Stephen Moore on Trumponomics
2018-10-06 · Guest: Stephen Moore (Economic Advisor to Donald Trump) · 47:31
Principles and Successes of Trumponomics
Bob Zadek interviews Stephen Moore, chief economic advisor to Donald Trump, about the principles and successes of “Trumponomics.” They discuss the impact of deregulation, tax cuts, and the shift from Keynesian to supply-side economics, as well as trade negotiations with China and the USMCA.
Topics: Trumponomics, Economic Policy, Tax Reform, Deregulation, Trade Policy, USMCA, China, Minimum Wage
Speakers: Bob Zadek: Host Stephen Moore: Guest, Economic Advisor to Donald Trump
Introduction to Trumponomics [00:16]
Bob Zadek: This morning we are speaking with Stephen Moore. Stephen Moore is one of Donald Trump’s chief economic advisors. He is a free marketeer from way back. Stephen has written Trumponomics. He’s written that book with Arthur Laffer, which is coming out the end of October, which will explain to all listeners why they are doing so gosh-darn well now compared to a few short years ago. Stephen was the founder of the Club for Growth and president of the Club for Growth from 1999 to 2004. He’s a former member of the Wall Street Journal editorial board, the Heritage Foundation—he has worked closely with them. He was a commentator on Fox News and now he’s the chief economic commentator on CNN. So, Steve, you have been—you perhaps coined or took advantage of the phrase “Trumponomics,” which helps to explain to six million Americans why they are better off than they were a few short months ago. Now, Trumponomics wasn’t in our vocabulary a short time ago. So what is Trumponomics and what is the secret sauce that President Trump was able to put together that made economic life in America so much better so quickly? One would think that something like our economic system would be slow-moving and slow to change, but it was not. The change is astonishing. Please explain that.
Stephen Moore: Well, you know, it’s funny. I saw the President on Monday briefly because he had a press briefing in the Rose Garden when he announced this new trade deal with Canada. I just ran into him and just chatted with him for a minute and I just said, “You know, Mr. President, this economic program is working even better than when Larry Kudlow and I and some others drew it up for you a couple years ago.” And it’s true. I knew that this program would work of deregulation and lower taxes and getting government off the back of business. I didn’t think it was going to happen so profoundly and so rapidly, and so it’s even surprised me that we’ve got 4% growth, we’ve got the lowest unemployment rate now in 50 years since the Beatles were still playing together. You know, it’s an amazing accomplishment.
And you’re right, there was a story in the Wall Street Journal this weekend that showed that the biggest wage gains and the biggest income gains in the last 18 months have come from the lowest income Americans—adults without a high school education. So not only is this a rising tide, but it’s a rising tide that’s lifting the boats of the lowest income Americans more than any other group, which is a fantastic achievement. And when you ask, you know, why is it happening? Look, there are a lot of factors we can talk about in the next, you know, 30-40 minutes, but I would say the overriding factor is that we’ve replaced a community organizer who knew nothing about business with a pro-business, successful businessman who knows how to meet a payroll, who knows how to make a profit, who knows how businesses work. And that’s made all the difference in the world. In fact, you know, the last chapter in my book Trumponomics was called “A Light Switch is Flicked from Off to On.” And that came from a guy who runs an auto mechanics store out in Cleveland, Ohio, who when I asked him how’s business, he said, “Steve, it’s like a light switch was flicked from off to on the day after Donald Trump was elected president.” And I talked to so many business owners around the country, everywhere from Portland, Oregon to Portland, Maine, who say the same thing—that, you know, there’s just this new burst of confidence and optimism and businesses now know that if they’re successful, if they make a profit, if they expand their operations, the government’s not going to hit them over the head with a billy club.
The Failure of Keynesian Economics [04:30]
Bob Zadek: Now, what I don’t understand is, the economists, while there are various schools of thought on economics—discredited Keynesian economics, Austrian school economics and the like—and the question is, after a couple of hundred years of economic scholarship, why isn’t—after all, economics is a science. So why wouldn’t all economists more or less get it to understand how to grow an economy? It’s not like once it was concluded that gravity existed and if you sat under an apple tree you’d get hit in the head by an apple, once it was discovered, then everybody got it and that was a building block from which further physical study grew. Why isn’t that true in economics? There’s enough objective data so that there can be objective conclusions reached. How could so many economists, those who advise government, be so off?
