But now I want to welcome and thank you for coming, Gary Cohn, who is the Vice Chairman at IBM. He used to work — he was part of the original Trump administration as an economic advisor. So Gary, I'd be remiss, given that it is inauguration week — I assume you've given a little bit of thought to what you were doing eight years ago right now. What is, to you, and take this where you will, the biggest difference so far that you've seen between Trump 1.0 and 2.0?
Well, thanks for having me. So I think, to summarize it quickly, because this is an answer that could go on forever — look, Trump 2.0 comes in with eight years of experience. When Trump came in eight years ago, he was an unknown politician, didn't really understand Washington, didn't understand the power of the White House, didn't understand the power of the presidency. Eight years later he comes in and there's a stack of a hundred executive orders on this desk because now he understands, I've got the power of this pen. It's not law, but I can influence the outcomes for the next four years until the next president signs an executive order to rescind all my executive orders. So he does come in with the knowledge of understanding what the office can do, what the office can't do, and how to leverage the office, and I think that's a big advantage.
It feels, from walking around Davos, that the general lead from the U.S. business community perspective right now is very positive — obviously a more business-friendly administration, unleashing animal spirits, etc. Are you surprised by how giddy some U.S. business people and Wall Street folks, your former world, seem to be?
Yeah, look, there's overwhelming optimism here, and I get it on one hand and I don't get it on the other. The hand that gets it — now I'm speaking like a lawyer, on the other hand I'm not a lawyer — the hand that gets it is the regulatory environment. In the last four years of the Biden administration it was beyond stifling. I'm sure there's people in this room, no matter what business you're in, you felt it — the wrath of Lina Khan. Someone in this room probably loves her, but the wrath of Lina Khan and what she was doing to businesses, and how she was stifling creativity and stifling synergies, obviously mergers...
When you say stifling creativity, what do you mean?
Well, just the ability to put things together — mergers, putting companies together, creativity, products. The amount of inquiry that was going on privately behind the scenes to companies was just extraordinary, and the amount of investigations that was going on, whether it was the SEC, whether it was the CFTC, whether it was the FDIC, depending who you were regulated by. And if she regulated you, she was just one of a pile-on. There was a me-too effect in Washington — every one of the regulators wanted to be me-too, they wanted to be in on the game — and it was really, really stifling for the business community. So I think just the weight of that being taken off of people's backs has created an enormous amount of optimism. So that in itself, no matter what happened, would have led to a more optimistic world.
Then you go to a Trump 2.0, where they know that Trump 1.0 was, I would say, regulatory-friendly — not zero regulation, there was some mergers that got blocked — where businesses were allowed to be businesses. They did block some mergers, they did block deals, they brought investigations against people that did things wrong, but people thought it was a much more sensible, reasonable, rational regulatory world, where if you went in and talked to the regulators you could have a rational conversation. Doesn't mean you were going to win, doesn't mean it wasn't going to cost you something if you did something wrong, but you could have a rational conversation. So that's where all the optimism comes from. The flip side, and I don't want to get too financial here...
See, we can do this. Can we be financial? I can be a banker. We can do this.
The flip side is, look, the administration starts with the stock market in the United States at sort of all-time record highs, multiples of all-time record highs, mostly through multiple expansion, not through much earnings expansion. You look at credit spreads at all-time record tights. The euphoria of the Fed cutting interest rates that was permeating the market last year is probably overdone, and I think realistically the Fed may be done cutting interest rates, because if you look at the economy in the United States right now it's very sound, job growth continues to be very steady, and the last mile of inflation continues to be more problematic, as it always is. And a lot of the policies that the Trump administration is talking about are not going to help the last mile of inflation go away.
So when you think of an environment where you're not going to be spurred on by a lower interest rate environment, where the credit cycle is tight, where the consumer is still spending but we know consumer debt is back at all-time record highs and we know credit card delinquencies are starting to spurt — I look at this picture from a business standpoint and say it's more neutral, I'd say on the positive side of neutral. So I would characterize myself as cautiously optimistic.
Would you — assuming that somebody in your former job gets judged on how the economy goes, would you... [Gary Cohn: "I gave that job up."] I know, but in that past job, do you feel you were more confident in the prospects of getting a good report card because the economy improves than you would be if you were Kevin Hassett today?
Look, I went to the White House for one reason only — really only: I wanted to reform the tax code. We can go into it, I don't want to bore people. I was very optimistic that we could reform the tax code in the United States, and I was equally optimistic that that was going to be highly stimulative to the U.S. economy. So we also were in a very low interest rate environment — we probably had more tailwinds than headwinds. Right now we've got sort of equal wins, I would say. And by reforming the tax code, I felt we were in a very good position to stimulate growth, stimulate economic activity. We forced repatriation of lots of tech dollars that were offshore that got reinvested back in the United States. There were a lot of things we did in that tax code that I felt were value stimulus to the economy. So I was probably more bullish at that point economically than I am now. But look, our goal — and the new Treasury Secretary stole my line — I was a 3-3-3 guy: 3% GDP, 3% wage growth, and 3% unemployment.
You left in part over a dispute over tariffs — tariffs on Chinese aluminum and steel. Obviously tariffs have become a big talking point. So this is my question for you, because you would know this better than almost anybody: Trump talks a lot, when he talks about tariffs, about other companies paying, paying the U.S. government. He talks about an external Revenue Service. So I mean this sincerely, not facetiously: does Trump understand how tariffs actually work?
Yeah, he understands how they work.
Does he understand how, when a tariff gets paid, how the check moves?
Look, I don't — I think there's very few people that understand shipping law. I could probably quiz this room on how things get shipped.
Okay, see what you're doing. If he was taking an Econ 101 class and it was a very high-level question, would he get it right?
Look, he'd get it right that someone pays the tariff and it gets paid at the entrance of the border.
Did they ask like at HBS, does someone pay taxes?
Yes, 100%. Well, that's not true — half the U.S. population doesn't pay taxes, but that's a whole other discussion.
