How have Trump’s economic policies fared during the first two years of his term? Paul Solman sits down with the president’s top economic adviser, Kevin Hassett, to discuss recent stock market volatility, the Federal Reserve, tariffs, trade and whether the tax cut has delivered as much as was promised.
The government shutdown and the battle over a border wall is the central news story of the moment, but this all happening at a time of some important economic developments.
On the one hand, the year closed out with an unexpectedly strong jobs report. On the other, we're in the middle of a trade war and tough negotiations with China. The markets have been volatile for weeks with wild swings. And the shutdown itself poses its own problems.
It all comes about one year after sweeping tax cuts were passed by Congress.
That made it the right time for Paul Solman to speak with a key voice from President Trump's economic team.
It's part of our weekly series Making Sense.
Thank you very much, Mr. President.
Kevin Hassett is the aggressively good-natured chairman of President Trump's Council of Economic Advisers. We sat down with him at the recent annual meeting of professional economists in downtown Atlanta.
Our first question, what's making the stock market do loop-de-loops and making stomachs drop?
There are really two big changes in the global economy since last summer or last spring. One is that China's economy is looking like what, for them, you would call a recession. It's really headed south. And, in Europe, it's not quite that bad, but the European economy has really turned as well.
U.S. multinationals earn maybe about 40 percent of their profits outside the U.S.
And so since their sales are going to be lower in Europe and in Asia, then that's bad news for profits, and that's one of the things that markets have been digesting.
If we're tough on China, we, the United States, and now they're experiencing a slowdown, and that's hurting our companies, then does our strategy with respect to China make sense?
Last year, we put out a report on Chinese trade behaviors, and in particular their forced technology transfer, theft of intellectual property, hacking our firms and stealing their great ideas and so on.
And so we have started this negotiation, and to show that we're really serious that we need to get the Chinese to change their behavior, then we put tariffs on their products. And those tariffs on their products have put a lot of pressure on Chinese firms and the Chinese economy.
But does it hurt American firms in the short-term? That seems to be the case.
Apple, I think is the firm that has the biggest exposure to China.
But, in the short run, actually, it's the slower Chinese economy, not the tariffs, that are causing profits to go down for some U.S. firms.
But the slower Chinese economy is at least in part a function of the tariffs.
Yes, it is. Yes, it is. That's right.
So, we are, inadvertently, in the short-term, hurting American firms for a larger purpose.
For a larger purpose, that's right. But for the most part, the tariffs were chosen to be placed on things that China produces that we can easily buy from somebody else.
But then why hasn't our trade deficit with China gone down?
Well, the trade deficit itself is kind of an interesting thing, right, because it depends a lot on consumption. If the U.S. economy booms, say, and the Chinese economy doesn't, then our consumers will be buying lots of Chinese products. Their consumers won't be buying many of our products, and so, therefore, the trade deficit could go up.
The other thing is that there's been some uncertainty about whether we put tariffs on the rest of the things that come from China, and, for sure, there would be some anticipatory purchasing.
Another issue we asked Hassett about, the Federal Reserve, in light of President Trump's sharp public criticism of Fed policy and Fed Chairman Jay Powell.
I think my job at the CEA is to respect the independence of the Fed and to not attribute near-term fluctuations to near-term changes in policy, and even to avoid discussing Fed policy altogether.
Does it make you feel funny when the president talks about the Fed, and talks about what Chairman Powell should or shouldn't do, and he's doing the wrong thing, and knocking the stock market down?
He wants to talk about his views about policy, and that's something that I think it's what people expect of him.
But I also went out, with the president's approval, and said that Jay Powell's job is 100 percent safe, you might recall, a few weeks ago. And it is. It is.
Yes, no, no, I was going to ask you if you could guarantee me now that, three months from now, he will be there.
Jay Powell is 100 percent safe. The president has no intention of firing Jay Powell.
Let's go on a couple of other topics. Is the government shutdown going to have a negative impact on the economy, particularly if it drags on?
Workers are furloughed, and right now, it's about 25 percent of government workers are furloughed, which means that they are not allowed to go to work.
But then, when the shutdown ends, they go back to work and they get their back pay. A huge share of government workers were going to take vacation days, say, between Christmas and New Year's. And then we have a shutdown, and so they can't go to work, and so then they have the vacation, but they don't have to use their vacation days.
And then they come back, and then they get their back pay. Then they're — in some sense, they're better off.
So, no long-term economic effect?
Long-term — short-term, we could definitely see it in the numbers. But in terms of something that viewers should be nervous about, no, there's not going to be a negative effect.
But if it weren't resolved by today — and, right now, it isn't — Hassett said it would cost the economy some $20 billion in output, and $10 billion for every shutdown week thereafter.
Let's talk about the tax cut. You said the average American household will get $4,000 a year at some point, right? It's a year in now. That hasn't happened yet for sure, right?
The $4,000 number was something based on a big peer-reviewed literature that would give you $4,000 to the typical household over three to five years.
And wages are actually one of those things that adjust slowly.
Well, wage growth is about 3.1 percent.
Or 3.2 percent.
Sorry. It was.
But inflation is 2.2. So you're talking about a 1 percent real growth in wages, which is, if you think about the average median household income of $60,000, 1 percent, about $600, right?
And multiply that by five, because we said three to five years, and then, right, assuming that happens again next year, because we stay on the trajectory that we're currently on.
You're counting on growth continuing, continuing, and finally, finally, you will get to that $4,000.
In three to five years, just like we said.
But the point is that there's nothing that suggests that we're not on track to do that.
Now, since previous members of the Council of Economic Advisers were also at the convention, we asked Betsey Stevenson, who served during the Obama administration, to respond.
So what is the increase in real wages that we got because of the tax cut that we wouldn't have gotten without it? And that's way smaller than your $600 per year. Hopefully, even Kevin Hassett would agree that it's smaller.
We can debate how much smaller, I think substantially smaller. And so do I think it's ever going to hit $4,000? No.
Austan Goolsbee chaired the council under Obama.
If what you want was to help working people or to increase investment, you can find far cheaper and more effective ways to do that than giving a $2 trillion tax cut to high-income people. That's what we did, and the bang for the buck, in my view, is not there.
And so, a final question for CEA Chair Hassett.
Are you worried at all about the deficit, or you really think growth is going to…
Yes. And the president is as well. And the president told the Cabinet agencies to put forward budgets that cut spending by 5 percent.
Any economist will tell you it's a serious policy challenge going forward, and there's a lot of progress to be made. That's for sure.
For the "PBS NewsHour," this is economics correspondent Paul Solman reporting from Atlanta.
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Paul Solman has been a business, economics and occasional art correspondent for the PBS NewsHour since 1985.
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