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Speaker 1: On this episode of news World, we're going to talk

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Speaker 1: with Larry Cudler on inflation and the economy. I worked

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Speaker 1: with Larry for many, many years. He's a wonderful personal friend.

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Speaker 1: We've had great arguments, We've had some pretty big successes together.

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Speaker 1: Larry was both the former Director of the National Economic

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Speaker 1: Council and the President Trump, and he had been the

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Speaker 1: former Associate Director for Economics and Planning in the US

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Speaker 1: Office of Management and Budget under Ronald Reagan. I really

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Speaker 1: want to start live by going all the way back

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Speaker 1: to the beginning. When did you first get involved in

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Speaker 1: economics and politics and government? After Reagan One, I got

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Speaker 1: drafted into the transition with wonderful, brilliant person named John

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Speaker 1: Rutledge and James Baker and Dave Stockman asked us to

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Speaker 1: do the econometric work and the numbers for President elect

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Speaker 1: Reagan's spending and tax cut plan. I was at bear

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Speaker 1: Stearns at the time, and I remember one night, this

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Speaker 1: is probably early January nineteen eighty one, I'm writing testimony

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Speaker 1: for Stockman. You'll love this. I get this little closet

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Speaker 1: office across the hall from Stockman in the old EOB

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Speaker 1: and I get a call to talk about one in

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Speaker 1: the morning from somebody named James Baker. Would I come

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Speaker 1: across the street? Of course I did and went into

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Speaker 1: the West wing and he offered me a job. He said,

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Speaker 1: we want you to stay, and I said, well, bear

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Speaker 1: Stearns just offered me a partnership. I think I was

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Speaker 1: thirty years old or something, and I said, can I

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Speaker 1: get back in the morning anyway, long story short, I

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Speaker 1: called my ben boss, Ace Greenberg, who was running there,

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Speaker 1: and he said, yeah, go ahead and do it. It'll

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Speaker 1: be a great experience, it'll be good for your career,

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Speaker 1: and you'll come back to us and you'll be a partner.

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Speaker 1: Then and five years later that's exactly what happened. So

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Speaker 1: that's how I got involved in Christs Matter is I've

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Speaker 1: been involved ever since, even though I've had different jobs.

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Speaker 1: You know. I've been a National Reviews senior editor, and

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Speaker 1: I got into TV work as a commentator. I actually

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Speaker 1: was in the room in Gay Gay Old House when

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Speaker 1: Nuke Ingrich was putting together his plan to take over

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Speaker 1: the Congress. I was the NoteTaker. Pete DuPont was there,

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Speaker 1: and you were there, Gay was there, and I was

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Speaker 1: actually in Atlantic the night you won. I don't know

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Speaker 1: if you remember that, but I was there. In fact,

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Speaker 1: I'll never forget this, after it was clear we won

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Speaker 1: the majority and you were going to be speaker, and

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Speaker 1: we actually had a planning thing at two o'clock in

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Speaker 1: the morning. I'll never forget that. So let me go

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Speaker 1: back for just a second, because I think a lot

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Speaker 1: of younger listeners would be fascinating. Would you if somebody

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Speaker 1: came to you today with that exact choice, partnership in

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Speaker 1: a major firm or do your duty it is a

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Speaker 1: very senior lecial government, would you recommend them to follow

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Speaker 1: your path? Yes, I would. I would, because you know,

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Speaker 1: I think when you get a call to do that

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Speaker 1: sort of saying, you should do it, and particularly the

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Speaker 1: case because when that first call came to the country

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Speaker 1: was in a very very bad case. And you know,

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Speaker 1: as somebody who loves America and somebody who was benefited

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Speaker 1: by it, as you call it, our free society and

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Speaker 1: our meritocracy, to allow me to climb the ladder, I

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Speaker 1: think I owe it. And I don't know if you remember,

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Speaker 1: but there was a second moment. I'm going to take