Stephen Moore: Well, look, I think first of all you raise a really good point. Why are there so many horrible economists out there? I mean, you know, I would make the case that, you know, 75% of economists today, especially if they’re trained at, you know, Ivy League schools and so on, have been taught Keynesian economics. And, you know, the lesson of the last 60 years, of course, is that this experiment in Keynesian economics was a failure. Government does not create jobs; government is a net destroyer of jobs. All jobs and all wealth come from the private sector. A government worker can only ever have a job if there’s a private sector worker to support him or her. And so that is why you get these crazy notions from liberals.
I mean, one of the things about Obama that’s kind of a tribute to him is that he tried Keynesian economics on steroids, right? I mean, he tried every single page of the playbook of Keynesian economics. He tried massive federal borrowing—we borrowed $10 trillion. We had, remember, that $800 billion so-called fiscal stimulus bill with all the government spending for the so-called shovel-ready projects. And then we had Obamacare, we had minimum wage increases, we had tax increases on the rich, we had the Fed flood the economy with cheap dollars. So every single idea of Keynesian economics was put to the test under Obama and it was—I don’t know if I would call it a failure, but it certainly didn’t work very well. I mean, we got the weakest recovery from a recession since the Great Depression. So the ideas just didn’t work.
And now what we’ve done under Trump is put to the test supply-side economics, which is: give businesses and workers more incentives to work and to create businesses and to innovate and to become entrepreneurs. And that, so far in the past 18 months, has been an amazing success. Now look, it’s only been 18 months and things can change a lot. You know, as we’ve learned, the economy has its ups and downs, the stock market same thing. But so far, I mean, you look at the record where we now have the lowest unemployment rate, we have the stock market’s up over 42% since Trump was elected. You look at the fact that we have seven million more jobs today than we have people to fill them. You look at the fact that we’re now finally seeing, you know, wage and income gains after tax for middle-class workers, something that hadn’t happened under Bush or Obama. So, you know, you have to look at the economy and say, “Boy, something’s really going right here.”
And, you know, you ask the question “Why did it happen?” and that’s the right question. Now, the liberals say, “Oh, this is just a continuation of the Obama economy.” But of course, that’s a hard argument for them to sustain because, number one, they all said that Trump would cause a second Great Depression if he was elected. As you know, people like Paul Krugman and Larry Summers said this would be a complete economic disaster. And now we have the economy in its best shape than in 40 years. And the other reason it’s not very plausible to say this is the Obama economy is that what we used to tell Donald Trump, and if you look at the actual evidence, this is what’s happened: we’ve actually reversed everything Obama did. So Obama raised taxes, we cut taxes. Obama added regulations, we reduced regulations. Obama got us into this idiotic, you know, Paris climate accord treaty, we got us out of it. I could go on and on, but how can you argue that it’s Obama’s policies when we’ve repealed all of Obama’s policies?
The Obama Recovery vs. The Trump Boom [11:00]
Bob Zadek: The thing that appears to me is that obviously, like many areas of society, economics has become politicized. And I am not a trained economist. However, my observation is that with respect to Keynesian economics, which looks upon government as being the key player in the economic system as opposed to the regulator, that that system of economics, if we can call it a system, Keynesian economics is driven by a political motive first. And Keynesian economics becomes the economic rationale for what is really a political goal, not an economic goal.
Stephen Moore: I agree with that. I think you’re exactly right. Keynesian economics was basically an excuse for politicians to do what they wanted to do, which was increase their own power. You know, this idea that they can just, you know, push a dial and they can turn the economy on and off. It’s the height of kind of the arrogance of the political system that somehow the economy is directed by government. It’s not. The economy is directed by people who start businesses, entrepreneurs, hard workers, people who actually do the work that create the growth in the first place. And when you grow the government, all you’re doing is making it more difficult for entrepreneurs and for, you know, men and women who start—you know, we have 27 million small businesses in this country and those are the heroes of the economy, not the politicians and not the bureaucrats and the regulators. And, you know, if you let them do their thing, which Trump is doing—I mean, he’s basically America First. He wants American businesses to succeed because he knows, you know, when businesses succeed, then workers succeed, right? Because you can’t—as my old boss Dick Armey used to say, you know, “Liberals love jobs but they hate employers.” You can’t have a job if you don’t have somebody creating the job with a business, unless we’re all going to work for the government. And so the nice thing about what’s happened in the last 18 months, at least for me as an economist, a free market, you know, Milton Friedman, Adam Smith economist, is that this is really proven—it’s another piece of strong evidence that our ideas work of private sector growth and their ideas of relying on the government don’t work.
