communities are on the ropes to this day. And I think that President Trump’s view is that a trade policy like the one he advocates is a reasonable approach to try to revive those communities. 

HOOVER: Let me ask you about the national debt. In 2016 President Trump promised to eradicate the national debt in eight years. Four years later, we’d seen a 40% increase and much of that increase also happened before the pandemic. There was just, there was spending from Republicans in Congress that has frankly, jaded fiscally conservative Republicans, about the prospects for a new Trump administration’s ability to deliver on new promises to lower the debt. What’s going to be different in a second Trump administration vis a vis spending? 

HASSETT: There was spending before but it went way up under Covid and you wouldn’t deny that. And it went way up under Covid. And then what happened was that it became basically the new baseline and the new baseline that Democrats basically stepped up from their spent up from there. And that’s where things really started to spin out of control with inflation and the national debt. 

HOOVER: But, Kevin, you and I both know that before the pandemic, the spending that was coming out of Congress with congressional Republicans when when they had the House and the Senate at the beginning of the Trump administration was not disciplined and it did leave many fiscal conservatives with a bitter taste in their mouth. How will we know that it’s going to be different this time? 

HASSETT: Right. Well, there’s so much to cut and it has to happen, the national debt is so high. There absolutely is going to be a lot of budget talk next year, regardless of who’s in the White House. There’s going to be a debt limit hit in the spring that’ll have to be lifted. I think that spending is going to go down a lot next year and it’ll definitely go down a lot if President Trump’s there because of all the wasteful stuff that was added on since the 2019 outlook. 

HOOVER: Your name has been floated as a potential Federal Reserve chair in a second Trump administration. Look, the Fed, is widely expected to cut interest rates next week. You have said that you don’t believe that a cut before the election is justified.

HASSETT: I changed my mind on that actually, like I did in July, I believe that. But then there’s been a whole bunch of bad data coming. And I think that a prudent Fed would start to risk manage by cutting rates now. And it’s unfortunate that it’s before an election because of the appearance of partisanship. But, but if you’re a data driven Fed, then the idea that you would move didn’t seem very plausible in July but then the data started to surprise on the downside and that’s, you know, roiled markets and so on. But, but yeah, for sure, I think the Fed is going to cut rates. 

HOOVER: And you think that that would be appropriate?

HASSETT:  And I think that now it’s appropriate.

HOOVER: You speak to the former president pretty regularly. Have you spoken to him since the debate this week? 

HASSETT: No. 

HOOVER: We’ve talked a lot about economics. I do want to say last week, former president, former Vice President Dick Cheney and his daughter, former Representative Liz Cheney, endorsed Kamala Harris for president, not President Trump. And there are many conservatives like them who agree with you on many of the economic issues that we have just discussed. But former President Trump’s behavior on January 6th and the role he played in the first violent transition of power since the 19th century is a deal breaker for them. I wonder how do you, as somebody who served President Trump at the White House and while you were not there on January 6th, you still are in frequent touch with him. How do you think about that question? 

HASSETT: Well, I just think that President Trump, as you saw in the debate, disputes the characterization of what he was doing that day. And, you know, I’ve been friends with Dick and Lynne Cheney and their family for a long, long time. I know that Dick is a person who speaks his mind. I disagree with him on that matter. 

HOOVER: You disagree with him that Donald Trump’s return to the White House will be a threat to democracy? 

HASSETT: Yeah, it wouldn’t be a threat to democracy. And if you go back and look at his record, there was a very strong economy. There was peace around the world. That and, you know, our, our enemies were on the ropes.

HOOVER: I think the question really for me that I have for you is really about January 6th and the behavior of that day. Do you dispute Vice President Mike Pence’s characterization? I mean, Mike Pence has refused to endorse former President Trump and frankly, might have met his maker that day, given how the crowd and the riot unfolded at the Capitol. 

HASSETT: Margaret, I’m an economist. I’m not a January 6th expert, and I can just say that, you know, Donald Trump, has characterized what he thinks happened that day. There’s like a whole other side of that thing, but that’s just not my area. Sorry. 

HOOVER:  When you talk to Trump next, what will you tell him? 

HASSETT: I’ll answer this questions. You know, he’s a very inquisitive person who loves to talk about the economy. He might say, you know, how, how are things going? Are we in a recession? That’s the kind of conversation we have. 

HOOVER: Are we in a recession? 

HASSETT: I think it’s close. I think it’s close. But, but the latest jobs numbers were bad, but they weren’t as bad as I feared they might be. And so we’re close. The history of the unemployment rate is, is a really early indicator of recession. And when it goes up a percent or so as it has over the last year. Then it tends to signal a recession. And so, yeah, I think that the risks are pretty high. 

HOOVER: Kevin Hassett, thank you for joining me on Firing Line and for your economic analysis of both candidates’ economic platforms. 

HASSETT: Yeah, thank you, Margaret. It’s really been a great pleasure to talk with you.