- 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.

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

- Donald Trump left us the worst unemployment since the Great Depression.

- [Margaret] And their agendas for America's economic future.

I am offering what I describe as an opportunity economy.

- We're doing tariffs on other countries.

Other countries are gonna finally, after 75 years, pay us back.

- [Margaret] Kevin Hassett served in the Trump administration as chairman of the White House Council of Economic Advisors, and could be on the short list to head the Federal Reserve in a second term.

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

- [Margaret] A PhD known for his traditional free market approach to economics, Hassett remains in Trump's inner circle.

- He's a very inquisitive person who loves to talk about the economy.

- [Margaret] After a heated debate this week- - You're gonna hear from the same old tired playbook.

- She's a Marxist.

Everybody knows she's a Marxist.

- [Margaret] What does Kevin Hassett say now?

- [Narrator] "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. - Kevin Hassett, welcome to "Firing Line."

- Oh, it's great to be here.

- You're an economist and fellow at the Hoover Institution, where I serve on the Board of Overseers, and you are the senior advisor to the president and chairman of the Council of Economic Advisors, 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 them after the pandemic in 2020.

Your response?

- Well, if you look at the facts, then in the first quarter of President Biden's first term, or the Biden-Harris first term, then GDP growth was about 6, 6.5%, and inflation was about 1%, and so the pandemic was just like an awful experience for everybody, of course.

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 in the second quarter, for the year, 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, and so I don't think any economist would say that they inherited a disaster.

In fact, they inherited a recovery that was raging.

- 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?

- Actually, 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.

Then, by the time the stimulus passed in March, it was clear that it wasn't gonna be necessary because we weren't gonna have the lockdown.

- The post-pandemic US 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?

- Yeah, I really attribute it to strong leadership of people of both parties in 2020.

Again, 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 is a very uncertain time economically.

We don't really know, like, how long are things gonna be shut down?

And so let's do a sequence of things that those things will buy us a little bit of time, like a month or two, and then we'll talk again in a couple 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 off.

- 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?

- 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 honestly, if you were to say, "Kevin, discuss Vice President Harris's policies with me right now," then I would kind of really need you, Margaret, to tell me what policy you think I need to discuss because I'm not really sure what she's proposing.

- Well, let's go one by one.

- Yeah.

- Well, so she gave an economic speech in North Carolina to small businesses.

What she has suggested is that $50,000 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?

- 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 you know, the vice presidential candidate, Tim Walz, cares enough about this policy that he didn't even show up for that vote, 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, you know, reaching into Donald Trump's playbook and taking one of his policies.

- So you like it?

You think it's a good idea?

- She made it a little bigger.

So, sure, yes.

Expanding the deduction for a start-up business is a good idea, 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?

- Okay.

Let me ask you about the housing policy.

Part of the economic plan also says that she would build three million new homes by the end of her first term, and the plan includes a provision to give first-time home buyers $25,000 in down payment support.

I've heard you argue that this would jack up the prices of houses.

- Yes, it would.

- How so?

- This is something that I think is a policy error that a lot of people make, that they think about demand.

I'm gonna 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's 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 gonna 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.

- How about her proposal to tax unrealized capital gains for households with a net worth of greater than a hundred 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?

- 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 wanna sell the thing because you believe it's a great investment.

It's a very liquid one, like, say, a stock or something, and that you could sell if you had to, 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, you know, and so the illiquid things that, 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.

- 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 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?

- 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 a socialist playbook, and so I don't know if she would wanna 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.

- I mean, are there gradations here, Kevin?

Because full-on 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?

- 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.

- Let's talk about President Trump's economic policies.

You're close to 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, 10 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?

- 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 US, and they only have 1% of the market in the US, say.

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 incidence 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 ones, 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 do the Chinese have that market and so on?

And so I just reject the idea that it's gonna be anything like a sales tax.

- Tell me though, Kevin, I think you said that, when we slap these tariffs on, China ends up paying and suffering the brunt of the effect of the tariff, but 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.

- Suppose that 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 when we put a tariff on the Chinese, then they won't, and so her analysis is assuming that we don't have any opportunity to buy stuff from somebody else or from ourselves.

- In your book, you write that several members of Trump's brain trust, 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 economist, a free market economist?

They're not all created equal, as we both know.

- No, no.

- So, you know, make the case for why these tariffs are your good tariffs, not bad tariffs.

- Right.

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's really important if there's a war, 'cause just about everything that you use in war has got steel in it, and they're, you know, dumping steel into the US, trying to put our steel companies out of business.

So President Trump decided for national security reasons to protect the US steel industry.

