Kevin Hassett on the Decade Since the Crisis and the Future of the US Economy

Did the US over-regulate and over-tax following the most recent recession?

Kevin Hassett is the chair of President Trump’s Council of Economic Advisors. Kevin is a former scholar at the American Enterprise Institute, a professor at Columbia University, and a Fed economist. Kevin also advised the John McCain, George W. Bush, and Mitt Romney presidential campaigns. Kevin joins the ‘Macro Musings’ podcast to discuss some of the big issues, past and present, facing the US economy.

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Note: While transcripts are lightly edited, they are not rigorously proofed for accuracy. If you notice an error, please reach out to [email protected]

David Beckworth: Kevin, welcome to the show.

Kevin Hassett: Oh, it's great to be here. Thank you.

Beckworth: Well it's a real honor to have you on. I want to begin by just asking what do you do as a CEA chair? What is your day to day job like?

Hassett: Oh sure. The CEA was established by the 46th Employment Act, which is kind of actually an interesting thing because what was going on was that after the second World War basically free market conservatives looked back at the Great Depression and decided that one of the problems was that the Roosevelt administration was insufficiently economically literate and that they pursued policies such as price fixing, you know the president set the price of gold in the morning and so on, that were contrary to the view of what economists think you ought to do if you're trying to run a capitalist economy. The CEA was established basically to entrench the advice of professional economists in the White House. Our job is to provide objective advice about, "What happens if we do this? What happens if we do that?"

Hassett: One of the interesting design principles that I think is most conducive to really getting the kind of read that citizens should want out of a CEA in realtime is that we don't really have much career staff at all. Our current staffing is a little bit north of 40 people and probably about 34 of them will go home in June and be replaced. You tend to get ... Well I guess there are a few more research assistants that'll stay. So maybe say it's 20-something. More than half the staff flips over just about every year because people take a year's leave from being a professor someplace and spend a year here working on our staff helping provide objective analysis. If you really wanted to get an objective read on what's going on in literature then what you might do is just randomly select professors from all around the country and have them come here and tell us what the literature says. We're not completely random in who we choose but it is actually like the unusual person whose sabbatical came up this year who really has always wanted to be in Washington.

Hassett: I think if we had a career staff as basically folks that are here forever then the institution itself might separate from the literature and as we see for example at the Joint Tax Committee where they're tax modeling of the macroeconomic effects of taxes is really intellectually indefensible. It's not consistent with anything in the literature. I've crossed swords with them but the point is that they've got this career staff that probably hasn't ever published a paper in an academic journal in the space. Whereas the folks that come over here are professors from Oxford and just listing we have two Oxford people, we have a person from the University of Tennessee, a person from Texas Tech, a couple people from the University of Chicago and their professional reputations are really good and they come here, they tell us what do economists think about this? I view it as a kind of straight read.

Hassett: Yeah so I view the CEA as kind of national treasure and I'm really honored to be here but I think it's because it was designed appropriately to provide objective, non-partisan advice to the White House as they're making decisions.

Why There is No ‘Deep State-ness’ in the CEA

Beckworth: That's interesting. The dynamic turnover's an important part of what the CEA is then. You want to stay current and connected to the literature and so-

Hassett: Yeah, that's right and there's no deep state-ness. But I can say that having worked at the Fed, and not to criticize the Fed, so I've been in a large Washington staff and one of the problems in Washington is that career staffers tend to, I joke, proceed by induction. Something is correct today because it was correct yesterday. Therefore once the staff decides anything for all of history then that's true forever. There's so many examples. One thing, here's an example that we were looking at, the 10 year growth forecast at the CBO and at the Fed and other places and in the previous administration the CEA are really, really low. They convince themselves it's completely inevitable that growth is going to be low. Those estimates are based on a potential of GDP calculus that maybe you've heard people talk about. One of the first things that I or the other members did when we got here is we asked our staff, "Well could you look at the literature on GDP forecasting and see if the model that all the staffs use all around town actually performs well compared to like, naive autoregressive forecasts and so on?"