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Speaker 1: you back to the summer of twenty seventeen, and as

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Speaker 1: a matter of happenstance, you and I were in Johnny

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Speaker 1: Destefano's office. He was the personnel director at the time

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Speaker 1: in the old EOB, and I think you were just

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Speaker 1: leaving the meeting and I was just walking into a meeting,

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Speaker 1: but not really for a job. DeStefano wanted to know

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Speaker 1: who I thought should be the Federal Reserve chairman, and

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Speaker 1: not me, but candidates. Anyway, I met with him. I

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Speaker 1: thought he's a good guy, by the way, and worked

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Speaker 1: with them for a couple of years, and then I

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Speaker 1: walked down those big steps there at the EOB and

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Speaker 1: you were still there, and I kind of corraled you

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Speaker 1: and they just sit down with me. Because there was

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Speaker 1: some rumors that I would come into the government, and

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Speaker 1: you said to me directly, you must do this, you

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Speaker 1: must come in. And that had a big impact on me.

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Speaker 1: And I had three or four meetings with Potus in

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Speaker 1: twenty seventeen early twenty eighteen. Obviously I worked in the campaign.

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Speaker 1: Obviously I knew Donald Trump here in New York privately,

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Speaker 1: but there are all these rumors that I was going

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Speaker 1: to go in. The only job I felt I was

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Speaker 1: qualified for was the nec job, and you said, if

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Speaker 1: it's offered, you must take it. I remember you were

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Speaker 1: very adamant about that, as only you can be. And

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Speaker 1: sure enough, a few months later, in late February I

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Speaker 1: think it was or early March of twenty eighteen, the

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Speaker 1: call came from Potus, and I guess in the space

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Speaker 1: of two or three days we spoke three or four

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Speaker 1: times by phone and he offered me the job and

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Speaker 1: I took it. So you had something to do with

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Speaker 1: that too. When you think about how vital the impact

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Speaker 1: of the Trump economic policies has been and how different

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Speaker 1: it was from what everyone expected, you're going back in

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Speaker 1: taking your experience candidly, your toughness and fighting for what

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Speaker 1: you believed in. I think was a significant part of

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Speaker 1: the success because, as you know, presidents can sit in

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Speaker 1: the oble office and they can send out instructions and

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Speaker 1: think something is going to happen, but if they don't

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Speaker 1: have somebody who can follow up on their half, nothing happens.

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Speaker 1: The sois just kind of sits there and yawns, and

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Speaker 1: so having people who really believe passionately in a supply

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Speaker 1: side economic growth, stable money kind of model, I think

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Speaker 1: it's just unbelievably important because I watched the Biden team,

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Speaker 1: and I watched the massive spending. I watched the total

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Speaker 1: focus on the demand side of increasing consumerism, the efforts

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Speaker 1: to undermine productivity and investment. It just looks to me

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Speaker 1: like they're trying to do all they can to recreate

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Speaker 1: the Carter economy, which is a total disaster. I mean,

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Speaker 1: am I exaggerating or do you have sort of the

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Speaker 1: same sense. I think note that if they get their

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Speaker 1: way legislatively and so forth, they may well recreate the

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Speaker 1: Carter economy. But I think their primary purpose is to

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Speaker 1: undo and reverse the Trump economy and the Trump policies,

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Speaker 1: and I think the consequences of that will wind up

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Speaker 1: being something that looks like the seventies. And we can

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Speaker 1: talk about that in just a second. I just want

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Speaker 1: to know, first of all, you're extremely kind, because you

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Speaker 1: yourself are a great historical figure in this and it's

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Speaker 1: my privilege to have been a colleague and a friend

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Speaker 1: and worked with you. So you're extremely kind, sir. But

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Speaker 1: I want to say, when I spoke to President Trump

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Speaker 1: in early March of twenty eighteen, there were two things

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Speaker 1: in my mind, and then I followed through when he

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Speaker 1: appointed me at ANYC and that is number one. His

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Speaker 1: administration lacked message discipline, and I've learned down through the years,

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Speaker 1: and this began in my OMB experience with Reagan. Regan,

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Speaker 1: of course, was a great message communicator and very consistent communicator.