Bob Zadek: And what’s interesting is, you know, the word “work.” A lot of my guests use the word “work.” Something works, a policy works. And what’s interesting is you have to drill down a notch. When Obama was saying his policies worked, and I had guests on my show who said, “No, they didn’t,” the disagreement really is what the goal was of the policy. I think in so far as Obama’s policies were concerned, they did work, but the goal was not economic success. The goal was some political goal and Obama’s goals worked perfectly. Paul Krugman would say, to pick him at random, that Obama’s policies did work because “work” to him is a totally different standard than “work” to you. And what I think our audience must realize is when somebody says policies work, you have to ask them, “Work towards what end?” And the goal of Trumponomics is more jobs, grow the economy, not grow the political system. So Obama’s program did work by his standards.
Stephen Moore: Well, first of all, Paul Krugman is probably the wrongest economist, you know, in the last 30 years. I mean, he’s the one who said the day after the election that Trump’s policies would cause a stock market crash, and of course it’s up 40%. So anybody who took his advice lost a lot of money taking Paul Krugman’s advice. And, you know, he was also the one who—his argument about why Obama’s policies didn’t work better—I mean, you won’t believe this, but it is true. I debated him a couple years ago in a big economic forum in front of 2,000 people. And he said in front of 2,000 people, the problem with Obama’s policies is he didn’t spend and borrow enough. Let me say that again. He thinks we didn’t borrow—we borrowed $10 trillion, but he doesn’t think that was enough money to borrow and spend. And, you know, we ran up the budget by record amounts and yet, you know, that is, you know, the height of stupidity, right? To keep banging your head against a door when something isn’t working.
But, you know, look, to give Obama his credit, we did have a recovery. Remember, I mean, 2007 and ‘08 was this crash in the economy, one of the worst crashes since the Great Depression. And Obama entered office during that. Now look, there are natural healing powers of the economy; it was going to get fixed one way or the other. But we did—we had a long recovery under Obama. So this, you know, it’s been over 100 months since we’ve had a recession. That’s a really good long stretch, one of the longest in history. But the problem was it was a long and durable recovery, but it was really anemic. It was flat. It wasn’t much growth at all. And so I have a chapter in the book showing that if we had had a Reagan-style recovery from recession rather than the Obama recovery, we would have had about $3 trillion more output by the year 2016. That’s a big deal. That’s Ohio, Michigan, and Indiana combined, their annual output that was missing. And Americans felt that.
And there were also so many areas—you’re there in California—there are a lot of areas of California that did very well: Silicon Valley, Hollywood, you know, Los Angeles, places like that. But if you went to Middle America, the areas that Trump won—states like Michigan, Ohio, Wisconsin, Pennsylvania, Kentucky, West Virginia—those areas had no recovery at all. And those were the voters that, you know, Trump really spoke to. And he just said, “Look, I’m going to bring back those jobs.” And, you know, Hillary went to these places and said, you know, “Manufacturing and mining isn’t coming back.” Remember, Obama said at one point, a few months before the election, “How is Trump going to recreate all these manufacturing jobs? Is he going to wave a magic wand?” Well, apparently he has a magic wand because since the election, we’ve created one million manufacturing, mining, and construction jobs. It’s an amazing performance.
Bob Zadek: Well, I have two comments. Number one, to say that Obama’s program kind of worked but it was anemic, I would somewhat take issue, only in the margin, Steve, with that statement. It’s like in the 17—our first president, President Washington, of course, was ill and he died through the policy of bloodletting. They bled him because that was believed to be the case. But it killed him. And however, some people survived bloodletting and they got better anyway. It doesn’t mean bloodletting was a good idea. It means the body is so darn strong it even survived bloodletting. Well, I say our economy is so strong it even survived Obama. Obama gets no credit for turning the economy around. He gets credit for delaying the recovery. Our economy is so vibrant and so strong it can recover from almost anything. But the fact that it recovers doesn’t mean the bad policy worked.
Stephen Moore: You’re right. In fact, you know, here’s an amazing thing. So when Obama came into office in February of 2009, his own economics team did this report and they said, “What if we just let the economy heal on its own?” And they said, if that happens, you know, here’s the path of recovery. They knew there’d be a recovery; there’s always a recovery from a recession. And then they said, you know, “But if we do this, you know, $800 billion stimulus plan, the economy will go up by, you know, grow much faster.” And so then you look at what happened, what really happened after we spent the $800 billion, and it turns out that the economy recovered, but it actually recovered more slowly than they estimated would have happened if we had done nothing. Of course. Of course. Isn’t that amazing? So in other words, by their own admission—these aren’t Steve Moore’s numbers, they’re not the Wall Street Journal, they’re not the Heritage Foundation—this is Obama’s own numbers show conclusively that we would have done better if we hadn’t spent $800 billion at all. So you’re right, the natural healing powers of the economy created the recovery. And I would tend to agree with you that we probably would have grown faster if Obama had just done nothing and let the economy recover on its own.