Hassett: When our professional, non-partisan, unbiased staff analyze the models that everybody was using we found that they were just terrible at forecasting GDP and that they were outperformed by really simple autoregressive models, for example. Yet there's this tyranny of this model. It's almost like you're disreputable if you don't use the potential GDP model to forecast medium term GDP but it really doesn't add much value at all relative to things that are more state of the art. You also have watched Washington for a long time so suppose that that ... This analysis is well known. Again, if you look at the Times series literature. The question is, "How long do you think it'll be until the career staff stop relying on these potential GDP calculations for their forecasts?" You would probably ... What? What do you think? How long will it be?

Beckworth: Sometime, I mean-

Hassett: It may be forever, right?

Beckworth: Right. You mentioned the inertia. I mean, kind of by their very nature big institutions become conservative. It's hard to change and as someone whose been-

Hassett: I would say cautious. Not conservative.

Beckworth: Okay well small conservative.

Hassett: Yeah nothing has an effect on anything.

Beckworth: Right and it's kind of the nature of the beast when you become a big institution. It's an issue that I've been thinking about and maybe more soap boxing about is kind of the inflation target issue and what should be the best approach moving forward. A different conversation but I think that same inertia is in that conversation, as well.

Hassett: Right as an example, in fact, my son is taking his first economics class in high school and we were talking at dinner yesterday about the NAIRU. What's the natural rate of unemployment? What's the rate of unemployment where inflation starts to accelerate? I expressed to him that when I arrived as a staffer at the Fed they had a very precise estimate of NAIRU that the staff was extremely confident in and that was that it was 6%. Now there are people who are maybe a few percent below that and all over the academic profession and my point to my son was just, the NAIRU, I'm not so sure it's a very useful concept because if you have this thing that's meant to be this parameter that helps us steer the ship then if it's changing all the time in a way where we don't know, like what is the NAIRU today really?

Beckworth: It's not very practical.

Hassett: Well it's not like it's the cosmological constant.

Beckworth: Right.

Hassett: That it's this thing that spits this pretty useful number out to thousands of digits.

Beckworth: Right.

Hassett: It's really just-

Beckworth: Well it's created problems for the Federal Reserve, right? They don't know what the Phillips curve is. They don't know if there is a Phillips curve.

Hassett: They have a very hard job but we respect their independence seriously.

The Slow Pace of Recovery in the Past Decade

Beckworth: Well yeah, I'll say it's been for them, as they said, a puzzle why inflation has not hit their target. Let's move on and talk about maybe the past decade since the crisis moving forward. One of the defining characteristics has been the slow pace of recovery. Typically when you have a real sharp recession kind of bounce back mirrors that. It's typically a robust growth. We've had a long recovery it just hasn't had the kind of pace of growth one would normally expect to see after a recession. What is your take on that experience?

Hassett: This is one of those things where I'm acutely attentive to avoiding appearances of post-theorizing.

Beckworth: Okay.

Hassett: It gives me the boorish tendency that I tend to quote myself ex-ante. What did I say then because that seemed like a worthy null hypothesis about what might happen and then let's look at what happened. If I were to right now look at the last 10 years and tell you what I think now then a savvy listener might wonder, "Is this just ex-post theorizing?" And so on. If we go back to the House Budget Committee first hearing on the Obama stimulus you could look at testimony I wrote when I was still an AEI scholar where I said that the Obama stimulus is really the wrong thing to do and that it was the wrong thing to do because the history of financial crises, as documented by my then colleague at AEI Vince Reinhart along with his wife, Carmen and Ken Rogoff was that you tended to have an extended period of very slow growth and that the Obama stimulus was meant to juice up the economy for a year or two at a time when really you were looking at maybe five to 10 years of very low growth. There's a lot of statistics in Reinhart and Rogoff's work about that.