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Speaker 1: I believe the messaging, which includes the written speeches, generates

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Speaker 1: policy discipline. The one leads to the other. Message discipline

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Speaker 1: leads to policy discipline. That's point number one and point

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Speaker 1: number two. Internally in the White House Executive Branch bureaucracy,

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Speaker 1: that same discipline must be enforced always and everywhere. And

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Speaker 1: I learned that as the deputy at OMB. You know,

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Speaker 1: you work at OMB, you learn how the government operates.

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Speaker 1: And in those Reagan days, OMB was actually more powerful

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Speaker 1: than it has been in recent years. So I learned it,

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Speaker 1: you know, firsthand, and never forgot it. And even though

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Speaker 1: it was almost forty years later, that was my instinct

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Speaker 1: and one of the the first things I did when

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Speaker 1: I reorganized the NEC and I had my very first

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Speaker 1: meetings with the President is you know, we established this

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Speaker 1: rap corps. He liked orderly thinking as a former businessman,

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Speaker 1: and so did I. That's the only way you can

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Speaker 1: do it. You can't be a supply sider on Monday

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Speaker 1: and a canes in on Wednesday and a socialist over

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Speaker 1: the weekend. You can't be for this tax or that regulation.

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Speaker 1: You have to be steady and disciplined internally and externally.

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Speaker 1: And I think that was one of my contributions. And

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Speaker 1: many of my colleagues and peers in the White House

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Speaker 1: who were involved in what i'll call the machinery of

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Speaker 1: high government understood and worked with me. It's like we

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Speaker 1: established order that had been lacking in twenty seventeen. And

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Speaker 1: then of course that you know, spreads out to a

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Speaker 1: myriad of issues that you wind up covering the years

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Speaker 1: and years ago. I was a part time speech writer

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Speaker 1: for William Simon and other people. Speech Writing is a

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Speaker 1: really important discipline, you know, and so down through the

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Speaker 1: years I've written columns. That's important discipline. And then I

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Speaker 1: wind up being a full time broadcaster and so forth.

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Speaker 1: And that's where that discipline pays off, because people understand

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Speaker 1: what you're telling them, right, That's the key point. If

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Speaker 1: I listen to New Gingrich, if I see you on

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Speaker 1: Hannity or whatever the show is, I want to know

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Speaker 1: what is New telling me? And you're very good at it.

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Speaker 1: You've appeared on my shows as a guest a million times,

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Speaker 1: and that's a valuable skill. You know, you got to

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Speaker 1: work on it, but it's a valuable skill in government,

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Speaker 1: in policy, and probably in business too. First of all,

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Speaker 1: you're very, very generous, you know. I learned a very

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Speaker 1: great part of what I do in communications from Reagan.

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Speaker 1: There's a tiny book by Tom Evans called The Education

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Speaker 1: of Ronald Reagan, which I'd recommend to all of our listeners.

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Speaker 1: The Education of Ronald Reagan. I found myself understanding some

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Speaker 1: of the things he did, even though I'd worked with

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Speaker 1: him and known him for I guess twenty years by

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Speaker 1: the time I read the book. But Evans caught this model,

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Speaker 1: and Reagan understood the power. As he used to say,

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Speaker 1: he would shine the light on the American people so

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Speaker 1: they would turn up the heat on Congress. I was

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Speaker 1: also struck many years ago reading the great Second World

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Speaker 1: War military historian Sla Marshall, who wrote at one point

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Speaker 1: that men are led in combat by simple commands uttered

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Speaker 1: in simple language, the risers of supply side, which we

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Speaker 1: could do an entire show on. I mean that epic

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Speaker 1: journey that you were part of, and that Kemp played

