As they say, timing is everything, and with so much happening on the world stage this week, we’re looking forward to getting Gary’s unique perspective on the president’s economic and trade agenda, and the summits, and everything that’s happened in between. Gary Cohn has had a remarkable career and stepped down from his position at the pinnacle of Wall Street and global finance to answer the call to government service.
Before joining the administration, Gary spent more than a decade as president and chief operating officer of Goldman Sachs. And now that he’s returned to private life, we’ll look forward to hearing from him about corporate America’s view of the Republican’s policy plans on taxes, trade, and deregulation, all issues that he was closely involved in during his time in the administration.
So please join me in welcoming Washington Post’s Damian Paletta and our special guest Gary Cohn.
Paletta: Thanks so much, Gary, and thanks everyone for being here. So, good morning. I’m Damian Paletta, White House economic policy reporter at The Washington Post. I’m pleased to be joined by Gary Cohn, who, as Fred mentioned, spent more than a year as the top economic advisor to President Trump. He left the administration in April to return to the private sector. So we’re just thrilled to have him here with us today.
Before I being, I’d like to let our audience know, in the room and those watching online, that you can tweet your questions to Gary using hashtag #PostLive, and I’ll post some of those later on in the discussion.
So, Gary, you grew up in Shaker Heights, Ohio. Your father’s an electrician. You know, you struggled in school. Nothing came easy. You worked actually in a steel company briefly and then you made your way to Wall Street. You’ve kind of had a personal connection with every bit of this economy that we’re talking about all the time. You decided to come to Washington to really focus on historic tax reform. What would you say you accomplished in that process and did it meet your expectations?
Cohn: Well, first of all, Damian, thanks to you and thanks to The Washington Post for having me here today.
Cohn: Look, the opportunity to come to Washington and serve the country was, for me, a once-in-a-lifetime opportunity. As you said, I grew up in a very Midwestern background, struggled my way through every part of academic life. I think my mom was told, when I was about 13 years old, that she should strive for me to be a truck driver.
Cohn: So I got a little bit past the truck driving, one way or another. And then having the ability to come Washington and work with the president on something that I really felt dearly about, which was tax reform, was really a unique opportunity. And look, I would have come to Washington to do anything to serve my country because I’ve been very, very lucky in my career. And my family’s been lucky. And the United States has been great to my family.
Paletta: So how would you say you can see tax reform manifesting itself in the economy now? What are you seeing in the economy that reflects what you guys did?
Cohn: Well, when you talk about tax reform, it’s a big, broad, wide-open topic. And we tend to get tied up in little bits of detail in tax reform. So since we have enough time here this morning, I’m going to take a minute and say, look, the part of tax reform, to me, that was so important was really the corporate side of tax reform.
You know, in my prior life in the private world, I spent an enormous amount of time giving companies this amazing idea. “Hey, I’ve got this amazing idea. You can redomicile your headquarters and have your board meetings in another country and save 14% on your after-tax returns.” Because the tax rates, the corporate tax rates in OECD, on average, were about 14, 14.5% lower than the United States. That was a really good business and we got paid a lot of money to tell people to do that.
Paletta: Ireland, wherever?
Cohn: Well, if you were going to go to Ireland you save more than 14%. I was just going to the generic countries, which were sort of mid-teens. So it just felt to me that we shouldn’t be in a country where we’re encouraging people to move corporate headquarters, to move jobs, and to move income outside of the United States by starting with this huge disadvantage of charging companies 35% tax rates, when, as you said, they could go to Ireland and get single digits. They could go to most of Europe and end up in a—let’s call it a 20, 21% tax rate. That seemed to me to be the wrong place to be.
When I look at what we had done in my prior life, and I’d look at companies, no one really wanted to leave the United States. Everyone wants to be here. Everyone wants to be headquartered in the United States. They want to grow their business here. They want t hire people here. But as fiduciaries for shareholders and fiduciaries for capital, you almost have to make that decision. You almost don’t have a choice. And I said, “This is wrong. We have to change this. We have to make the United States competitive, especially on the corporate side.”
Now, look, if we could have just changed corporate taxes, we would have just changed corporate taxes, but we have a unique tax system in the United States. We have corporate taxes over here. We have individual taxes over here. Those are pretty well understood. But where we really have a huge issue—and I don’t want to say it’s an issue, it’s a great issue—is in the middle. In the middle is where we create the vast majority of jobs in the United States. It’s small companies. It’s Schedule C filers. It’s people that run a family business, the people that are self-employed. It’s LLCs. It’s sub S corporations. It’s all of these pass-through entities. This is where it gets very confusing.
So once you touch the corporate side and you lower the corporate side, anyone that’s not a corporation, but literally competes with the corporation and they’re a pass-through entity, which is based on the personal-income side, they become at a disadvantage. So you can’t just touch the corporate side. You end up having to say, “Okay, we’re going to lower the corporate side to make ourselves with the rest of the world.” I think everyone would—or I hope would agree with that, that we should be competitive with the rest of the world. Then you say, “Okay, we can’t take two companies that are identical in nature, that do the exact same thing, and allow one now to pay a marginal rate of 21% and the other pay 39.6 because they’re a pass-through entity and they’re filing on the personal returns.”
So, okay, we have to find a way to equal that, which means you’re opening up the personal side. And that’s really where we found ourselves. We knew pretty easily what to do on the corporate side. We spend the vast, vast majority of our time trying to deal with the pass-through piece in the middle.
Paletta: Obviously, the easiest—the most important part for selling this was for the people over here, the middle class, right? They need to feel like this is going to help them, or they’re kind of suspicious, is this just one more thing that’s going to help the businesses. So how did you kind of stay focused on that and ensure that they were going to benefit as part of this bigger package?
Cohn: Well, there’s two ways or three ways to help workers in America. Number one, you can just lower their tax rate. And we can talk about just lowering tax rates. You can give them more benefits. You can lower the rates. You can do it in a variety of different ways. But what you can also do is you can bring back jobs to the United States. You could encourage capital expenditure, which we did. We gave companies an ability to write off 100% of capex for five years with a five-year tail.