Hassett: Even I went through the arithmetic in some of my writing back then where if you add a percent to GDP, of government spending, and suppose that you think that it has a multiplier of two, whatever the multiplier is, okay? Then I get 2% more GDP growth this year but then next year when I don't do that because I remove the extra government spending then government spending goes down by say a percent of the GDP then that means that the GDP impulses minus two if that's what you think the multiplier is. The multiplier presumably is symmetric. The stimulus policy that they were proposing was to take basically a year or two and to give us this positive thing and then remove it, which would be an equal and opposite negative thing. The equal and opposite negative thing would happen while we were still growing slowly. That's not where it ends because after you do this thing, like they were mailing checks to people and buying clunkers and all the things that you remember them doing, then after you do that then you have to pay for it.

Hassett: When you pay for it then that's a tax increase, say in the future, and the tax increase of the future is a negative. If we really thought through the logic of what the Obama team, Larry Summers and all those people with their Keynesian fantasies were proposing. This is what I wrote back then. That they were saying that we should have this stimulus which will push us up this year, will go down equal and opposite the year after that but in the medium and longterm it's a negative. Then it just didn't make sense to me given that after a financial crisis you tend to grow slowly. I was very outspoken, wrote a number of articles, did a late review in the Journal of International Finance and testimony at the House Budget Committee about why we shouldn't do this and in fact, I can remember at one point I was debating one of the proponents of this approach and I said, "Look why would we do this given that you get a plus and a minus equal a opposite and then a minus in the future? It's got to be a negative."

Hassett: Even the CBO said that, you might recall, if you looked at the CBO's score data-

Beckworth: Oh they said that?

Hassett: A negative over 10 years or something like that. Then they said, "Well if we do that now then we'll stop a panic." Then the thing I never understood is once you're talking about panic, by the way, you've kind of left economics I think in the sense. Because you're saying people are going to be irrational but as soon as people are irrational then they can do whatever you're worried about. It's not necessarily a theory. It's like saying tastes describe what we see. The thing I didn't understand back then was that if we've got this economy that, given the history of financial crises is guaranteed to be really bad and so therefore I'm kind of thinking I might panic, then I got the Obama team comes in and they give us a policy that's guaranteed to be a net negative logically then why should I be less likely to panic? Right? If I take a bad situation and put a bad policy in I should be more likely to panic.

Hassett: I just don't think that anything when you really dig into the logic and the economics of what they were saying made any sense whatsoever. Maybe on your website you could link to some of these pieces and let people see for themselves because I thought that the public responses that people made, Glenn Hubbard and I had a piece in the Washington Post, you could look at that one. The public responses that that team made didn't make any sense at the time and in retrospect they look a lot worse because they gave us an economy that, in many ways, is historically terrible and to their chagrin probably explains the election of President Trump. If you think about it the real wage growth, average real wage growth over the Obama terms was -0.4% a year. We had real wage growth, even while the economy is growing that the average worker was seeing his wage decline about half a percent a year. Very unprecedented declines in real wage. Productivity was really terrible as well. I've seen people talk about this.

Hassett: One of the interesting things that I point to is like a metric of how this sort of anti-business, anti-capitalist rhetoric of that administration was so harmful for ordinary people is that the way to get wages higher is to increase productivity and the way you increase productivity is you give people either better skills or better machines to work with is the main things. You could also invent a really awesome thing but that's kind of more random. When we look at the contributions to wage growth and decompose it into, "Well where's the productivity come from?" Then historically then people got a little bit less than a percent a year out of capital deepening. The fact that workers in society got more machines to work with. Over the Obama eight years, especially in the second half of that, the capital deepening it's contribution to productivity growth went negative for the first time in US history going back to the second World War.