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Speaker 1: an amazing role, and once it was shaped, Reagan picked

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Speaker 1: it up in seventy eight. But that really transformed the

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Speaker 1: political intellectual life of economics in the United States, and

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Speaker 1: between Reagan and Thatcher began to really change it across

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Speaker 1: the planet. And I'm watching right now and I worry

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Speaker 1: a little bit because I'm not sure that we have

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Speaker 1: the kind of driving commitment both Reagan and Kemp, and

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Speaker 1: you work close to both of them. Both of them

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Speaker 1: had a passion for intellectual political leadership. You know, to

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Speaker 1: many people don't realize they both read books, they both

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Speaker 1: thought about this stuff. They had friends like you. I mean,

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Speaker 1: you know, there's a lot of politicians to go through

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Speaker 1: the whole career and never talk with a serious economist.

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Speaker 1: And these are guys who can sit around and talk

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Speaker 1: with you for hours. In fact, I found myself, as

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Speaker 1: a PhD in European history, losing an argument with Kemp

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Speaker 1: one day and I said, so, I said, how can

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Speaker 1: I have this football quarterback beating my brains out on

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Speaker 1: you know, Westphalian tax rates. But Jack loved it, and

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Speaker 1: it was that passion that made such a big difference.

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Speaker 1: Let me ask you. You know, we recently had a

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Speaker 1: lot of noise about establishing a worldwide fifteen percent minimum

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Speaker 1: tax rate for businesses and all that. Do you think

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Speaker 1: that seriously or do you think that's mostly just pr

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Speaker 1: by the countries that have no intention of actually doing it.

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Speaker 1: It's extremely important issue now, it's popped up in the

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Speaker 1: last week, so I think that the countries would like

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Speaker 1: to do it. Stephen Minusian Transury Secretary, that we were

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Speaker 1: very close allies and friends in the government. He and

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Speaker 1: I have been working on this for quite some time

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Speaker 1: trying to defend it off. Okay, it started with the

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Speaker 1: digital sales tax and France and Bruno Lemaire, the French

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Speaker 1: finance minister, was a very smart man by the way,

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Speaker 1: and maybe president of France before long. But in any case,

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Speaker 1: there is a strong desire to do this, and I

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Speaker 1: am very very much opposed to this, very much opposed

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Speaker 1: to it on several grounds News. One of them is

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Speaker 1: that the issue of sovereignty. Okay, I'll just give you

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Speaker 1: a quick Trump anecdote when this digital tax stuff came up,

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Speaker 1: and mind you, Trump had no love, you know, for

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Speaker 1: Facebook or Google or Amazon or any of those companies,

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Speaker 1: but he remember telling the news in this and I

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Speaker 1: was in the room in the very beginning in twenty

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Speaker 1: nineteen when this started up. He said, the only people

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Speaker 1: who can set American tax policy is the American voter

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Speaker 1: and taxpayer, not France, not the EU, not the G seven.

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Speaker 1: Only here in America we make our own policies. And

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Speaker 1: so what Janet Yellen is falling into is a tragic mistake,

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Speaker 1: all right. So that's point number one. Point number two,

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Speaker 1: it's lousy tax policy. All it does is increased taxes

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Speaker 1: on profits and investments, and ultimately on technology advances, plants, equipments,

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Speaker 1: and the American worker who ultimately shoulders the burden for

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Speaker 1: all this, the American worker. This fifteen percent tax, by

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Speaker 1: the way, believe it or not, there's a good pieces

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Speaker 1: either political or the New York Times today, fifteen percent

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Speaker 1: minimum tax on what on what? They can't figure that out,

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Speaker 1: and then they want an excess profits tax. News. You

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Speaker 1: can go back in history. The guy who had the

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Speaker 1: highest excess profits tax that American history was FDR. Part

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Speaker 1: of the failure of the New Deal economy. Anyway, if