When you’re investing in property, plant, and equipment, you’re hiring more people. You’re driving wage growth. You’re allowing everyone to move up the curve. So what we’re hoping to do is we were hoping to drive wage growth by encouraging more capital expenditure in the United States. We were trying to get companies that were incentivized to move offshore and sell products in the United States, to build plants in the United States, hire people in the United States, and see wage growth in the United States.
The one part of the economy that has been lagging and continues to lag right now is wage growth. We all talk about great unemployment numbers and 3.8% unemployment is a great achievement, it really is. But we still about 2.7% wage growth with about 2.5% inflation on CPI.
Paletta: How patient should people be then because we’re six months in. We’ve seen a trillion dollars in stock buy-backs from companies. Clearly, they’re benefiting. Wages have not really moved. The job numbers we’re seeing are very consistent with the Obama—sort of the tail end of the Obama administration. I think there’s a sense that this tax law is kind of working for corporations, but maybe not as much for people in that Shaker Heights, kind of middle class that needed more than 2.7%.
Cohn: I was in that Shaker Heights middle class very recently. Very, very recently. And there’s lot of help wanted signs up everywhere, at all ends of the spectrum. And so there’s lots of jobs. Look, we are in a unique position in the United States today. We have 6.7 million vacant jobs. We have 6.3 million people looking for work potentially. So this is the first time we ever can recall in the history of this country where we have more vacancies than we have bodies to fill those vacancies.
But to get back to your question, which is really important, when you look at corporations and you look at investment of capital, if you want to go out and build a big factory tomorrow, you can’t decide on Friday to build a factory on Monday. It’s not the way it works. You have to go out and decide what you’re going to build, what you’re manufacture, why you’re going to manufacture. You have to acquire the land, rent the land, rent the warehouse. You then have to design the warehouse, design the machinery, order the machinery. And by the way, you also have to go through your board and get your board to approve your capital expenditure plan, which are going to be 5- and 10-year plans.
So we do not think—or I do not think you have seen any of the corporates really spend money on capex. This changed literally December 22nd of last year. So when boards met for the first time in the first quarter of this year, they’re all sitting there, “Okay, now with the new tax laws, now with the new incentives, now with the ability to write off capital expenditures, we need to redesign a capex plan for the next decade or 20 years.” They’re going through that now. They’re going to continue to do that. You won’t see this money enter the economy and this job creation—at the earliest you could see something is maybe next quarter, the second half of this year, and that would be extraordinarily fast.
And that will probably be small things because to go permit a big factory today, it will probably take you a year or two to get the permits, the building permits, and everything you need to do that. So the easy thing to do is to buy back stock. But by the way, the stock buy-backs are not new this year. We’ve been on a constant steady progression of stock buy-backs in the United States because companies have felt like it’s the better return on capital. What we’re trying to say is with the new tax changes and with the ability to write off capital expenditures, we think we have a better use of your capital. We will find out.
I am pretty confident that we wrote a tax law that gives companies enormous incentive to build new factories, to hire new people, and to really invest in the U.S. economy.
Paletta: Was there a point—sort of take us inside the White House, I guess in the second half of last year. Was there any point when you thought maybe this isn’t going to happen? Because you had such a slim margin in the Senate. I mean, it was clear Democrats probably weren’t going to play ball. And then you had individual Republicans voice specific objections. You know, Senator Corker wasn’t on board till the very last day, Senator Collins. Was there a point when you said, “Maybe this isn’t going to work. We gave it a shot”?
Cohn: There was a moment every day where I thought we were going to fail. [LAUGHS] I don’t want anyone to think that it’s, oh, yeah, this was done. This was locked and loaded. We had it. You know, we were negotiating different pieces every day trying to get to the best outcome, and balancing the corporate side versus the personal side versus the pass-through side. Different members cared about different things. We ended up running so many different scoring analysis and really trying to deal with the issues.
The one thing that gave me, I guess, the most comfort is that we had what we called the “group of six,” Secretary Mnuchin, myself, Speaker Ryan, Kevin Brady, Orrin Hatch, and McConnell. The six of us, we had an outline. We had an agreement. We knew where we needed to end up. They never waffled. So the six of us together, you know, we felt like we had jumped, we had held hands, and we were going to land. We had to land this one way or another. We had to get there. We were willing to make compromises.
Obviously, we were willing to make compromises. No one got 100% of they wanted. Everyone, at the end, sort of said, “Okay, this is the best I can do on this topic. This is the best I can do.” And we landed a bill that made sense.
Paletta: You guys clearly locked arms. I mean, even the president talked about a 15% rate and you guys came up from that a bit. Was that hard to get? I mean, obviously, going from 35 to 20 was a big jump, but was it hard to get the president to sort of back away from the 15% rate that he had envisioned?
Cohn: The president gave us a challenge to try and get to 15. Fifteen would have been great. I really would because it’s even more incentive to bring business back. And remember, companies play a lot of interesting games. You know, you think about a company today that creates a huge piece of intellectual property, whether it be a patent, a license. They then sell it to their Irish subsidiary. Their Irish subsidiary now owns it. Now their Irish subsidiary charges their U.S. company to use it. Well, they can charge their U.S. company a licensing fee, whatever they want. So they can make all the money show up in Ireland and make their U.S. company break even, and they’re 9% or 8% tax in Ireland.
So I understood what the president was saying. The president’s saying, “Look, we’ve got four or five countries in the world where if you really want to play the tax-optimization game, and you’ve got licenses and intellectual property, you can get to a sub-10% rate.” And so he’s saying, “Look, I know the OECD average.” And I kept telling him this was 21, 22, we need to get sort of in that range, like to get below it. He said, “Well, let’s go for 15,” because he wanted to get sort of closer to the teens.
It was aspirational. I don’t think that any of us in the group of six thought we could ever get to 15. But if you don’t start looking at—if you started looking at 25, you would have ended up higher, and we needed a low benchmark to work from. You know, it’s like any negotiation. You’ve got to start and sort of set the mode of the room. He set the mode of the room.
Paletta: So there’s a small boutique bank in New York, Goldman Sachs.