Hassett: No matter how bad it got, it never got so bad that capital deepening contributed negatively to total factor productivity growth. It did ... Or to labor productivity growth, not total factor. It did and my view is that it did because we had a massive increase in regulation, big tax increases on small businesses and stuff through the repeal of the Bush tax cuts, a decline in entrepreneurship because of Obamacare and all the constraints that it put on small business and so on and so on and so on. Each one of those things that if we took our graduate school class and said, "Model the impact of this on capital formation" you'd get a negative. It's not in dispute and so anyway I think that you say looking back at the last eight years what do I see? I see really recklessly terrible economic advice given to President Obama that was ex-ante. Go read the writings, going to not work, it didn't work. It gave us a number of historically unprecedented negative things and now this sigh of relief rally that you've seen over the last year is the rational response of an economically literate electorate to policies that are turning the tide. We are turning the tide.

Hassett: My final thing on this, don't mean to give this long on this is that one of my favorite shows over the last few decades, one that you could binge watch if you haven't done it yet is the medical show House. Where they have this really smart doctor-

Beckworth: Right… with a little bit of an attitude.

Hassett: Well the point is just think about the hospital and then what happens is that like some person shows up and they've got this weird rash and their hair is falling out and they got a fever. You know that that person is going to be the focus of all the thinking in the show, right? If a guy shows up with a knife in his chest then House doesn't even want to look at him. You remember how many times he's like, "Oh, get this guy away from me." Because he's this very odd character but the point is just that when you have something that was easy to fix then the really smart doctor didn't even want to look at you. That was a running theme in the show. I think the US economy to anyone who actually studies economics and thinks about how things work, this is the patient with the knife in the chest. There's all this obvious stuff wrong. I mean, for gods sake, capitalist contribution to productivity growth went negative for the first time in US history and the Obama administration is talking about this and that but nothing that would really make capital productivity go up.

Hassett: Mrs. Clinton's campaign, if I could go back like, what did she ever say in the campaign that would address the fundamentally anti-business policies of Obama to make you hopeful that maybe productivity growth would go up and wages would go up? I can't remember any.

Beckworth: Just to summarize, you think it was almost partly inevitable given that it was this financial crisis things were going to be slow but then on top of that the policies of the past administration exacerbated the slow pace of recovery.

Hassett: That's right and the way, the last thing to think about this, is that one way to think about the financial crisis effect and this is something that I've done in realtime since the financial crisis is that you can take the Reinhart Rogoff data and you say, "Okay well the mean that everybody remembers is you're going to have 10 years that suck," right? That's the mean from the Reinhart Rogoff data. You could have 10 years that are really terrible but it's because you had eight bad years and then two good years, right? The 10 years thing you could maybe put some color on by looking at. If you look at the Reinhart Rogoff data and remembering that the financial crisis was about 10 years ago then generally what happens is after the sixth or seventh year you go back to normal. The 10 years that are terrible plot about that data is really about the first five, six years.

Hassett: The thing that really jumps out at you if you compare the US experience to the financial crisis is that the first four years looked pretty almost right on the average for every single variable of their 700 years of financial crises. Then the second part, the part that would've happened in President Obama's second term is the return to normal. The growth goes back to almost exactly where it was before the crisis. Equity prices go on up, for the eighth year equity prices go on up about 13% a year. All this recovery because the things that gave you the slow growth are starting to disappear. That didn't happen this time and that didn't happen this time because the financial crisis, I believe, was used as an excuse by people that have fundamentally anti-market ideology to put the market in the straitjacket.

Beckworth: We mentioned earlier NAIRU about the non-accelerating inflationary rate of unemployment, which we don't know. It's a theoretical idea. One of the arguments made by people on the other side would be, "Look, unemployment has continued to go down. Had the Fed stopped its stimulus, had maybe even Obama stimulus been cut short sooner the unemployment rate would've stopped." They would argue, "Look, we've continued to lower the unemployment rate even until now so there must have been some cyclical component left that needed to be squeezed out." Maybe there were some structural issues as you mention but they would argue there was some cyclical residual left. How do you respond to that?

