Executive Vice Chairman, IBM Common Stock
Former NEC Director Gary Cohn: We've got a lot of really strong economic tailwinds
Gary Cohn, IBM vice chairman and former Trump NEC director, joins 'Squawk Box' to discuss news of Block laying off 40% of its workforce due to AI efficiencies, future of AI and the labor market, state of the economy, latest market trends, and more.
About Gary Cohn
Gary Cohn, vice chairman of IBM and former director of the National Economic Council under President Trump, has appeared on multiple CNBC programs in recent months to discuss the economy, Federal Reserve policy, and the impact of artificial intelligence. In a June 2026 appearance, Cohn said that without the AI and energy sectors, the stock market would be "floundering" and described the two industries as "intertwined." He stated that he believes computing capacity will be overbuilt and will become a commodity, with companies purchasing it from the lowest-cost provider. Regarding AI's effect on employment, Cohn said he is "in the camp that this time is the same" as past technological advancements, arguing that such innovations historically have not led to the "demise of human capital" but have instead grown GDP and created more jobs. Cohn also commented on economic policy and inflation. In June 2026, he said that if a deal to open the Strait of Hormuz is signed, oil prices would "not... fall like a rock overnight" but that a change in psychology could lead to lower prices over time. On the Federal Reserve, Cohn said that new Chair Kevin Warsh "will remove himself from the political pressure" and "do the right thing economically," adding that the Warsh Fed "will look different than the Powell Fed" with less forward guidance and data releases. In July 2026, when asked about IBM's software business, Cohn affirmed that the company's software is "not being disrupted by AI," and noted that companies are beginning to evaluate the return on investment of their AI spending.
Transcript (10 segments)
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Joe Kernen0:00
Shares of financial technology company Block shooting higher after CEO Jack Dorsey said he was laying off 40% of the team due to AI efficiencies. In a letter to shareholders, he said intelligence tools have changed what it means to run a company. That's just one of the things we're going to talk about with IBM vice chair and former NEC director Gary Cohn. Someone did write in to me. Gary, welcome. It's good to see you. Elon Musk bought Twitter and got rid of like 90% of their employees and nothing happened. So maybe Dorsey has some bloated employee ranks at companies that he owns.
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Gary Cohn0:40
Joe, look, thank you. It's great to be here. Look, I think we're in this reality where companies are being forced to run themselves much more efficiently. We saw headcounts around the world bloat pretty dramatically after COVID. People were hoarding labor when people were working from home. They were working two, three, four days a week. The productivity rate was down. So, companies had to make sure they had excess capacity, excess employees. We're now back to a much more normalized environment. People back in the office. We're getting productivity out of workers. And we've got this whole new AI thing upon us, let's call it. It's hard for companies to actually explain how they're using AI, but the one KPI that they can tell you is we've cut heads. So today, we've sort of made the world synonymous with I'm using AI, therefore I need less heads. I ultimately don't think that's the truth. But companies don't have a better way to explain to you how they're creating synergies, how they're creating productivity. They're saying, 'Look, we're just being more efficient by cutting heads.' And I think that's the trend we are seeing and we have seen for the last year or so.
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Joe Kernen1:48
Because you have been on in past appearances and I remember you were explaining something that was very confounding about the labor force or the jobs Fridays, what was going on, and you said people don't need that. Oh, I remember what it was. Okay, the reason that one way to deal with tariffs is you look at the whole situation at your company and if your margins are going to be hurt by some increased costs then you're not going to hire people and that's the way they were dealing with it.