Cohn: I heard about that. [LAUGHTER]
Paletta: Their projection—or their analysist projection of the tax bill is that it’s going to add 0.3% GDP in 2018 and ’19, and then after that be kind of negligible in terms of growth. And so I think the White House were the ones that really believed in the macro impact. Obviously, there’s a risk that that estimate is wrong. If everyone else says it might not be as robust and the revenue could be lost, a trillion-dollars-plus over 10 years, how confident are you that this is not going to add a trillion dollars or more to the deficit over 10 years?
Cohn: I think we’re very confident that we will see the investment. The investment will create jobs. The jobs will create income and revenue. And we will see different transfer pricing. We will see different incentives. We’ll see more money come back to the United States. Look, the key to tax—no matter where you are—the key to tax is broaden the base and lower the rate. What we’re trying to do is broaden the base. The question you’re really answering is, are we going to be able to broaden the base. Can we bring more revenue? Can we create more revenue in the United States? Can we get the revenue that’s showing up in other parts of the world? Can we have it show up back in the United States where it should? We and I firmly believe that we can do that.
Paletta: Is it revenue-neutral, you think? Do you really believe?
Cohn: Over this cycle. You’re going to have to look at this. Remember, we knew and we modeled this—this was in our models—if we get this right, we’re going to see a decline in revenue in the beginning because, again, 100% expensing for capital up front, people are going to take that. That’s a huge incentive, but that brings in revenue in the end. So you’ve got to take the cycle. You see less revenue in the beginning, more revenue in the end.
I and I think everyone else who worked on it—and look, it was not just the six of us. It was not just us in the White House. We’ve got a bunch of different economists that came in and talked to us. This was not us drinking our own Kool-Aid. We asked people to come and say, “Tell us where we’re wrong. Tell us where we’ve got this wrong.”
Paletta: But you do think it will be revenue-neutral? We’ll not lose a penny in revenue over the course when you factor in growth?
Cohn: I don’t know that. Like, I’m not going to sit here any say, “I know it’s revenue-neutral.” It won’t be—here, I’ll make some news. It won’t be revenue-neutral. It may be revenue positive. It may be revenue negative. We don’t know. A lot of it depends on other external factors in the world, but we believe this puts the U.S. economy in a very competitive position vis-à-vis our global competitors. It creates incentive to move business back to the United States. It creates incentive to build in the United States. It creates incentive to hire. And we know that when you hire—this economy is really based on American consumer spending. As people get hired and people earn more wages, they spend more money, and there’s a huge multiplier effect in that in the economy. And we looked at all of that.
Paletta: So speaking of global competitors, I just got back from the G7 in Quebec on Saturday night. I felt like I was there for two months, there were so many different things that took place. You kind of ran the G7 in Italy a year ago. A lot of the same characters were there. A lot of the same issues were there. But completely different outcomes. What would you say kind of happened in the past year to get us to this point, where now we seem like we’re either on the verge of or in the midst of a trade war?
Cohn: So, let’s look at the G7 communique because that ultimately is the document to look at. So for those of you that don’t know—
Paletta: Now it’s a G6 communique.
Cohn: Well—[LAUGHTER]—it’s a G7 communique. Okay. Look at the G7 communique. That is a document that is worked on for the better part of two months, prior to the G7 meeting, leading into the meeting. And literally the heads of state, the seven heads of state sign off on that document. And look, in the last minute, is there always a word change or a sentence change? Yes, there is. But that document was signed off on by the seven leaders in the room and published.
And if you look at the trade section in there, I think the language—and by the way, they referred to the prior documents. They referred to prior documents. That language is really not that much different than language that we were talking about a year ago. It’s talking about free, fair, open, reciprocal. We’re talking about lowering tariff and non-tariff barriers, trying to open up trading, making trade free and fair.
And the president in his press conference after the G7, before he left for Singapore, talked about that. I mean, he spent two or three questions talking about having a good conversation about trade, and about making progress, and lowering barriers to trading with each other, tariff and non-tariff barriers. And so I think the overall meeting there, we continued on the same path. Of course, everyone likes to pick on their one little favorite pet peeve to what one country is doing on another.
But overall, I believe very strongly that we need to head to a global environment where we all trade freely and independently with each other. We all gravitate towards our comparative and competitive advantage—and that means we will trade with each other, we will have trade surpluses and trade deficits with certain countries, because it’s just the way the world works.
Paletta: Is a trade deficit a bad thing?
Cohn: Look, I have always said a trade deficit doesn’t matter. And in many respects, it’s helpful to our economy, because if we could manufacture something in the United States cheaper or better than we could import it, we would do that.
Paletta: But the president thinks a trade deficit means we’re getting scammed by the Chinese or the Canadians or whoever.
Cohn: As I said, if we could manufacture something cheaper or better—we have a very entrepreneurial, industrial company—we would do that. So the fact that we’re importing a product at a lower price point, or a higher quality point, that means the consumer, at the end of the day, can either buy more products, which is stimulant to the economy, or save more money, which is good for the economy.
Paletta: So they sign the communique, president has a press conference kind of antagonistic towards Canadians and the Europeans, but he’s got this kind of bravado going into the North Korea talks, which was kind of transparent. Then Trudeau has his press conference, says he won’t be pushed around, then all hell breaks loose on Air Force One. What would you say—
Cohn: And you were there. I wasn’t, so—[LAUGHTER]
Paletta: Yeah. What was your interpretation—I mean it seems like it’s getting kind of personal for a lot of these folks. Angela Merkel puts this Norman Rockwell picture out on Instagram. [LAUGHTER] Does it seem like we’re moving sort of dangerously close to a trade war? Because Friday, we’re supposed to impose tariffs on $50 billion in Chinese goods. July 1st, the Canadians are having their retaliatory tariffs on us. It does seem like it’s snowballing.
Cohn: Look, I’m not going to sit here and tell you there’s not a lot of friction in the system. There’s a lot of friction in the system. [LAUGHTER] There’s a lot of friction in the trading system right now, but ultimately, I think the goal that the United States wants is clear, and I think it is the right, ultimate goal. The right, ultimate goal is that every country should lower their trade tariffs, should lower their barriers, should get rid of their tariffs, should get rid of their non-tariff barriers. And, more importantly, we should really enforce laws where countries can’t steal from each other. You can’t steal intellectual property, you can’t do forced technology transfer. So, look, I don’t know how this totally works out in the end.