Hassett: I think that if we look at their analysis and then think about the cyclical versus medium term stuff then you have to go into gory detail. As an example of a medium term thing then one of the reasons why anemic growth, the new normal and the 1% or low twos was inevitable was the retirement of the baby boomers and the decline in labor force participation. In the economic report of the president we did a deep dive into labor force participation to try to-

Beckworth: We look forward to that, yeah.

Hassett: Why did it go down so much? For sure the retirement of the baby boomers was part of it but there was another big part of it which is the marginal tax rate increases tend to make people who are, like me, closer to retirement than not tend to retire early because of the high marginal tax rates. Obamacare, the Affordable Care Act introduced some really high marginal tax rates on labor income for people who had moderate incomes and the opioid epidemic, which I think if you read some of the CEA work on this is partly policy related. That effects labor force participation. So there's room to make some ground there. Welfare reform, you might recall under President Obama, was rolled back. That had an effect on labor force participation. When we look at the future of labor force participation then we don't think that the sharp declines that you saw under President Obama were inevitable at all or chiefly attributable to the retirement of the baby boomers or wholly attributable to the retirement of the baby boomers.

Hassett: I think there are policy reasons why that happened but of course it definitely contributed to lower growth even while the unemployment rate was going down because the unemployment rate is estimated with respect to people who are looking for a job but if the high marginal tax rates, which basically are almost throughout the entire income distribution once you account for the Affordable Care Act phasing out the subsidies and so on were effecting everybody's labor force participation. You could see declines in the unemployment rate and very anemic economic growth because labor force participation was going down. Yeah and wages went down, too. We talked about that.

Why has Inflation been Persistently Low?

Beckworth: Right. What about the low inflation over the past decade? The Federal Reserve officially adopted the target in 2012 but many studies show that it implicitly was aiming around 2% well before then. Literally over the past decade if you look at it's preferred measure, the core PCE deflator, it's only hit 1% I think once. On average it's hit about 1.5% and for many observers it's a puzzle, a mystery. What is your take on why inflation has been persistently below the Fed's both implied and explicit target?

Hassett: I think that it's easy to have low inflation if you've got slow growth and you've got policies that are depressing the typical guy so much that labor force participation is declining sharply.

Beckworth: It's a structural story.

Hassett: Yeah I mean there are other things too that, sure, monetary policy has a contribution there. I respect your independence.

Beckworth: Sure, right.

Hassett: I think that if you were to go into the kind of models that we learned about in grad school decades ago if we said that we were going to have a period where wages were declining, growth was anemic, labor force participation is declining, capital spending went negative at the end of the Obama term you might remember. Actually went, his contribution to GDP growth was negative, capitalist contribution to productivity went negative for the first time since the second World War. You can give me all that stuff then yeah, you're not going to have much inflation but now demand is responding to the positive sentiment from our reversing those policies. Supply is responding and you're definitely starting to see a little bit inkling of things moving closer to the traditional targets.

Beckworth: One of the things we see picking up right now is the yield on 10 year treasury, which actually is a good sign, I think, if we want deals to get back to more normal levels. It's one of the other interesting phenomenon over the past decade, and someone actually traced it before then but I think you see a big break in 2008 and that is the decline of longterm yields on safe assets. Treasuries, German government bonds, UK, Switzerland, anywhere you go around the world you see this sharp decline and some have called it the "safe asset shortage problem." You see it happening before, during and after the QE so it can't be all QE but there is this decline. It kind of corresponds to the low inflation, as well. What is your take on the decline? Is it a product of the low productivity growth or is it anything else?

Hassett: I think that interest rates are one of those things that are set in a big macro economy where there are a lot of variables moving around and attributing it to one thing or another is always treacherous and for me one of the ways I like to think about things that really ought to be, so if there's something that really logically it ought to be true then you should watch it. If it doesn't seem like it's necessarily true then that can be a flag that something's going on but one of those things that ought to be true is that the sequence of short rates is about equal to the long rate. The 10 year rate implies a sequence of one year rates. If the 10 year rate is three and the one year rate right now is zero then that means that there's one year rates above three at some point.

