First on CNBC: CNBC transcript: National Economic Council Director Larry Kudlow speaks with CNBC’s “Squawk On The Street” today discussing that we will rebuild prosperity.
Get The Full Ray Dalio Series in PDF
Get the entire 10-part series on Ray Dalio in PDF. Save it to your desktop, read it on your tablet, or email to your colleagues
We will rebuild prosperity: Larry Kudlow
V-shaped recovery is very much intact: Larry Kudlow
All references must be sourced to CNBC.
CARL QUINTANILLA: Joining us is the Director of the National Economic Council, Larry Kudlow. Larry, welcome back. Good to see you again.
LARRY KUDLOW: Thank you, Carl appreciate it.
QUINTANILLA: So, do any of the House’s revisions make this more palatable to the White House?
KUDLOW: Well, I don't know, look, there's a lot of talking as you reported. Secretary Mnuchin spoke with Speaker Pelosi a number of times over the weekend, believe they spoke yesterday. I know they're scheduled to speak today. I spoke to the Secretary earlier this morning. They have a new offer on the table. We don't think the numbers are right. 2.2 trillion which is a very big number. There's some leftover spending that's not included there and some tax cuts that are repeal. It might come to 2.6 trillion. Look, again, I go back to this key point. We have a number of asks that I think both sides agree with. Four, five, six asks, it would really help the economy, okay. I don't think the recovery, the V-shape recovery, depends on it, but PPP extension for small businesses. $105 billion to get the kids back to school, we call it kids and jobs. Some supplemental unemployment assistance would be very helpful. We're going to have to have some assistance, significant assistance as you know, for airlines. These things are really essential, they would certainly help us climb out of the contraction. And for some reason we just can't get it done but the conversation, the talks will continue.
QUINTANILLA: So, you've said this a few times now Larry over the last few weeks, this notion that the recovery is not contingent on this package. So, if investors were to see the two sides go on recess, nothing accomplished this week, let's say, would you not be bracing for a rise in layoffs or perhaps a weaker jobs number not this Friday but the next month?
KUDLOW: No, not particularly. I mean, look, all these figures keep coming in, you know, it sure looks like a V-shaped recovery. I mean, you can run down Carl, the housing sector is really powerfully moving the auto sector, really powerfully moving, we had terrific report, you know, on machinery and manufacturing from the capital goods, the core capital goods, late last week. Retailing looks very strong. We've been looking at some of the credit and debit card numbers that are showing continuous strength in retail spending. Inventory shelves are bare, we're going to have to go through a build up in the inventory cycle. So, no I don't see – I mean, look, I can't predict the virus and all the rest that goes with that, but we're not going to shut down the economy, more businesses are opening now. We're moving through 80% of our nation's businesses, which is terrific. So, I think the V-shape recovery is very much intact. Again, regarding these talks, the so-called stimulus talks, some of these specifics would just really help. You know, again, kids and jobs. Open the schools whatever help they need with respect to COVID repairs and renovations and equipment and testing and so forth. Help the small business, you've got money left over for PPP. Unemployment assistance, airline assistance. I mean there are things I think that both sides agree with. But then the other team wants a gigantic package and we don't think we need that.
DAVID FABER: Larry, it’s David. We're getting close to a month or so from Election Day. The Wall Street Journal runs a story that says Trump would double down on tax cuts in the second term. And there’s a picture of you there. Is that the case? And do you think, by the way The New York Times reporting on the President's lack of paying – perhaps completely legally done, but nonetheless shines a light on the inequities in the tax code and would make it more difficult in a second term to engineer more tax cuts?
KUDLOW: Well David, I can't speak to the President's personal taxes. That's private matter, that's a personal matter. I'll leave it there. Regarding his second term policies to grow the economy, yes. He's asked us to take a look at a middle-class income tax cut. He's keen on a payroll tax deferral, as you know, he'd like to see complete forgiveness for that deferral, that would be a huge wage for nearly 147 million workers who have been on the job. He's looking at capital gains tax reforms. He's looking at 100% expensing to make that permanent. Essentially, I think he'd like to make all the tax cuts permanent from the 2017 go around. They stimulated the economy. They drove down unemployment. We've just seen from the Census Bureau a tremendous pickup in real wages – that is real family incomes, a record pickup, five times the rate of increase of the prior eight years and really the first raise since the year 2000 for the middle class and the lower wage folks. ook, I think you'll see this evening President will reiterate, these growth policies that will get us back to prosperity and recover from the pandemic. On the other hand, you had the other side. They raised taxes and regulations. Slowest recovery on record, very weak left us in 2016. And apparently, according to Mr. Biden's campaign, they're going to do it again. More taxes and more regulations. I don't understand that. It doesn't make any sense. But that's going to be the essence of the debate. I haven't seen the Wall Street Journal article, I’ll take a look at it. But, why shouldn't the President follow through? It worked brilliantly. And we're starting to recover and it will work again.
FABER: Yeah. Well, I mean, too, we did have growth, more or less, every year after the Great Recession and we did have more jobs then than we do now still, Larry.
KUDLOW: Yes. Look, we had the lowest unemployment on President Trump. Three and a half percent. And that was spread evenly across every cohort – African Americans, Asians, Hispanics, people without college education people below high school education. The distribution the diffusion of that low unemployment. Those are record low unemployment rates, which he achieved. So that's, you know, a fact. These Census Bureau numbers on real family income are so important because they measure living standards. That's the basic measure of living standards. People have increased their real income, they’ve increased their wealth, the inequality – reduced poverty rates came down. These were all reversals from the prior eight and frankly 16 years. So, the President is going to be proud of that. And what he's going to try to communicate this evening and on the campaign trail is he intends to follow through with more of the same. We will rebuild prosperity. He built a once we will rebuild it again.