Paletta: Are you worried?
Cohn: We need to trade with each other.
Paletta: Are you worried about the direction it’s going?
Cohn: So, look, I’ve always been worried that trade can have a derailing effect on the U.S. economy. I’ve said this publicly before. I’ll say it again. We are a consumer-driven economy. 80% of our jobs, 80% of our economy is driven by the consumer. So if you start putting tariffs on products that consumers buy, they’re going to buy less products. They’re going to be able to afford less. They’re going to have to make tough decisions, or they’re going to go into further debt. We’ve seen what happens when consumers go into debt. It doesn’t end well. I’ll tell you how that one ends.
Paletta: [LAUGHS] Right.
Cohn: So we don’t want to encourage consumers to keep their consumption at the level it is, but borrow to consume. What we’ve done very well in this country is we’ve provided high-quality, low-price products to consumers. We’ve allowed them to increase their consumption, and we’ve allowed them to do that by allowing the country that can produce it most efficiently to sell it to us. By the way, we do that as well. We are a very efficient producer of agricultural products. We should be allowed to sell our agricultural products everywhere in the world on a complete level playing field. If you can sell beef or you can sell wheat or barley or pork cheaper than we can, okay, that’s fine. But we can probably produce it cheaper than anyone else in the world. We have a great farming infrastructure in this country. We’ve got a great system that works. We just want to have the ability to do that without any outside interference in that.
Paletta: So let’s say that things continue to escalate and everyone keeps calling everyone’s bluff. Is there a risk that this could lead us into a recession, potentially, if a trade war continues down this path?
Cohn: The one thing I know about recession is you never know what leads you in until you’re in it. Because if we knew what was going to lead us in, we wouldn’t do it. So you know, I’m very good at telling you what got us in the recession once were in the recession. No one’s really good at telling how you’re going to get there.
Look, if you end up with a tariff battle, you will end up with price inflation. You could end up with more consumer debt. Those are all historic ingredients for an economic slowdown. So I would not like to see that happen. In a pure world, you want to continue to have low prices, higher wages, more consumption, more savings, get the savings rate up. Those are all the things you’d like to see. Everything we’re talking about is the opposite of that.
Paletta: Could it wipe out the benefits of the tax bill?
Cohn: Yes, it could.
Paletta: Have you seen any signs that companies are hesitating because they want to see how this plays out?
Cohn: We are seeing it. If you’re going to go build a big, huge plant and the cost of the plant you thought was going to be X and now it’s X plus 20%, again, you’re doing a calculation. Businesses are very systematic. They will do a big, long-term return on a shareholder’s equity calculation, return on investment, return on capital, and one of the inputs will be the cost to build. The other input will be the tax rate and the cost of capital and all of those things. So as the cost of building those up, if they don’t think they can get more for their product—now maybe they can get more for their product because the imported product costs more. These are all parts of the equation that have to be balanced out.
Paletta: So when you were in the White House, obviously, Breitbart and others called you “Globalist Gary” and they painted you as, you know, having a perspective that did not reflect kind of what the president had said during the campaign. And I think when you left, there was a lot of people on Wall Street who panicked, like, you know, Gary had kind of prevented—obviously there was a discussion last year of NAFTA withdrawal, South Korean trade deal withdrawal—that Gary had kind of prevented or helped prevent those things from happening. How did you respond when you saw that stuff? You were doing tax reform or whatever else. Did you take it personally or did you—no?
Cohn: I thought that was kind of a flattering name. [LAUGHTER] I’ve been called a lot worse. [LAUGHTER]
Paletta: But do you—I mean clearly there were people within the White House that had different perspectives on this than you did.
Cohn: Yeah. And by the way, that’s a good thing. Look, that is a good thing. I mean the one thing I’ve always agreed with in my entire 40 years of working is you want a diversity of opinions in the room. The only time I knew I was ever making a big mistake in my professional life is when everyone in the room agreed. I knew that was a problem.
Paletta: And so these reports about infighting and stuff—you never felt like it was unhealthy or, you know—
Cohn: Look, as long as people were discussing and using fact-based analysis and not hyperbole—
Paletta: Did that always happen?
Cohn: You know, I think—I always use fact-based analysis. [LAUGHTER]
Paletta: Well, here’s a segue. [LAUGHTER] So on Sunday, Peter Navarro said on Fox News—obviously the president was very upset on Air Force One, and then we had Larry Kudlow and Peter Navarro, senior White House officials—Larry Kudlow’s the new Gary Cohn—Navarro said there’s a “special place in hell” for Justin Trudeau. What was your reaction when you saw that?
Cohn: It just—inappropriate and uncalled for. And it’s not his job.
Paletta: Right. Do you worry that some of these, our foreign counterparts—the leaders of foreign countries don’t see this as, like, chapter six from The Art of the Deal—
Paletta: —and actually take this personally, and it’s reflecting on their own political issues that they have to resolve?
Cohn: I don’t. Look, I’ve spent a lot of time with these foreign leaders. They have their constituency. They have their country to defend. They’re clear about what’s in the best interest of their citizens in their country. They’re clear about what we can mutually do together, and they understand that at the end of the day, we’ve got to come to a compromise. So I don’t think anyone takes these things personally. This is just part of getting to a solution that works for everyone. But look, you can’t not defend your country if you’re the leader of the country.
Paletta: Is there a way to put the genie back in the bottle and for this to kind of get resolved—everyone agrees, NAFTA gets sorted out, China makes a deal?
Cohn: 100%. I mean it could get solved this week. You know that. I mean you’ve been covering the White House for 512 days or whatever.
Paletta: But my experience—[OVERLAPPING]
Cohn: Tomorrow’s a different day.