The Cost of Obama’s Policies [15:10]
Bob Zadek: Obama was bloodletting. That’s what he was doing. And it didn’t work, but the body survived.
Stephen Moore: Well, this, you know, the other thing, there was a cost to this. So here’s the thing. Not only did we not have a recovery, but what we did get stuck with was $10 trillion of debt, right? So every future generation for the next 100 years is going to have to be paying for Obama’s mistakes because this stuff isn’t free, right? It’s like if you went out and borrowed a million dollars and squandered it, it’s not like, “Well, I’m no worse off.” Yes, you are, because now you have to pay back the million dollars you borrowed. And the same thing in this case, it wasn’t a trillion, it was $10 trillion. And our kids and our grandkids and our grandkids’ kids will be paying for those mistakes for the next 100 years.
Bob Zadek: This is Bob Zadek. I’ve been the morning speaking with Stephen Moore. Stephen is one of President Donald Trump’s chief economic advisors. He is the author of soon-to-be-released Trumponomics. He wrote that book with Arthur Laffer. Book is coming out the end of October. We are discussing with Steve what was the magic of Trumponomics, why was it so successful, and why did it—was more successful than even its authors expected. When we come back, we’ll discuss the corporate income tax, we’ll discuss NAFTA, trade policy, and what’s in store for us during the next two years of Donald Trump’s administration from the standpoint of economics. Please stay tuned. Lots to come.
The Committee to Unleash American Prosperity [21:00]
Bob Zadek: Welcome back to the Bob Zadek Show, the longest-running live libertarian talk radio show on all of radio. This morning we are speaking with Stephen Moore. Stephen Moore is one of President Donald Trump’s chief economic advisors. He is a free marketeer from way back. Stephen has written Trumponomics. He’s written that book with Arthur Laffer, which is coming out the end of October. We are discussing with Steve what was the magic of Trumponomics, why was it so successful, and why did it—was more successful than even its authors expected. And Stephen, among your other activities, you formed the Committee to Unleash American Prosperity. You did that with Arthur Laffer, Larry Kudlow, and Stephen Forbes. Just to give us a little insight into how you think, we’ll get back to Donald Trump in a moment. Tell us about the Committee to Unleash American Prosperity.
Stephen Moore: Well, you know, Steve Forbes and Larry Kudlow and Art Laffer, obviously economic icons in this country. They’re probably the best economists of the last 50 years. And of course, Steve Forbes changed our country when he ran for president in 1996.
Bob Zadek: By the way, can I just interrupt? That was the first presidential campaign that I went down to a storefront office and I said, “I want to work for this guy. I want to stuff envelopes, do whatever I can.” It was the first time in a presidential campaign that I became active. And it broke my heart when he didn’t survive the primaries.
Stephen Moore: Yeah, you know, that’s right. And I felt the same way. But one of the points I make to Steve Forbes all the time is that that was—sometimes even when you lose, you can make a big mark in history. And Steve Forbes ran on a reformist free market agenda of term limits and social security personal accounts and a flat tax and no corporate income tax, some medical savings accounts. All of these things that were—are now actually kind of boilerplate Republican Party. So I think Steve Forbes really did change history with that election. But anyway, the purpose of our group was really to try to educate, you know, the especially the Republicans to make sure when they were running for president in 2016 that they ran on a pro-economic growth supply-side, lower taxes, less regulation agenda. And of course, what happened was that, you know, we met Trump and we teamed up with him. And Larry Kudlow now, as you know, is the chief economist for Donald Trump, which is a fantastic thing. I mean, the most important economist in the world today is Larry Kudlow, who’s a total supply-side tax-rate-cutting guy. And by the way, I have to say this, that, you know, Trump got these ideas. You know, Trump is not an ideological person say like Ronald Reagan was in the sense of being a conservative, but Trump is just a common-sense guy who understood the ideas because he’s run business. He knows that, look, if you cut taxes for businesses, they can invest more in the business. I mean, these are—seem like simple ideas, right? I don’t understand why liberals can’t capture these ideas. You know, as Larry Kudlow likes to say, if you tax something, you get less of it, and if you tax something less, you get more of it. So we took the taxes off of the businesses and off the workers so that we could get more work and more businesses and more investment. And that’s really the—one of the keys of the success of what we did. And Donald Trump, by the way, was fully on board. I mean, he was not a hard sell on these ideas. In fact, I think he had accepted a lot of these ideas long before we talked to him about it. In fact, he wanted to cut taxes even more than we did.