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Speaker 1: you have a ten percent profit margin, you can put

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Speaker 1: a twenty percent tax on that margin. That's insane, and

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Speaker 1: it reverses a good chunk of Trump's business tax cuts,

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Speaker 1: which of course gave us historically low unemployment and historically

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Speaker 1: high real wages. So this is very bad policy and

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Speaker 1: it's very bad government. Something we're covering right now on

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Speaker 1: our TV show that started Friday, and we're going to

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Speaker 1: continue this. It's a horrible, horrible idea, and it would

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Speaker 1: reverse the growth policies that we had in the prior

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Speaker 1: four years. There's so much should talk about maybe we

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Speaker 1: could do this again that sometimes how serious do you

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Speaker 1: take the whole issue of inflation as an outcome of

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Speaker 1: where Biden's going? This is very important. Let me say

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Speaker 1: first up, their policies raise a very significant inflation risk,

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Speaker 1: and just to put it into our supply framework, large

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Speaker 1: scale tax types and I'll ay expending, but I think

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Speaker 1: the tax types are even more important than the spending

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Speaker 1: in this regard. But they will do great damage to

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Speaker 1: the dollar. So the model that we've used is a

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Speaker 1: steady dollar, reliable, steady strong dollar I called King dollar,

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Speaker 1: and low tax rates. That's the Lapper Mundel hypothesis that

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Speaker 1: really was the intellectual beginning, and it's essentially a return.

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Speaker 1: It's a neoclassical tradition. Mandel want to know about prize

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Speaker 1: for that, as you know, and I strongly recommended that

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Speaker 1: Art Lapper get the Presidential Medal of Freedom for his work,

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Speaker 1: and President Trump was enthusiastic about that. Now you're going

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Speaker 1: to break that model because raising tax rate will depress

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Speaker 1: the supply side of the economy. The workforce shoulders seventy

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Speaker 1: percent of the corporate tax burg and that, by the way,

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Speaker 1: is CBO studies. But we've all done work on that,

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Speaker 1: Kevin Hassett, myself, Laugher, so forth, and Song. Once you

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Speaker 1: start doing that, you reduce investment incentives, you reduce work incentives.

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Speaker 1: You will drag down the dollars, and you'll have supply

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Speaker 1: side inflation. So you'll have essentially excess money, too much

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Speaker 1: money chasing too few goods. And that's a risk, and

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Speaker 1: it's a significant risk. And that gets you to the

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Speaker 1: Carter economy, which, by the way, I hate to say this,

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Speaker 1: but Richard Nixon really started the Carter economy. Nixon destroyed

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Speaker 1: the dollar and permitted hyper inflation to drive up tax rates.

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Speaker 1: Now that's a risk. I do want to say this,

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Speaker 1: though I'm not yet certain of this outcome. For example,

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Speaker 1: I know that recent inflation reports showing a big pop.

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Speaker 1: I appreciate that, but I want to be careful because

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Speaker 1: you're coming off the pandemic contraction and you had a

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Speaker 1: total collapse of prices in twenty twenty, a total utter collapse.

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Speaker 1: Now you're getting a rebound, which has to do with

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Speaker 1: the success of the vaccinations and the reopening of the economy.

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Speaker 1: So prices are rebounding, and I think right now, nude,

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Speaker 1: before any legislation has passed, we are still in the

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Speaker 1: Trump economy, and the commodity prices and the goods prices

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Speaker 1: that everybody's talking about. I think they're going too fast

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Speaker 1: and need to wait and see. The market indicators are

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Speaker 1: not corroborating the big inflation yet. For example, ten year

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Speaker 1: treasuries are now back down to one fifty. The tips

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Speaker 1: spreads between the real rate and the nominal rate have

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Speaker 1: gone up, but only slightly. The ten year outlook for

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Speaker 1: inflation is about two and a half percent, so it's

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Speaker 1: up fifty basis points, but that's all. Do you think

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Speaker 1: we may have a supply chain procesting in scarcity, which

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Speaker 1: as the chain sort of works its way out would

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Speaker 1: then lead back to normalcy rather than on to inflation. Yes,

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Speaker 1: but I want to say new if all this crazy

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Speaker 1: policy legislation gets through all right, you know, the Green

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Speaker 1: New Deal, which will wipe out the energy sector, the

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Speaker 1: increase in tax rates, you know, corporate taxes, capital gains taxes.

