White House NEC Director Kevin Hassett Talks Trump-Warsh Talks | Bloomberg Talks

Right. Well, first of all, you know, I've been talking about these numbers with Mike for how many years, Mike? 20 years. And so he really does raise some good points. And the thing that I would say is that because of our border policy and because of deportations and the retirement of the baby boomers that labor force participation is kind of on a downward trajectory which means that the break even jobs number that is the jobs number you need so that unemployment rate doesn't go up has gone from maybe 120, 130,000 a few years ago to maybe about 40,000 now. And so what it means is that what the market is used to looking at, oh, it's like a normal tread the water kind of jobs number if it's around 100 is no longer true. If you get a number like 100, then that's really like a great number. And it should make the unemployment rate go way down. And so that's like the technical big picture. Digging into the numbers, there are some things that really jump out at me. That it was like private sector job creation was right about at the break even positive number. It was government employment that went down a lot about 50 something thousand. And the other thing is that we see in the hospitality sector the end of the World Cup is really clearly in the data too. If you exclude those two things you had about 100,000 number and that's consistent with all the other indicators like the purchasing managers being really high. Unemployment insurance claims being about the lowest they've been since World War II. All these other indicators suggested the market was right when it expected around 100. And given that there's just a minor correction that gives you about a hundred, I think suggests that's what the truth will be. But we need to see future numbers before we can make a final judgment. And that's why it's great to have a person like Mike around to help us think about.

Yeah, I mean what's going on right now is if we do the old potential GDP calculations then you add productivity plus capital deepening plus labor's contribution. I think that one of the things you see in productivity is that it's probably running north of two, two and a half percent. Capital spending probably adds at least 1% to that. So before you get to the labor story, you're looking at a three, three and a half percent GDP number. And I think the labor story is still going to be positive. I just think that it's not going to be as positive as it typically has. If you go back over 40 years, the labor story adds about one or one and a half percent every year to GDP. I think now it's likely to be about a half of that or a third of that.

I don't know if he's watching, but I'll find out. I can tell you the people we've talked to so far today are basically saying this is a non-event even with the negative number for the Fed because it shows the labor market is stable if nothing else and they can focus on inflation. I'm wondering though why the president is saying things like Kevin Hassett can do what he needs to do. The labor market was stable under Jay Powell and the president was really mad at him all the time. Why is he giving Kevin Warsh so much more runway even though conditions haven't changed all that much?

The president is going to respect the independence of the Fed. I'm highly confident. And it's very natural for the president to do something like say, 'Hey, you know, Chairman Warsh, what do you think about today's job number?' and that's a very normal thing for him to do but I think that's the way you should think about the bounds of the conversations.

Well, you know, Mike, that I as CEA wrote a chapter about it in the economic report of the president was widely criticized because people said, 'Oh, there's no way the Democrats are socialist.' I didn't say Democrat anywhere in the report. I said, 'Here's the risk of socialism.' But then I wrote a book, The Drift: Stopping America's Slide to Socialism because I believe socialism, we are sliding towards socialism through that party. And so, socialism is when the government owns the capital and then hands it out to people is a very simple definition. And so, let's just say hypothetically, the government decides to have grocery stores where it sets the prices and tells people when they can get in and get the cheap stuff. The history of this is that the grocery stores end up being empty. Prices don't matter because there's nothing to buy. And over time, socialism leads to public disorder. And you see it in Venezuela, you see it in Cuba and so on. And so it's a terrible path to go. But I think that what people underappreciate is that the policies that have been advocated by Democrats since President Trump took office where hey you could have wealth taxes, you could have really high taxes on income, you could have really high taxes on capital gains that they've been basically sliding towards socialism for a long time. And so while the new people are a lot more charismatic than the people in the Senate, I think the policies that they're advocating Medicare for all, you know, like come on, Hillary Clinton's healthcare policy was about that, right? And so that I think that's the uncomfortable thing that Democrats have to come to terms with is that these socialists are actually advocating things that Democrats have advocated for a long time.