Paletta: Right. So what are you sort of most bullish on getting sorted out? China, NAFTA, Japan? They’re doing all these things simultaneously. And it’s like the same three people that seem to be doing it. So which are you the most bullish—
Cohn: But when you say “bullish about getting sorted out”—I think there’s different solutions for different parts of the equation. Now what Ambassador Lighthizer’s doing with the 301 on China, I think has a lot of merit. And the fact that China has been stealing our intellectual property, forcing us to transfer intellectual property to them—that’s not fair either. Talk about comparative advantages, things that we are a big exporter of—we are a big exporter of intellectual capacity and technology. We need to be fairly compensated for that. So we cannot allow countries to basically steal our technology without compensating the companies and the shareholders that own that technology.
So what Ambassador Lighthizer’s doing on the 301, I think that is something that we do need to enforce. We need to enforce rule of law. We have to say, look, if you’re in the business of creating technology and creating products that we need in our country, we need to pay for them just like every business in your country pays for those products. So that may be a different solution than what we’re doing with NAFTA and what we’re doing with Mexico and Canada, where we share borders where they’re paying for our technology—no one’s questioning whether they’re paying for our technology or not. We’re talking about different issues. It’s different issues with Mexico, and it’s different issues with Canada. So those are going to be different discussions.
Paletta: Is the China relationship—it’s so complicated on so many different levels—is that one that there can be a mutual understanding that there needs to be some sort of change? Obviously, American companies can’t be ripped off and stolen from.
Cohn: So, look, until I left, I was part of the China negotiating team. And I think China completely is aware that the relationship as it exists today cannot be the relationship we have forever—that we have to get to a better, more sustainable, equitable relationship with China on trade and on intellectual property and on copyright protection, and on all of these issues. I think there’s an acknowledgement from China—and by the way, market access is hugely important, where China could come in buy companies here and own 100%, U.S. companies are in China, and there’s been long set of rules where you could own 25%, maybe you can own 49%—you can’t own 100%. The market access rules have to change.
China has acknowledged that that part of their economy has to be modernized to allow international investors to come in, own, operate companies in China. They have to give access. They’re going to have to pay market rates for things that they haven’t necessarily paid market rates for in the past. But again, it’s China. It’s not going to happen overnight. China spends an enormous amount of time methodically plotting and understanding where they’re going, how they’re going to get there, and in what timeframe.
Paletta: What’s been in the news a lot in the last month is this Chinese company ZTE, which I’m sure a lot of Americans have never heard of, but a lot of lawmakers who get intelligence briefings are kind of panicking about from both parties—us kind of letting them off the hook. And this is a rare situation where the president seems to be talking directly—obviously Xi Jinping in China feels very strongly that this company needs to be allowed to continue operating. What’s been different is that there are members of Congress that seem to be pushing back for the first time aggressively on the White House’s approach to China. What has been your view on how that’s happening and whether that signals there could be changes in other sort of foreign policy, economic policy spaces?
Cohn: So, look, I do think there are members of Congress and the Senate particularly that are taking a view that we need to be tougher on protecting our intellectual property, protecting our borders, protecting our national security, and to the extent that China is creating a product or products that are interfering potentially with our national security, interfering with our safety, and they’re state-owned organizations, that we should be very tough and very hard on that. I think Senator Cotton talked about it pretty eloquently yesterday, and talked about what his view of ZTE is, and he’s talking about protecting the United States, which I think is very important.
Paletta: Are you worried about the deal they cut with this company and that it could pose some kind of national security threat to the United States?
Cohn: I think if you go back and look at what Senator Cotton said yesterday, he was talking about the two big mobile handset providers, hardware providers being state-owned enterprises and the Chinese government using them as sort of entre into getting into networks and into intelligence. That’s disturbing. So if that’s what’s actually happening, based on what Senator Cotton said yesterday, I think that we do need to stand up and protect our national security.
Paletta: Can you tell us what it was like to be—I mean you worked at the very top level of one of the top companies in the country, Goldman Sachs—total pros from every different aspect and background. Then you’re in a White House where you’ve got people from a lot of different walks of life. You have family members of the president, you have people that—you know, the Steve Bannons of the world—very different viewpoints. How did that kind of come together based on your past experience at Goldman? [LAUGHTER]
Cohn: So this is one of the most unique things about the United States. My friends in China tease me about this all the time, how our government works. And you know, the Chinese tell me how we pick the smartest people in the country and groom them for 50 years and have them work together to run our country. And in the United States, we have an election every four years, and the president picks all of his internal staff, and we all show up on—it was a Friday. We all show up Friday at noon at the White House, and hey, you’re all working together. And some of us met for the first time that Friday or Saturday in the White House. We didn’t grow up together. We came from a huge diversity of backgrounds, beliefs, views. No history of working together, no one knowing anything about anyone, and you’re thrown into the mix. And you know, by Sunday, you’re sitting in the Oval Office trying to help the president make decisions. It’s an interesting process to how we do it in this country. I mean I’m not complaining. I’m a big advocate of democracy, but it’s interesting to think that you take, you know—I guess there’s 20 assistants to the president, and you throw us all together, and say, hey, solve this problem, and no one really knows who’s the expert in the room, who isn’t the expert in the room, who’s going to dominate the conversation, who you want to listen to, who you don’t want to listen to. So to me, I grew up in an organization where it’s nothing but teamwork, nothing but collegiality, nothing but respect, and if you’re going to open your mouth, you better have the facts to back it up. If you don’t have the facts, you’re not entitled to speak.
Cohn: And so it takes an enormous amount of time to figure out who’s got facts, who doesn’t have facts, who’s just driving a political agenda, who’s driving this agenda, who’s driving that agenda. And this I don’t think is unique to the Trump administration. Every prior administration I’ve talked to, they go through the same feeling-out process, and that first, you know, 3, 6, 9, 12 months is very interesting in trying to work with each other.
Paletta: Did the facts always win? Was that your experience? [LAUGHTER]
Cohn: Eh, I may not comment on that. [LAUGHTER]
Paletta: Was there ever a point when you saw one of the president’s tweets and thought, “Oh, that’s interesting” or “Huh.” [LAUGHTER] You know, like, let us inside that. Because you’re working so hard with members of Congress or Treasury or whoever on very specific things related to economic policy, infrastructure, whatever. And then maybe something comes out of nowhere at eight in the morning. How did that affect you, or did you just sort of ignore it?