Corporate Tax Reform and the Middle Class [24:10]
Bob Zadek: Well, Steve, one of the ideas in your book and of course a cornerstone of President Trump’s policy was reducing our corporate tax rate from about 40%, the highest in the Western world, to about 20%. All of these are approximate, of course, and they’re not real tax rates. My question: Steve Forbes got my attention, and I had just started doing radio and one of my very first shows was on the subject of the corporate income tax—a policy that is utterly economically insane and unjustifiable. Since you’re on a roll and reducing the corporate tax rate from 40 to 20, why not from 40 to zero, since it’s only a political concept and has no economic basis whatsoever?
Stephen Moore: So it’s a great point. And, you know, when we first sat down with Donald Trump, we had a chart that showed, you know, here’s where we are, as you just said, at 40%. And not just our corporations, but our small businesses too. One of the first things Trump said to us is, “I want to cut the corporate tax, but I want to make sure the 27 million small businesses get a tax cut too.” And so that was a big part of the plan. But in any case, we went from 40% and we showed that the rest of the world was closer to 20%. And we said, “You know, this is like we’re putting a tariff on our own goods and services. And what country does that? You know, why would we put ourselves in an economic hole right from the get-go by having a 20% disadvantage?” And Trump instantly understood that. And I remember Larry said to him, “You know, that’s why we think you should endorse a 20% corporate tax.” And you’ll love this. He said, “No, I’m not going to do that.” And we said, “Well, don’t you get what we’re saying?” And he said, “I don’t want to go to 20, I want to go to 15.” And we didn’t end up getting 15, but we got 21.
Bob Zadek: But why not zero?
Stephen Moore: Yeah, because businesses just pass on the taxes to the workers and the consumers anyway, so it’s just a hidden tax. And look, you know, also you’re so right, you know, you understand this economics very well, that, you know, when you have a capital gains and a dividend tax and then you have a corporate tax on top of that, you’re basically double-charging taxation, right? Because, you know, think about it as a—if a company let’s say makes $100 million of profits, let’s say it’s Apple, and then the first thing that happens is the government was taking a 40% cut off of that. And then from there, you know, then the 60 cents after tax, then let’s say they pass it on in the form of a dividend to their shareholders, then the shareholders have to pay a 40% tax on that. So Trump got that, that there was a double taxation problem. And we haven’t eliminated the double tax problem, as you’ve suggested we should do, but we did alleviate it because we did cut the corporate tax very substantially. And so the penalty on investing in—by the way, and investors pay that as well. Anyone who has a 401(k) plan or anyone who has an IRA plan or anyone who just owns individual stocks. And that’s not just rich people. I mean, over half of Americans, 150 million Americans own stock. So this is good for the stock market as well.
Minimum Wage and Regulatory Capture [30:42]
Bob Zadek: I remember learning that if you analyze who ultimately pays the corporate income tax, it’s the lowest 25% of the earners who pay the highest. When they buy a sofa, when they buy milk, they are paying the corporate income tax built into the product. And that to me, it’s cruel, it’s a hidden tax, nobody knows they’re paying it, which means the government gets to tax for free because nobody complains because ultimately consumers pay but they don’t know they’re paying. So while you’re on this roll of reducing it from 40, go all the way to zero. And by the way, as you know, corporations therefore misallocate capital because of the tax effect, which means it’s a waste. Transactions become inefficient and we all pay. It makes no sense economically whatsoever.
Stephen Moore: Yeah, and I’m going to make an additional argument that Larry Kudlow used to make a lot and I think there’s a lot of truth to this. So Larry always used to say, and Trump’s started saying it too, that cutting the corporate income tax is a middle-class tax cut. Now people might wonder, what does that mean? How can that be that when you cut the tax on corporations that workers benefit? And the answer to that is, you know, what drives higher wages for workers over time—the reason I always ask my high school and college students, why is it that an American is paid—the average wage in America is $30 an hour, whereas the average wage in Mexico is $8 an hour? And the reason, one of the major reasons for that, is Americans have more capital to work with: more computers, more technology, tractors, trucks, things like that that make them more productive. And so as you cut the corporate tax rate, you get businesses to invest more, and as businesses invest more, that means that the benefits of that investment go to the workers. And so we’re seeing that now in the form of wages rising. By the way, wages have not risen as much as we’d like to see them yet. I do anticipate, you know, that in the next three and six months as we continue to create a very tight labor market, that wages are going to start to rise. I’m very—I’m going to make that prediction and I feel pretty confident in it.