Beckworth: Right the expectation theory.

Hassett: Expected future. I know that there are things around the edges that put color on that basic thought but if you go back to the financial crisis I think that markets clearly expected that monetary policy would keep rates very low for a long time, right? So there that should definitely effect, say, the 10 year rate as well. As expectations about that have changed as we've maybe moved the economy back to normal then the 10 years would be discounting a sequence of short rates that would be more normal, as well.

Beckworth: Okay.

Hassett: Again I don't mean to put any pressure on the Fed in any way. We respect their independence but I think the economics of interest rates, for me, I very much like to think about the sort of connection between the long rate and the sequence of short rates because it makes the sort of noodling a little bit simpler.

What Impact will AI have on the Economy?

Beckworth: Okay well let's move forward and look at the future. We've already touched on that a little bit but I want to look both at President Trump's policies but before I get to those another area of interest and big conversation is the advent of the smart machines, AI, driverless cars, this big boom that's going to come. Do you see that happening soon? Is it on the horizon? Will it radically change the growth path of the economy?

Hassett: I think that AI and robots and all the technological advances that we have will make people more productive but will also displace some people and in a well-functioning economy then that displacement will move people towards higher value tasks. Imagine, just to think about it, that we invented an AI robot podcast interviewer that was just much better at it than you, which seems implausible of course-

Beckworth: Oh no it's very possible.

Hassett: So the point is that if you tried to then make a wage competing with that thing then your wage is going to go down.

Beckworth: Sure.

Hassett: Because that thing is cheap. Let's just say that we can buy the podcast AI robot for $100, right? How much would we pay you to compete with it? Well, not very much. It could be really good for, say, Sirius XM or whoever it is that's making money off of the broadcast because they now have this really cheap robot and then the people who provide the satellite services and so on. They could be an increase in demand for workers like that. I think that as we look forward to these innovations the thing that we're studying closely is that we think that innovation is a disruptive event, just sort of like having China enter the WTO was a disruptive event, and that it's going to become more and more essential that people can have access to 21st century training so that if they find that their job is being challenged by innovation that they can retool themselves and find a new career.

Hassett: In trade space we have this trade adjustment assistance that helps people with these transitions and I think that doing trade adjustment assistance better is a high priority. Also thinking about other things that we can do to help people transition is going to be more and more important. Maybe not in the next year but certainly if you look ahead 10, 15, 20 years the disruptive innovation is something that probably will be a key challenge for politicians.

Beckworth: So we might see more structural unemployment from these innovations going forward. Just for the record, podcast broadcasters could be one of them. I heard another podcast where they had a shrink that was actually an AI replace a real person talk to these soldiers-

Hassett: And how does that make you feel?

Beckworth: Luckily this is only a small part of my job. I'm a researcher. This is more fun but it was interesting-

Hassett: Keep going, keep going.

How Will President Trump’s Policies Increase Potential GDP Growth?

Beckworth: The thing that was interesting though is they found that this machine was doing just as good a job as the shrink. The soldiers didn't know, he was on the other side of the wall they were talking to, the screen they were talking to. It is possible that in the future you'll be talking to an AI instead of me. Okay let's talk about President Trump's policies that as well will contribute. You've touched on some of them, productivity growth, also the regs being pulled back. Give us the understanding there. How is that going to increase potential GDP growth?

Hassett: Well in the economic report of the president we have hundreds of pages of gory detail, which I'm guessing given my forecast of your clientele is going to be demanded with aggressively high demand from the listeners of this podcast where we look at the growth effects of tax reform, infrastructure investment going up a lot and deregulation. We also have some analysis of other things which I think will impact growth positively in the next decade. Like again, maybe rolling back the rolling back of Welfare reform and increasing the opportunity for people to have earned success and life satisfaction because they're connected to the labor market. Yeah I think our analysis is that there's plenty of opportunity in all of those spaces and if you'd like we can follow up individually on each one to talk about what the president's plan is but the tax plan is the big thing that's already happened. On regulation, the big thing that's already happened is that new regulations have ground to a halt.