Another example of vulnerability is that most of the antibiotics that we consume in the US 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 gonna give you any antibiotics," well, geez, that's a very difficult situation for us to be in, and so I think that 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, and that 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 the first term and still advocates, he advocated it just at the convention, is that we pass a reciprocal trade act, and I think reciprocity is something that I think most Americans agree with.

Like, shouldn't we charge the same tariff they charge us?

- So, Kevin, tell me.

Are you for the blanket tariffs on imports that Trump is promising?

- You know, 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 low and close to where our trading partners are, then that's one thing that I don't think that there would be much of inflationary effect, and I think that it would onshore production and jobs.

- 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?

- 10%, yeah, yeah, yeah.

10% is a place where I could see that the benefits would be pretty significant for onshoring and eliminating, you know, the external effects of, like, supply chain disruptions and so on, so- - But not 20%.

- Yeah, I think 20% is then it's starting to, it'll be perhaps more disruptive, but, again, what President Trump would do is, just like he did last time, is that when we're starting to have these policy discussions and we'll all get the models humming, and then we'll look at his options and then he'll pick the right number.

- As you know, William Buckley, Jr. hosted the original "Firing Line" between 1966 and 1999, but- - Great guy.

- In 1989, Buckley hosted a "Firing Line" debate on the merits of capitalism and socialism, and during the debate, former Reagan UN ambassador Jeane Kirkpatrick argued against protectionism.

Take a look at this clip.

- Oh, gee.

- The Reagan administration believed that the consumers' wellbeing should take priority and the consumers' wellbeing 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.

- Help me reflect, Kevin.

You know, Ronald Reagan did use targeted tariffs against Japan.

- Sure.

- George W. Bush used tariffs on steel.

Trump is proposing something much broader.

How do you reflect on the Republican Party's shift on trade?

- You know, Jeane's 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 US, 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 pre-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 US because the Chinese were out-competing 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.

- 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've seen a 40% increase, and much of that increase also happened before the pandemic.

There was spending from Republicans in Congress that has frankly jaded conservative Republicans, fiscally conservative Republicans, about the prospects for a new Trump administration's ability to deliver on new promises to lower the debt.

What's gonna be different in a second Trump administration vis-a-vis spending?

- Well, there was spending before, but it went way up under COVID and you wouldn't deny that, and so it went way up under COVID, and then what happened was that became basically the new baseline, and the new baseline, the Democrats basically stepped up from there, spent up from there, and that's where things really started to spin out of control with inflation and the national debt.

- But Kevin, you and I both know that, before the pandemic, the spending that was coming out of Congress with congressional Republicans 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?

- Right, well, there's so much to cut and it has to happen.

The national debt is so high.

There absolutely is gonna be a lot of budget talk next year, regardless of who's in the White House.

There's gonna be a debt limit hit in the spring that'll have to be lifted.

I think that spending's gonna 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.

- Your name has been floated as a potential Federal Reserve chair in the second Trump administration.

Look, the Fed, as you just mentioned, 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.

- I changed my mind on that, actually, Margaret.

- Okay.

- Like, I did, in July, I believed that, but then there's a been a whole bunch of bad data coming out 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 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 roiled markets and so on, but, yeah, for sure.

I think that is going to cut rates.

- And you think that that would be appropriate?

- And I think, now, it's appropriate.

- You speak to the former president pretty regularly.

Have you spoken to him since the debate this week?

- No.

- We've talked a lot about economics.

I do wanna say, last week, 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 in the White House, and while you were not there on January 6th- - No, I wasn't.

- You still are in frequent touch with him.

How do you think about that question?

- Well, I just think that President Trump, as you saw in the debate, disputes the characterization of what he was doing on 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.

- You disagree with him that Donald Trump's return to the White House would be a threat to democracy?

- Yeah, it wouldn't be a threat to democracy, and if you go back and look at his record, it was a very strong economy.

There was, you know, peace around the world, and, you know, our enemies were on the ropes.

- I think the question really for me that I have for you is really about January 6th and the behavior that day.

I know you say he disputes that characterization, but 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.

- 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.

I'm sorry.

I'm the economist.

- Okay.

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

- I'll answer his questions.

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

He might say, you know, "How are things going?

Are we in a recession?"

That's the kind of conversation I would have with him.

- Are we in a recession?

- I think it's close.

I think it's close, 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 it's 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 recession, and so, yeah, I think that the risks are pretty high right now.

- Kevin Hassett, thank you for joining me on "Firing Line" and for your economic analysis of both candidates' economic platforms.

- Yeah.

Thank you, Margaret.

It's really been a great pleasure to talk with you.

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