And you’re seeing that this week, by the way. You saw what happened with Amazon. Amazon has 250,000 workers across the country—they’re one of the biggest employers in the nation—and they’re increasing their wage rate, their starting wage rate to $15 an hour. And the reason they’re doing that is because of the competitive pressures. They need to pay workers more or their workers will leave. Walmart with a million workers has increased their wage rate to $11 an hour. Target’s raised their wage rate. Many of the restaurant chains, Disney has raised their wage rate. So you’re starting to see the effects of a tighter labor market in the form of higher middle-class wages for workers. And that’s a positive thing.
Bob Zadek: And what’s the magic of that is, we have a marketplace-enforced minimum wage. It’s a minimum wage because you cannot get away with a lower wage; the workers will quit. And how much healthier that is for the economy when the minimum wage is market-driven, not mandate-driven by government.
Stephen Moore: That’s such an important point. I want to punctuate that point that you just made because, no sooner did Jeff Bezos, the CEO of Amazon, announce that he was going to raise his wage rate for his workers to $15 an hour, did you see what he did next?
Bob Zadek: No.
Stephen Moore: He said, “I am going to go to Washington and require that every business raise their—have an increase in the federal minimum wage to $15 an hour.” Now think about the impact of that. Jeff Bezos has a company that is now valued at a trillion dollars. Did you see their market capitalization hit one trillion dollars? Of course. They’re this massive, massive company now in consumer goods and services. Well, what they want to do now that they are paying $15 an hour, they want to have all their smaller competitors—there are companies that they compete with that don’t have a trillion dollars. They’re competing against small companies that have $10,000 in the bank. They can’t afford $15 an hour. So what Jeff Bezos is doing, he’s not some kind of altruist saying, “We want everybody to raise their wage to $15 an hour.” He’s trying to use government—it’s big business and big government trying to drive the little guy out of the equation. That’s one of the reasons, you know, you started this by saying you’ve had the longest-running libertarian show in the country, and congratulations to that. I’m a libertarian myself in most cases. Government does not help the little guy; it squashes the little guy.
Bob Zadek: That’s why Walmart was a strong supporter of Obamacare, because it already was paying that and it was at a competitive disadvantage if it wanted to force its smaller competitors to pay as generous a healthcare system as they were paying, so they would put them out of business. Walmart did the same thing in 2009 or ‘11 with Obamacare.
Stephen Moore: I’ll give you another example because this is a really important lesson. Government does not help the little guy; it squashes the little guy. And I’ll give you another example. Back when we passed the Dodd-Frank financial regulation bill on banks, it imposed huge costs for lending institutions. But all the big banks like Wells Fargo and Citi and so on were very much in favor of that because they could absorb the cost of these higher regulations. What the effect of the Dodd-Frank legislation was to squash the small community banks in neighborhoods around the country. They couldn’t do it. And they went down from 14,000 banks to 8,500 banks. They were pushed out. In fact, what was happening is the sharks were eating up the minnows. And we need community banks in this country. And that meant that small businesses couldn’t get loans. And so it’s a perfect example of how big business and big government pair together to try to create a kind of cartel influence that makes it very difficult for small entrepreneurs to do business. So anybody who said Jeff Bezos is calling for a $15 minimum wage because he cares about middle-class workers—no, he’s doing this because it’ll benefit his company.
Deregulation and Economic Confidence [34:24]
Bob Zadek: What I find so interesting is you and I are speaking about the interaction between government and economic policy, economic growth. And what most Americans never have thought about and don’t appreciate is our Constitution has only a very short four- or five-word phrase at all dealing with economic policy. Our Constitution is totally benign; it has nothing to say about economic policy. Free markets don’t exist per se in our Constitution because it was assumed that of course a country does not get involved in economic policy. That is of course for the free market. And the only phrase at all dealing with economics is interstate commerce, a somewhat benign phrase which became very powerful, but it was benign. And so for governments to be involved at all in economic policy, I say to myself, what in the world—who decided that one of the roles of government is to manage the economy? Economies never have to be managed. Indeed, Steve, your Committee to Unleash American Prosperity—I focused on the word “unleash.” Unleash means to let go, to step back. In other words, any policy where government does less economically is a good policy.