Cohn: I just—look, I ignored it. I had my job to do. I was busy 14, 16 hours a day. I had a great team. We were in the middle of just about everything. We were trying to get tax reform done. We were in the middle of a huge deregulation effort. We were trying to get the Hensarling-Crapo banking reform bill done. We did a bunch of other deregulation stuff. We were writing an infrastructure plan. We were in the middle of healthcare form. We were in the middle of net neutrality. And I think there’s 10 other things I’m forgetting about, so—
Cohn: Yeah, trade. Well, we talked about—trade, and all these other things. So, look, I just sort of came in and I had my schedule, I had my meetings, I had my team, and I just methodically went about my day. It was interesting because in my prior life, it would have been seismic, because when you’re running a big trading, financial services organization, you live and die off every news headline, and you’ve got 10 screens and seven TVs, and that’s how I grew up in that world. And I went to an office in the White House with no financial market screens, no—I never even turned my TV on. I found if I turned the TV on, everyone else in the office was watching it and I wasn’t, so I just turned it off.
Paletta: So speaking of Wall Street algorithms and stuff like that, there was a very unusual situation last month where the president tweeted ahead of a jobs report. And you had been part of the process before about, you know, I guess getting the data—because there wasn’t even a CEA chairman for a lot of the first year.
Paletta: So what was your reaction when you saw that? And do you think that was a breakdown, or do you think that people were just too uptight and need to kind of loosen up?
Cohn: [SIGHS] How about yes to both. [LAUGHTER] So look, my view, as I said, I grew up as a markets person, and I have vehemently defended in front of Congress many times under oath the free market and how markets work and how market price works and the price that you see is reality. Because, you know, I testified many years ago about the price of oil and how it wasn’t realistic, and I said, “Well, it is, because you can buy it or sell it at that price. So that is the price.” Markets have very highly-defined protocols. They have opening times, they have closing times, they have after-hour markets. They have certain times when certain events happen, and everyone knows when that happens. And I very much believe that the integrity of the market has to be maintained, and nothing should violate the integrity of the market.
And, by the way, we have a huge comparative and competitive advantage of having the deepest, most robust financial markets in the world. I used to go around the world and pitch to every company in the world that they should list in the United States because it’s a financial market. So anything that deals with the integrity of the market troubles me from anyone in the world. And so I think that we’ve got rules; we should abide by the rules; and the integrity of the system really matters.
Paletta: Do you think people traded on that tweet? Do traders trade on the president’s tweets?
Paletta: Okay. So therefore—
Cohn: We have gone to the point now where in the algorithmic systems, the systems that trade in microseconds and milliseconds, the presidential tweets are part of the algorithms today.
Paletta: And so they’re moving markets. And whether it could move an oil market in Saudi Arabia even if it’s about—
Cohn: Yeah. I mean, it may be that every time a tweet comes out they just widen out their bid offer spread very quickly for a second to see what the reaction is, but a tweet has a millisecond or a microsecond or a second implication.
Paletta: Let’s talk about markets for a second though, because I remember watching your testimony. I think it was the Financial Crisis Inquiry Commission. You testified afterwards as they were king of trying to get a diverse group of voices. Do you believe that markets are always right?
Paletta: Like market to market or do markets always—
Cohn: As long as it’s open-access market and you can go in there and buy or sell today, the market price is right, because if it weren’t right you should trade. If you know it’s wrong, why would you allow that? If the price is too high, you should sell it. If the price is too low, you should buy it. So that is the price.
Paletta: So the price of bitcoin at $20,000 a bitcoin is right in terms that you can sell it at that, but it might not be worth that, but it’s worth what you buy it for?
Cohn: We’re going to discuss the worth of something? Like you and I can go look at a piece of art and I see a black line on a canvas; you might see a $100-million painting.
Paletta: Well, then you’d be able to buy it and I wouldn’t, so—
Cohn: No, I wouldn’t buy it either. [LAUGHTER] I see a black line on a canvass. [LAUGHTER] I mean, you know, what’s gold worth? What’s art worth? You know, you’re getting into this esoteric world of what is something worth. See, why I don’t think there’s an art market is because you can’t create a buyer or seller’s market for that. I can’t short that piece of art to you. As long as I can short something into the market and buy and sell and express an open opinion in an open-access environment, that is the price. Look, I manage traders my whole life. I don’t know how many people I have excused from their job by telling me, “That’s not the price.” What is the price? Because if I want to go trade right now I can trade.
Paletta: You talked about how you guys at the NEC you were involved in everything. And I imagine there were some things you wanted to have nothing to do with. Like, a lot of last year there was the Russia investigation, Michael Flynn left, there was a number of—you know, there’s a lot of distractions, the president was tweeting about it. How did you kind of wall off what you were doing from that stuff which was kind of coming in bits—[OVERLAPPING]
Cohn: We were involved with everything economically. You know, everything that would affect the U.S. economy we were involved with. That other stuff out there is noise. I mean, it really is to me. And it’s in every administration. There is just noise. So to me, look, you hire a great team, you put a great team together, you create an environment where they can share thoughts, they can openly criticize each other to make the ideas better, and you do your job every day. And everything else going on around you, it doesn’t matter. Just get done what you need to get done; let’s deliver to the president the best advice we possibly can, and he’ll make his decision.
Paletta: So there is a pretty good track record of very senior Goldman execs coming to Washington to work, you know, Bob Rubin, Hank Paulson. Obviously Washington has changed a lot though. Would you recommend to peers to come and serve in public service, or do you think it’s just—
Cohn: No, 100%. Look, I’ve had an amazing life. I’ve had an amazing life. Last year was the best year of my life. It really was. The ability to come and serve the American people, serve the president, work in the system, understand the system, work with congress and see what goes on, it’s a unique experience. It really is. I mean, when people say it’s a once-in-a-lifetime experience, I felt like I had a once-in-a-lifetime experience.
Paletta: Do you feel that Washington would benefit from having more people with backgrounds like yours?
Cohn: Absolutely. I almost think every CEO or every senior person in the company should, like, be given a sabbatical for a hear and a half or two years to go work in the federal government.