SARA EISEN: Larry, it’s Sara. You mentioned the Census data, the Hamilton Project also points out that one in three families with kids is food insecure right now. So, I'm not sure how you match those kind of numbers up with a V-shape recovery and the fact that everyone's feeling good. It seems like still very unequal. We still have an 8.4% unemployment rate, more than 800,000 new jobless claims per week, which is what? Four times the normal number. How do you square that?
KUDLOW: Yes. Well look, I'm not sure what project you mentioned I couldn't quite hear you.
EISEN: The Hamilton Project. One in three families food insecure.
KUDLOW: I'm not familiar with that. But what I will say is this. The Census Bureau, which is a very reliable source, has indicated without question, in fact, poverty rates down and inequality down while real family incomes up substantially for his three years pre-pandemic. So, that tells you that the policies worked and you can't deny that. By the way, the Federal Reserve just put out a bunch of numbers on consumer finances that's painted exactly the same picture. Now, you're referring to the current situation, all right. We are moving in the right direction, there is no question. First of all, the underlying economy was strong, the policies were pro-growth with plenty of supply side incentives and rewarding work and investment. Those now continue, they're not being repealed. They won't be repealed under President Trump. We are rebuilding and housing and retailing and automobiles, all these sectors have come alive. You'll see a big inventory buildup. So, you can take a snapshot at any point in time, in the aftermath or let's say during this pandemic – it still exists – and the fact is, we're beating it. We're beating it. The economy – let's face it, the economy is performing now, with respect to the increase of nearly 11 million jobs, 14 million household jobs. A big drop in unemployment to 8.2%, nobody expected single digits until early next year. We're seeing all that. Continuing claims, initial claims all trending lower. Consumer spending strong. So, I think we're off to a great start. We are outperforming expectations. We'll have at least 20% economic growth in the second half of the year. I think the Atlanta Fed GDP now is something like 31 or 32%. Those are all good indicators. I think we can roll into next year, but the key point is to stay with pro-growth, pro-prosperity economic health policy. This is no time. I don't care whether you're Keynesian supply side or what. Nobody should be arguing to take money out of people's pockets, having come out of this contraction or trying to climb out. I don't know any theory in economics that says you should be raising taxes and regulation if you’re trying to restore economic health, I just don't get that.
EISEN: No, it's certainly something Vice President will have to explain. But Larry, all those points you mentioned about the progress and the fact that we're looking at a GDP rate this third quarter that could be north of 30%. I mean, doesn't it have to do with the fact that there was tremendous stimulus, both monetary and fiscal, and it was there, to your credit, to plug that hole where we saw double-digit unemployment. What I don't understand is why there's not more urgency then from you to keep that stimulus going because it is expiring, and at some point the economy is going to have to face up to the fact that there still is a very high level of unemployment and without more stimulus flowing, it's going to catch up. And it does raise questions about what the fourth quarter looks like in terms of growth and beyond.
KUDLOW: Okay, I'll just make this point. The package last winter was a very strong package. In my view, the PPP for small business was a stroke of genius. And we needed to throw everything out. We needed to use all the federal levers of power and we did. And the President led. And it was a bipartisan package, so it was a big help. No question about it. Now, right now, we're not – GOP, not at the White House, nor the Republican Party is holding up this package. We have made concrete specific well-targeted and smart policy proposals to aid well-targeted sectors such as returning to school and helping small businesses. And we want to help the airlines. And we can have more assistance for unemployments that continue. We're not ending it. We're not the ones who are stopping this. The other hand, the other team has a gargantuan package that really still approaches $3 trillion when it's scored properly. And at least a third of it, if not more, has nothing to do with COVID at all. And nothing to do with economic assistance, unfortunately. Unfortunately, it's a wish list of democratic ideology and politics for the campaign. It does not really attack the economy or COVID. So, we're ready to make a deal on these targeted aspects which have bipartisan support. That could be done. There's a middle ground here but we're not quite reaching it yet. But let's see. Secretary Mnuchin is hard at it. Speaker Pelosi is hard at it. So, I don’t want to judge it negatively. I'm just saying that's our view. We think we've put up a good plan.
QUINTANILLA: Yeah. Finally, Larry, that last question, kind of raises the point about whether or not you expect tonight at the debate, the notion of paying down the ballooning federal debt to be a question or an issue.
KUDLOW: Well, that's a good question. I'm sure it could come up. I don't know. My view on it, Carl, is simply right now. Right now, President Trump, you know, this year, used every lever of federal power at his disposal. And we did get a good bipartisan package. And I think that was the key point to get the economy, to get families, to get the workforce, to help unemployed, to get us through this with lots of assistance and liquidity. I think that was the right thing to do. Yes, we had to borrow more, but that is what government is there for in an emergency. And hope – you know, good, good point. The financing rate is only about 50 basis points or so.
I would also add one factor which is probably underrated. We've had massive monetary stimulus. The Fed's balance sheet is exploding. They set up lending programs, and the money supply is growing at 25% year on year. So, the Fed is doing its part, continuing its stimulus. And I think right now, we're sensitive to the debt issues. But this is not exactly the right moment. Over time, the emergency actions will run off, hopefully, prayerfully as the economy recovers, and everybody goes back to work, everyone can go back to work, and we'll be in better fiscal shape.
QUINTANILLA: We do look forward to that day, Larry. We appreciate you coming on and helping us prep for the debate because it's going to be a big conversation tonight. Good to see you. Thanks.