Stephen Moore: Well put. I mean, I can’t improve on that. That’s why we chose the term Committee to Unleash Prosperity, because all you need for the private sector to do better is to unshackle—maybe we should have used the word “unshackle”—because the government puts leg weights around the economy to slow it down, even though they act as if they’re doing this to help the economy. And so there are so many areas where these regulations—by the way, let’s not forget the deregulations that Trump has put into place have been enormously helpful in terms of—look, we all want clean air and clean water and a safe environment, of course, and we want safe workplaces. But the Obama people just were regulators with steroids. They viewed their role as to shut down government, not to allow our businesses to succeed. And that’s made a big difference. For every new regulation that’s been passed under Donald Trump, we’ve repealed 20. That’s an amazing reversal from Obama, where you saw a regulatory onslaught against businesses. And that’s why businesses got profitable after the recession ended, and they actually cut their costs, they deleveraged, they became ruthlessly efficient—best businesses in the world today are American businesses. What they didn’t do—people were always asking, their valuations went up, the stock market went up—what happened? Where did the recovery break down? It was they did not reinvest that money in their businesses. And a lot of economists were scratching their head and saying, “Why? Why aren’t you doing this?” And I was working at the Wall Street Journal at the time and we would talk to CEOs of major companies and we’d say, “Why aren’t you reinvesting in your businesses like you normally would be doing?” And they said, “We can’t do it because we’re terrified. It’s that four-letter F-word: fear. We’re afraid of what Washington’s going to do to us next. Whether it’s going to be Obamacare, is it going to be tax increases on the rich, is it going to be massive debt, is it going to be government spending, taxes?” You know, they just never knew what was coming next. And now they’ve got somebody in the White House—and that’s why it’s not so much what Trump has done, it’s what he’s not doing. He’s not hitting these businesses over the head with a two-by-four.
Trade Policy and USMCA [38:40]
Bob Zadek: You’re exactly right, and that’s why I focused on “unleash.” To me, when we talk about economic policy, all I want to hear is what government isn’t doing. That’s all I want to hear. I don’t want to hear anytime government does something; it makes it worse when it comes to economics. Now, Steve, we are running out of time. We have 10 minutes, unfortunately. I’d like to cover the big, in the news all the time, area of trade policy, tariffs. It’s been an area which, as you know, libertarians such as myself are wary. We perk up because the language sounds mighty scary, mighty anti-free markets. So tell us what you see to be Trump’s view of trade and how it fits into this narrative.
Stephen Moore: Well, first of all, you know, this was one of the areas when Larry Kudlow and I first met with Donald Trump and we talked about this in the book, you know, when he asked us to work for him as his economic council. We said, “Well, Donald”—we called him Donald back then before he was President, now we call him Mr. President—we said, “We can’t do that because we’re for free trade and you’re a protectionist.” And I remember he banged his fist against the table and said, “I am not a protectionist.” He said, “I believe in the—I understand the importance of global commerce and international trade.” And he said, “I just want to make sure that the United States is getting a fair deal and that we have a level playing field on trade.” And, you know, I think that Donald Trump has some—no question about it—he has some protectionist inclinations with respect to, for example, these steel and aluminum tariffs, which I think are a mistake. You know, and I’ve told him that. He knows I don’t agree with him on that. I think the threat of auto tariffs would be a big mistake too. By the way, the steel and aluminum tariffs don’t even create jobs for Americans because, you know, we supposedly saved 15,000 steel and aluminum jobs, but think of all the companies that are losing jobs because they have to pay for higher steel and aluminum, and that makes our companies a little less competitive.
But the bottom line here is something that happened this week that got overshadowed by the Kavanaugh hearings was that Trump got an agreement with Canada. So now, you know, I’ve always been a big fan of NAFTA. I think there were some problems with NAFTA, but I did believe that it was on balance a very good thing for the whole continent, including America, but mostly for Canada and Mexico, which really needs access to the American market. The good news is he’s got a deal that’s a modernization of NAFTA. We’re not going to call it NAFTA any longer, but it is a free trade agreement for our continent. And that, you know, as we move forward as North America, you know, competes with Europe and Asia, it puts us in a strong position. And my point is that six months ago I was very worried, as many investors were, about the possibility of a global trade war because of Trump. But in fact, what’s happened is Trump is actually getting these deals done that is going to—in the end, he might actually be the president who actually is responsible for the reduction in tariffs because that’s what he’s asking for. He’s asking for Canada, Mexico, Germany, Japan, Korea, and of course China to reduce their trade barriers against the United States. And incidentally, those trade barriers, especially in these Asian countries like China, are very, very high.