Paletta: Well, there are some CEOs that might take a four year sabbatical, like at least the CEO of Starbucks. Do you have any thoughts about whether there are any CEOs—are there any CEOs that you think would make good presidents? Or do you think it doesn’t always translate, business experience and public service?
Cohn: I think there are some CEOs that would make great presidents.
Paletta: You do?
Cohn: I think at the end of the day the president is managing the country. CEOs manage their business. A lot of the exact same things happen in the Oval Office that happen in the executive office.
Paletta: Are there in particular that you think would make good presidents?
Cohn: There are. [LAUGHTER]
Paletta: Okay. We’ll let that dangle out there. So let’s talk about technology for a second. Obviously there is a sense that technology has maybe outpaced Washington in terms of data collection and maybe even what they were doing was beyond what they even knew was happening. When you were at the NEC and even now are you worried that they don’t fully comprehend the risks of what they’ve become? You know, are some of these technology companies too big to manage, for example?
Cohn: So first of all the government is severely behind on their investment in technology. It’s one thing that Jared and Chris Liddell, they started working on. And I think it’s an admirable task. I also met with—you know, the head of the Navy is a friend of mine, and he and I were talking about the naval systems and their use of technology. It’s just extraordinarily archaic, shall we say. You know, we really need to make a big capital investment for ourselves in the United States and modernize our infrastructure and our technology. And you can even take it down to the simple voting. You know, look at the way we vote in some states. They were still like going in and pulling levers and pulling a handle. You know, people could vote technologically on iPads at home. We don’t need polling places. We could modernize the whole technology of this country.
You know, the fact that we still file tax returns. Everything could be digitized; you take your social security number, everything could be sent in. You could literally just hit a button and your tax return should almost pop up for you, you know, by putting every—I mean, you could think for days of things you could change in this country with technology. So we are just on the cutting-edge frontier of where I think technology is going to go in this country. And so anyone that thinks the technological revolution is behind us I think they’re wrong. I think we’re just starting to understand.
Paletta: But are there risks in that? Right?
Cohn: Of course. There’s risks in everything. You know, there’s risks in everything. There’s risks, and people obsess upon the risks. You know, I look at what people are talking about in autonomous vehicles. If you go back and look in the history, it’s the exact same risk when we went from horse and buggy to the first Model T. You know, the newspapers look identical. “Oh, my God. Someone could get hit and killed. And all these things that are bad are going to happen.” But we still know that the autonomous vehicle at the end of the day is safer than the human vehicle.
But something bad is going to happen with autonomous vehicles just like something happened when the horse hit you, you had a better chance of living than when the car hit you. It’s just natural evolution of where we’re going. And we as people tend to evolve slower than the technology can evolve. And that’s probably good because we tend to question things longer and longer. And so we will continuously have issues with understanding both the positive uses and the unintended uses of the technological revolution.
Paletta: So one of the challenges in covering this White House is that it’s never that clear whether something the president does or says or an offer he makes to Canada or China, whether he has kind of gamed it out four steps ahead like this is three-dimensional chess or whether it’s like he’s insisting on a five-year expiration of NAFTA. Like that. You know? What was your experience in terms of whether the president sort of sees this play nine steps ahead or whether it is what he says it is and it’s transparent like that?
Cohn: Okay. I think the president has been very, very clear in what he is trying to achieve. I think sometimes you guys in the media try to make it more complex than it is. The president is very much trying to grow the economy, trying to grow jobs, trying to grow domestic investment, and trying to grow wages. I mean, that’s what he’s trying to do. So when he’s talking to China and he’s talking to them about trade and he’s talking about IP and he’s talking about copy write, he is saying, “Look, you’re unfairly taking from my country that I am in charge. I am the CEO and defending my country and my shareholders. You need to adequately pay for that good or service.” And that’s what he’s saying. And it’s nothing more than that. He’s basically saying, “Look, I believe in fairness. I believe in reciprocity. I believe in getting rid of all the artificial barriers. And I want us all to play on a level playing field. And if you level the playing field I’m willing to compete.”
Paletta: Right. But, I mean, a lot of us who—I’m just trying to think when I go home at night and I can’t go home and say, “Honey, I want chicken and mashed potatoes and a beer.” Like, that just doesn’t work. You know? You have to, like—there’s give and take. There is an expectation. You know? You have to sort of know who you’re dealing with.
Cohn: But I know what you’re going to have for dinner tonight.
Paletta: Yeah, exactly. I know what I’m not having. [LAUGHTER] So does he always demand what he says he demands, or—like, just help us sort of decipher his negotiating style. How should we interpret what he says and whether what he is asking is X minus 50 or does he want X?
Cohn: No, I think his style is very simple. “How do I get the United States to grow the economy? How do I get our economy to be bigger?” I think it’s kind of simple. And I’m not—I mean, and I think he’s going about it in a way where he says, “Look, I want to grow the economy. Therefore I don’t want cars made overseas. I want all the cars made in the United States.”
Paletta: Is that realistic?
Cohn: No. It’s not, but, look, I understand where he’s coming from. I’m not going to sit here and say, “I don’t understand where he’s coming from.” He’s saying, “Look, I want cars made in the United States. We make great cars in the United States.” He’s right. We make great cars in the United States. Why would we import a car when if we make more cars in the United States we create more factories, more jobs, more revenue, more taxable income, and we broaden the base? It’s kind of simple.
Paletta: Is there anything from your first year that you wished you could take mulligan on? That maybe a part of the tax bill, maybe it was infrastructure, is there something that you wished you could have done differently or that would have played out differently?
Cohn: Well, look, on the tax side the one thing that still haunts me is we were unable to make the personal side permanent. So when everyone writes about the personal side they talk about year eight when the rates go back up. They don’t talk about the seven years. You know, I am cautiously optimistic that we’ll be able to extend the personal side and so we’ll have some permanence there. That would be important to me. The other area where if we had it to do over again—and I’m not sure we’d have a different outcome. The whole infrastructure discussion was not handled as well as we could have handled it. Infrastructure is the toughest topic to really understand. And it’s tough because the federal government in Washington basically regulates it all. You can’t build infrastructure without Washington signing off on it. And Washington is a huge bottleneck on signing off and building infrastructure.