Hassett: We've been surprised a little bit by how fast that seems to have effected business sentiment and even startup activity. I think that the idea for that is that if we were to introduce new government regulations of podcasts, say, then you guys might have to hire lawyers to study the new regs and to get advice about how you should change your actions and what kind of questions you can ask and you can't ask. Like I've got a different color foamy thing on my mic than you do and maybe that would violate the regulation and you'd have to buy a new foamy thing. Do you know what the foamy thing is called, by the way?

Beckworth: A pop filter.

Hassett: A pop filter.

Beckworth: So your P's, when they come off, it stops the-

Hassett: It's a pop filter.

Beckworth: Yes.

Hassett: Totally imagine the government wanting to regulate pop filters, right? The point is that new regulations I think must have a disproportionate negative effect on firm activity because like the regulation from five years ago, our lawyers figured it out. They told us what to do and maybe its made us do things really inefficiently but we've adjusted. The new thing requires, if we look at the data and the economy millions and millions of man hours to study and decided how are we going to change what we're going to do and it's just a massive distraction. In the Obama administration one measure we have of regulations was growing about 8% a year, which means it's much faster than the economy. If you think about it, let that run for 50 years and then regulatory costs are the whole economy and-

Beckworth: You pay for compliance officers and-

Hassett: Yeah that's right and lawyers. The point is that freezing those regulations appears to have a really big, positive effect on sentiment entrepreneurial activity. Anyway, that's the kind of thing that-

President Trump’s plan for Infrastructure Spending

Beckworth: So you're rolling back regulations, the big corporate tax cut will lead to more investment, productivity growth. What about the president's plan for infrastructure spending. Will that also be an important part of the story?

Hassett: Yes. The president's infrastructure plan is basically based on the idea that the government can smooth the approval process by cutting red tape and maybe requiring there to be a single point of contact so that if your things biggest government challenge to approval is pollution then maybe your point of contact is the EPA. Then the EPA will help coordinate you get approval from other government agencies but if you look at it there really are projects that take 10 years to get approval and the president's objective is to get it down to two years. There was even one project and we have to find out what this project is but there was ... Because I've heard people say it but they haven't told me what the project is. There's apparently one project that's still held up for approval that was first submitted in the 1930s.

Beckworth: Really?

Hassett: The point is just that-

Beckworth: That's amazing.

Hassett: If you're going to attract private capital, and that's a key objective to leverage-

Beckworth: That's a big part of the president's plan. Yep-

Hassett: The president's plan. The private capital has to be able to understand the risks and there's going to be risk if you build a toll road of what's the demand for the toll road? There's also the risk that you just never get off the ground because the government bureaucrats want to mess with you. That risk is the kind of risk that's hard to diversify and more or less has kept private capital on the sidelines in the US. There's a lot in the infrastructure plan but I think that the main big idea is that we can attract private capital to fix, you know there are a million problems, infrastructure problems, all around the country and private capital would like to come in and fix it but right now private capital isn't really trying to do it very much because it's so worried the government's just going to stop it.

Hassett:  We think that if we can get approvals down to a couple of years and make it so that there's a single point of contact it's going to help state and local enterprise or private firm get through the approval process then you should attract a heck of a lot more capital. If, at the same time, you leverage the Federal Government's ability to borrow at lower interest rates and so on then you can help them feel, especially if it's state and local governments, that they'll have access to ready capital, too, that they can borrow but will sort of help them do that in a way that keeps the borrowing costs down. It's not a single effort. It's not one thing. It's a combined effort which we think that once we make it so that people should be optimistic that if they have a good infrastructure idea that it won't be held up forever and ever then capital will come. Then once the capital comes, then the natural question is, "Well what can we do to make sure that the capital is affordable?" That's the other part of the plan.