Addressing China and Intellectual Property [43:59]
Bob Zadek: Now, of course, it is said that when China and other countries that impose tariffs on American goods, they are doing nothing other than imposing a tax on their domestic consumers. And so why should we care if they choose to tax their consumers? And in the process, so therefore, is a tariff that China imposes on American goods, is that unfair to American workers or just unfair to Chinese consumers?
Stephen Moore: Well, both. Both. I mean, they’re hurting themselves and they’re hurting us. Look, you know, the Chinese consumers definitely pay a lot more for basic things that we can buy at Walmart for 99 cents because they don’t have open trade. But it also hurts American companies. Look, you know, China has a billion people. They are now a $10 trillion economy. You know, we’ve opened up our markets to them; they haven’t opened up their markets to us. I mean, that’s just unfair. And I tend to be in violent agreement with Trump when it comes to China. I think China is cheating, they’re stealing. You know, one of the big issues with China is what we produce in America more and more—and you understand this in California and places like Silicon Valley—we produce intellectual property. It’s computer software and designs and all sorts of drugs and vaccines and copyrights and patents. And we send it over to China and they just steal it. They don’t pay us for it. And that’s not fair. That’s, you know, that’s like if you invented something and then I just stole your invention. You know, is that a fair thing to do? Of course it isn’t. And so we need to get very tough with China in my opinion. But I think we’re in a stronger position to do so because now we have these deals with Europe, we have the deal with our North American allies, and I think in the end of the day, I think Trump is going to prevail here because China needs the United States more than we need them.
Future Economic Outlook [46:11]
Bob Zadek: Our agreement with Mexico—I can’t remember the acronym, you mentioned it earlier—the US-Mexico-Canada Agreement, USMCA. That’s right. It’s going to be NAFTA to me for the rest of my life, I don’t care. But that agreement, which of course just got signed so we don’t know much about it, but what caught my eye was something that struck me as being a bit strange. It requires, in so far as maybe in so far as auto manufacturing is concerned, that goods—and I’m going to paraphrase it, Steve, and I may get it a bit wrong—where goods come into this country manufactured in Mexico, they have to have paid a $16 minimum wage. In effect, we’re trying to remove Mexico’s competitive advantage in low wage rates. Doesn’t that just increase the cost of cars to American consumers?
Stephen Moore: Yeah, it sure does. You’re exactly right about that. I hate that feature of this plan. And by the way, it hurts Mexicans too because, you know, that’s like, “Well, maybe we should have them pay $25 an hour, $30 an hour.” Well, then they’re not going to have any jobs in Mexico, right? Because Mexican workers don’t have as much, you know, training and skills as American workers do. So it’s a bad idea and that’s one of the things I like least about this deal. But the big picture is that we are going to, on balance, continue to have lower tariffs among all three countries. And that’s a really important thing because, you know, we as a continent—for example, in energy, you know, if we combine Canada, Mexico, and the United States, we can become the energy-dominant region of the world now. I mean, United States, Canada, Mexico producing a lot of oil, a lot of gas, we have more coal than any other country in the world. So we have a real possibility of seizing from the Middle East for the last 50 years has been the energy capital, and now that’s going to move to North America. And by the way, that is huge advantages not just for our economy, but also for the safety and security of our country that we don’t have to send all that money to the Middle East.
Bob Zadek: Steve, we have one minute left. What do we look forward to economically in the next two years of Donald Trump’s administration?
Stephen Moore: Oh, I think you’re going to see continued improvement on the trade front, number one. I think you’re going to see two or three or four more years of 3 to 4% economic growth, which is phenomenal. I think you’re going to see wages starting to rise for American workers in a much faster pace. And everybody’s going to want to invest in the United States because we’ll be the most pro-business, pro-investment place on the planet. And you’re also going to see other countries now start to imitate our policies, just as happened under Reagan. You know, when Reagan got it right for the United States, other countries started cutting their taxes and regulation. So this is going to cause, in my opinion, a global burst of prosperity.
Bob Zadek: Steve, we have to say—that’s John Phillips Sousa telling us ending our show. When Thomas Carlyle called economics the dismal science, he didn’t know you existed, Steve. Thank you so much for being on the show today and thank you for all our friends out there and good luck with your book sales when it goes on sale at the end of October. Thank you very much to Steve, thank you to my friends out there, I’ll be back next Sunday.