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Gary Cohn2:21
Yeah. So if you look back, I agree. And if you look back on the last few years and you think what companies have had to live through, we went from a zero interest rate environment in '22 to the Fed raising rates to 5 and a half, 5 and 3/4%. They did that to slow the economy down. That's why you raise interest rates. So we went through that period of zero interest rates to higher interest rates. We've gone through this period of what I would call trade wars, trade imbalances, higher input costs. We've gone through this world where the dollar continues to go down in value, meaning that a lot of the commodity input costs continue to go up in value in dollar terms. So if you're going through this period of time where your input cost, whether it's cost of funding, cost of labor, cost of raw materials, go up and you don't feel like you have pricing power to the consumer, the company's going to get squeezed somewhere. And where they've been trying to alleviate the earnings problem is they've been doing it through human capital. So, human capital has been sort of the lever that companies have been pulling to make themselves profitable. And you saw it even in this last quarter's earnings announcements. We saw well over 100,000 announced layoffs in some of the bigger companies. And I think this is a trend we're going to continue to see as people fight with higher interest rate cost, higher input costs, higher commodity costs, and more trade tariffs.
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Joe Kernen3:45
One thing that President Trump tried to do the other night was highlight some of the things in the economy that the administration feels are underappreciated and there are a lot of things that are underappreciated. We maybe we had Mike Wilson, I know you follow his work, the other day he said look the stock market anticipates future positive business activity and then as it starts playing out some of the money comes out of the stock market and goes to fund the increased corporate activity. He's expecting some blockbuster year, inflation trending down or maybe at least flat. You have the same optimism, it's not reflected in polls.
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Gary Cohn4:24
Look, I am fairly optimistic right now. You know, we've got a lot of really strong tailwinds and I think the president tried to talk about some of these tailwinds during the State of the Union. You know, look, we've got the Build Back Better bill. And what people are now starting to understand for the first time is when they put that legislation through, they changed things in the tax code retroactive to last year, but they didn't change the withholding tables, meaning that we could have withheld less money from workers every day. Instead, what they did and probably very smartly is they kept the withholding rates at the same level. So, as people are actually filing their taxes today, they're getting a much bigger refund than they might have expected. They're allowing to deduct higher SALT deductions. So, whether it's state and local taxes, real estate taxes, that's giving people more money. So, the consumer is getting more money in their pocket. You look at what's going on in the capex boom and the re-industrialization of the United States.
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Joe Kernen5:26
Is that happening?
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Gary Cohn5:27
It's happening. But I've always sat here and said, look, this stuff is slow. As fast as the federal government wants to work and as fast as the federal government wants to get manufacturing built and they want to get data centers built, local state and local regulation does not move at the speed that federal regulation moves. So these plans to build and these plans to develop factories, they're in state. They're in state courts. They're in state zoning committees. They're in city courts. They're in city zoning commission. We're starting to now see some of that money being put to work in real construction projects.
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Joe Kernen6:02
The Dow hit 50,000. We heard that the other night. The S&P hit 7,000. But Monday was a, was it Monday? Monday was a scary day. Today I think we're down 450 now. Nvidia unable with a great report yesterday unable to save the technology sector or the AI or software or whatever, or is this just a normal backing and filling after a big gain or is there more to it?
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Gary Cohn6:25
So Joe, I think we're having a bit of a rotation. If you look at the S&P itself, the market cap weighted index, so the biggest companies have the biggest influence, which are the companies we've just talked about, the Nvidia, the Google's, the Microsofts, it's gone up so much that well this year it's basically, right now with today's activity, it's about flat. But prior to that, if you look at the equal weighted index where every company's equal, that index as of last night was up about 6%. So net net we're seeing the stock market as a whole hold its value. We're just seeing a rotation where people want to be. People are starting to re-evaluate the growth numbers that they had on a bunch of these, I would say, technology companies, software companies, and they're starting to re-evaluate the growth of what I would say traditional companies in America. And traditional companies like Walmart, like J&J, like Exxon, like Verizon, companies like that are all trading basically at their 52-week high as people are saying, 'Look, I still want to be invested in the market. I still want to be long the economy. I just want to be long it in a more judicious fashion where I don't have as much exposure to the Mag Seven or the top five or seven names. I want to have exposure across the'