But really Washington historically hasn’t really paid for much of it; they don’t own it. So most of the infrastructure is owned by cities, states, counties, municipalities, or authorities, but they need Washington’s approval. So it’s hard to coordinate the big sort of umbrella over here that allows you to build it and approves it with the people over here that know what they want locally. And we didn’t do a good job of bringing it all together in one place, so it ended up becoming a debate about how are we going to pay for it and who is going to pay for it. There was never a debate on how obsolete our infrastructure is, how old our infrastructure is, if we could pay for it what would we do. We never really got to the substance of what should be done in this country.
And why don’t we have a 20- or 30-year master plan on infrastructure in this country? Because I think if we had a 20 or 30-year master plan we could figure out a way to pay for it. There would be a lot of public-private partnerships; it would be a lot of private capital, but I really do think if we understood where we were going and the federal government from an approval standpoint and the states and the local government said, “Hey, we all agree this is what we want,” I think we would shock people and be able to get it done.
Paletta: Why was the personal individual size of the tax code made to expire and the corporate side made permanent?
Cohn: So, A, it’s a scoring issue. I mean, we had to get within our reconciliation instructions, which was a trillion and a half dollars. And, B, goes back to stimulating the economy and it goes back to if we could have done one thing and one thing only we would have changed the corporate side because the corporate side stimulation investment activity, we stimulate capex, we build plants, we drive wages high and higher. But, as I said, it could take companies three to five years to make those capex investments. By the time they buy the land, get the permits, get the approval, it could be five years from now. No one is going to build that plant then pay 35% tax rates. You know, they’re going to have to put in their model right now what the tax rates are. Why would they build it in the United States if they could build it in another part of the world and pay 10% tax?
Paletta: Could you see yourself coming back to work in Washington in public service?
Cohn: Sure. Yeah.
Paletta: In this administration?
Cohn: I can see myself coming back to Washington. [LAUGHTER]
Paletta: Do you feel like you need a little break or is it—
Cohn: I’m trying to have a break. I don’t know what I’m doing here this morning. [LAUGHTER]
Paletta: Well, speaking of break, what’s next for Gary Cohn?
Cohn: I’m going to the U.S. Open tomorrow.
Paletta: Oh, you are?
Cohn: Yeah, that’s what’s next for Gary Cohn. I’m reacquainting myself with my wife and three daughters who I’ve been away from for 38 years. That’s not going so well. [LAUGHS]
Paletta: Well, do you feel like you want—would you ever get into something that’s completely different than what you’ve been doing both in public service and in banking? Or do you feel like you want to get back in the markets and roll up your sleeves and?
Cohn: No. Look, I’ll never say no to something, but I feel like I’ve done the financial series; I’ve done the markets world. When I think about where the world and the United States is going to be in 20, 30, 40 years from now, there’s just enormous opportunity in this country. And this is still the greatest country in the world. We’ve got the deepest capital markets. We’ve got huge amounts of entrepreneurial capital to create and change the world to be a much better place. I think at this stage of my life I’d opt to go and do something that’s more interesting, more unique than go back and be in the financial services world. But, look, I’ll never say no, but that’s where if you asked me today where I’m heading, I’m heading in that direction.
Paletta: When you left in April, obviously it was at the beginning of the trade confusion. And, you know, you made very clear that you were kind of planning to leave after tax reform. You stayed to help get the State of the Union in place and stuff. But did you have a fear that there was not someone like you with your gravitas in the building to represent these views that you have that you feel very strongly about?
Cohn: That’s an arrogant view. I didn’t. You know, the one line I—you know, what is it? The cemetery is full of indispensable people. You know, look, you learn that when you run a bank.
Paletta: Did you have people call you and say, “Please don’t go. Gary, please don’t go”?
Paletta: From Wall Street?
Cohn: I had hundreds of people from every walk of life say, “Please don’t go. Please don’t go. You have to stay.” I said, “Look, the sun will come up, rise in the east and set in the west. I know it.”
Paletta: Right. And so can you just, before we finish, give us your outlook on the next both in terms of Washington and the economy? Do you see things continue to get better? Do you think the midterms could create some kind of political risk? What is your kind of outlook?
Cohn: So, look, I’m not a political expert. So no one should listen to my political views. Probably you should do the opposite because I’m not a student of politics. Look, the midterms will be the midterms. We’ll see what happens. I mean, I read the same things you read or maybe you don’t. I read everyone’s.
Paletta: I hope you read the things I write.
Cohn: Of course I do. Of course I do. Of course I do. [LAUGHTER] So, you know, the midterms will be the midterms and we’ll see. If control of the House changes, it changes. If it doesn’t change, it doesn’t change. I don’t know. I fundamentally think the U.S. economy is in really good shape. I really do. You know, businesses are strong; consumers are strong; the job market is strong. We haven’t seen the wage growth; I’d like to see a little bit of wage growth in the system. That would be good for us. The consumer is doing what they should be doing. You know, we’ve got a bunch of bottlenecks in the United States, which is interesting, you know, when you look at like housing sales. Housing sales can’t grow. Why can’t they grow? We don’t have enough finished carpenters; we don’t have enough electricians; we don’t have enough skilled labor to build housing in the United States right now. So we need to get people with those skills; we need to transition our workforce into where the higher paying jobs are today. They’re out there. And if we do that—and I think we’re on a path to do that—we’re in a really good position.
You know, all that said, some exogenous force can happen tomorrow, it could be happening now, that could change all of that. And, you know, economies are fragile; they’re very, very fragile. And you want to continue on the path. I think what the ECB announced this morning is right, what the Bank of Japan is going to do, the Fed, everyone is acting very, very responsibly; everyone is doing what they should be doing to allow the economies of the world to normalize, get back to more normal run rate, and I think that’s in everyone’s best interest. So, look, I’m very optimistic.
Paletta: Well, hey, that’s all the time we have. But thanks so much to my guest, Gary Cohn. It’s really been an honor for being with us today. And if you’d like to watch highlights of today’s program or to find out about future events, please go to WashingtonPostLive.com. Thanks everyone for being here today.
Cohn: Thank you, Damian. Thank you.
Paletta: Thanks a lot, Gary. It was really fun. Appreciate it.