Beckworth: I like that there's a common theme in all these policies. The corporate tax rate cut, the regulations, the infrastructure plan, it's all about empowering private domestic investment, right? To improve the supply side of the economy. There is a consistent theme throughout all of this. In the time we have left since we're running low here I want to ask you since you've been in DC a while, you've been both an academic, you've been in the policy world, what advice would you give to a young aspiring policy wonk? Someone who's an economist, maybe in school right now training and they want to follow in the footsteps of a policymaker in DC.

Hassett: I think one of the things I've talked about this summer with one fellow that I coach little league with even that as you move on in your career that a lot of us can go through our entire lives without an opportunity to serve our country. It's an incredible honor and very satisfying to have a chance to serve your country. I think that people, students, some of the students might not understand how big that effect on their moral might be. The opportunity to serve the country is something that I think animates just about everybody I work with here in the EOB and the West Wing, the president himself. We're all here not out of some sort of venal desire to have a government thing on our CV that's going to help us get ahead but rather because we're so privileged to have a chance to serve our country.

Hassett: I would just say that if you're a student think about serving your country as something that's on the bucket list. You might not know that it's on the bucket list but as you get on in years and you look back over your career then I think that you're going to have a yearning to want to serve your country and you should look for opportunities to do it.

Beckworth: It's very fulfilling. You've served on a number of campaigns, as well. You've seen this. I imagine it also leads to better policy analysis and better informs. If you've been in the real world where the rubber meets the road of policy plans and action as opposed to someone who's just a pure academic you might not always see the real details, that can be consequential as well.

Hassett: I think that in the policy space the issue is just that if you've been on presidential campaigns or if you worked at Brookings or Mercatus then you not only do serious academic work but you also try to connect the serious academic work to decisions that are being made today. That if you're a person like me that's been doing that for decades then when you're in the White House and they're thinking about, well right now we're talking about opioid policies, prison reform, infrastructure, tax reform, you can imagine the long list of things that maybe decision makers are trying to study and decide what the right thing to do is, that a person whose had that background of working in that space will know, "Well you should ask Andrew Biggs about social security reform" or "Bill Gale about budget deficits" or that you'd know the social network of people that work on those things so when you have to make informed choices you've been reading pieces in that space for a long time and so you can help decision makers think about things.

Hassett: I think that that's, if we go back to the 46 Employment Act, something that the guys who crafted the CEA were hoping that the CEA would be able to achieve. That it would bring in people who understood what the objective analysis is and that I think we're doing a, hopefully, a pretty good job of doing that. In part because I work at AEI, my chief of staff worked at Brookings. Where in the conference room at CEA and if you look up at the wall there are a picture of a lot of former chairmen-

Beckworth: Very impressive.

Hassett: Probably about half of them are former Brooking scholars and I think that they served very ably because they spent a lot of time studying policy and thinking about what happens if you do this or do that. The final thing, and I want to really clarify this about the CEA's job, I had an interesting question from Erin Burnett on CNN where just, I guess this was last week, she said, "Would you advise the president to stop talking about this or that?" Then I said, "Well I wouldn't advise the president about what he should talk about because that's not the kind of judgment the CEA should make." We don't tell people, "Oh it's going to be good for you in the polls if you talk about this or that." My job is to say, "If we do this then here's the objective analysis of what happens" And advise the president in that way. That's what we do every day.

Beckworth: Okay. Well on that note we have to end. Our guest today has been Kevin Hassett. Kevin, thank you so much for coming on the show.

Hassett: Thanks. Thanks for having me.

About Macro Musings

Hosted by Senior Research Fellow David Beckworth, the Macro Musings podcast pulls back the curtain on the important macroeconomic issues of the past, present, and future.