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Speaker 1: This is all very very punishing to investment and hence

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Speaker 1: productivity and hence wages, real wages. If that stuff goes through,

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Speaker 1: and if they continue to spend on safety net and

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Speaker 1: or entitlement transfer payments with no work requirement, they're doing

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Speaker 1: away with the Clinton Gindwich. You know, we talked about

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Speaker 1: this on our TV interviews. By the way, that was

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Speaker 1: one of the most important TV interviews I've ever had,

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Speaker 1: because you were there with Clinton, and the work requirements

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Speaker 1: are being removed, the work requirements you all put in.

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Speaker 1: So if that stuff goes through and you're creating all

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Speaker 1: these disincentives to work and disincentives to invest, you will

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Speaker 1: choke off the Trump expansion and the dollar will fall,

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Speaker 1: and that's when you'll get your stagflation repeat. That's when

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Speaker 1: it'll happen. You'll start to see it, depending on the legislation,

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Speaker 1: you'll see it by the end of this year, certainly

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Speaker 1: by next year. This is still the Trump V shaped recovery.

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Speaker 1: New That's what this is. This is the Trump V

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Speaker 1: shaped recovery from a natural disaster. You know, his tax

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Speaker 1: cuts are still the law. Is minimal regulations, they're still

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Speaker 1: the law, with one or two small exceptions that they're

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Speaker 1: chipping away on. Obviously, the vaccinations were the trigger, the

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Speaker 1: only real source of stimulus. In my opinion, this is

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Speaker 1: still the Trump economy until they change it. So it

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Speaker 1: will all happen at once. The inflation will burst out

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Speaker 1: permanently and the economy will stagnate. But I'm going slowly

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Speaker 1: here because you know more about the politics and the

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Speaker 1: Congress than I do. But I think they're going to

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Speaker 1: have some trouble getting this stuff through. I think you

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Speaker 1: can see their majority crumbling all around them in terms

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Speaker 1: of being effective. Listen, I know they we're gonna have

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Speaker 1: to lose you to an important phone call, but you

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Speaker 1: were just terrific and your duty of serving the country

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Speaker 1: has really made lives better for millions and millions of

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Speaker 1: Americans and frankly for people around the world. So keep pitching.

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Speaker 1: We still have a lot of innings to play yet,

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Speaker 1: I think you've already made a big effect and you

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Speaker 1: ain't seen nothing yet. I will refer to you as

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Speaker 1: mister Speaker, as I always think of you, and I'm

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Speaker 1: most gratefully for any of these opportunities and your friends here.

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Speaker 1: Thank you to my guests Larry Cudlow. You can read

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Speaker 1: more about inflation in the economy on our showpage at

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Speaker 1: newtsworld dot com. News World is produced by Gangwish three

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Speaker 1: sixty and iHeartMedia. Our executive producer is Debbie Myers, our

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Speaker 1: producer is Garnsey Sloan, and our researcher is Rachel Peterson.

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Speaker 1: The artwork for the show was created by Steve Pendell.

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Speaker 1: Special thanks the team at Gingwish three sixty. If you've

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Speaker 1: been enjoying news World, I hope you'll go to Apple

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Speaker 1: Podcast and both rate us with five stars and give

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Speaker 1: us a review so others can learn what it's all about.

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Speaker 1: Right now, listeners at news World can sign up for

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Speaker 1: my three free weekly columns at Gangwish three sixty dot

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Speaker 1: four