CHICAGO — Gary Cohn, a Wall Street titan who served as chief economic advisor to President Donald Trump for more than a year, has a two-word solution to America’s broken political system: term limits.
“We have to come to the realization that professional politicians are not what we need in this country. We have to get to term limits because the fact that politicians are governing for one purpose and one purpose only, which is re-election, and raising money from constituents is why we end up in these horrible situations,” said Cohn, the former president and COO of Goldman Sachs, referring to the rancorous partisan climate in our nation’s capital.
Cohn served as director of the National Economic Council from Jan. 20, 2017 to April 2, 2018, and played a critical role in the passage of the Tax Cuts and Jobs Act, which lowered the corporate tax rate from 35 percent to 21 percent and reduced tax rates for many Americans.
“Can you imagine if you were only there for one or two terms and the campaign finance rules were different, and you knew you had a finite period of time, and this was not your professional job, and you knew after it you were going to go back to your job? We would have a completely different government. We would not be polarized. You would bring people together who were trying to get something done,” added the 58-year-old Cohn.
Cohn’s comments came Thursday morning during the opening general session of the 2018 NIC Fall Conference, put on each year by the National Investment Center for Seniors Housing & Care (NIC). Held at the Sheraton Grand Chicago, the seniors housing conference attracted a record 3,119 attendees from across the niche property sector, including owners, operators, capital providers, investment sales brokers and others.
In a 75-minute interview with Steve Liesman, senior economics reporter for CNBC, Cohn touched on a number of topics including tariffs, entitlement reform, the U.S. economy, interest rates and his decision to leave the Trump administration.
China notched a record-high $34.1 billion trade surplus with the United States in September, taking the surplus to $225.8 billion year to date, according to The Washington Post. The Trump administration says China’s massive trade surplus with the U.S. reflects unfair practices.
Cohn strongly supported some of the president’s main trade policy objectives, including making China pay for the alleged theft of American intellectual property. China is considered to be quite lax on enforcing copyright laws. “In a world where the United States’ competitive advantage is creating and inventing intellectual property, we have to be compensated for that,” emphasized Cohn.
The issue that Cohn and Trump fought over was how to get the Chinese to abide by fair trade practices. The president believes that the way to do that is to slap tariffs on Chinese products coming into the United States. Thus far, the U.S. has imposed tariffs on $250 billion in Chinese goods while Beijing has retaliated by targeting $110 billion in U.S. products.
Cohn told the president in no uncertain terms, “that may have some impact on the Chinese, but you are really hurting your domestic economy. Let's not kid ourselves what we're doing. You are trying to make the Chinese product more expensive, so people won't buy it — trying in essence to hurt the Chinese economy.”
But the reality is U.S consumers will continue to buy Chinese products because they are manufactured efficiently, said Cohn. “They are going to continue to buy those products because we don't manufacture them in the United States, and all you are doing is adding tariffs to those products that the consumer is going to pay. So, you are making a product more expensive.”
Cohn, a free-trade advocate, reportedly resigned his position after losing the battle over tariffs.
“I left the administration over a breakdown in process,” Cohn told Liesman. He explained that one of the hallmarks of President Trump’s leadership style is that he is an advocate for hearing all sides of an issue, something Cohn was accustomed to while growing up.
“But I also grew up in a culture where you come to a meeting with your facts, you lay out your facts, you discuss, you come to a conclusion and everyone leaves the meeting holding hands and walking out together saying this is the conclusion, this is what we are going to do,” he said.
The dispute within the administration over tariffs reached a point where there was a lot of “backstabbing,” explained Cohn. “We would go into meetings, agree on certain things, and the minute the meeting was over people would go out and do the opposite of what was decided.”
The desire to make America competitive again on the corporate side was the driving force behind the tax cuts, according to Cohn. But was the move the equivalent of a sugar high that will quickly burn off?
“The view that we were working on is that if we lower the tax rate, make businesses more competitive, get businesses to expand in the United States, hire more people, get a little positive wage growth, allow consumers to keep consuming — if we get 1 percent additional GDP growth over baseline, the tax reform pays for itself over 10 years.”
Real gross domestic product (GDP) increased at an annual rate of 4.2 percent in the second quarter of 2018, according to the latest estimate released by the Bureau of Economic Analysis.
The Wells Fargo research team forecasts real GDP growth of 3.1 percent for the third quarter of 2018. Looking ahead, Wells Fargo expects three increases in the fed funds rate in 2019 and forecasts the 10-year Treasury yield will rise to 3.6 percent by the end of 2019.
The United States recorded a $779 billion budget deficit for fiscal year 2018 that ended Sept. 30. That’s an increase of $113 billion, or 17 percent, over the prior year. The budget shortfall for fiscal year 2019 is expected to be even higher at $985 billion.
“I am completely exercised by the deficit, but I don't think we have a revenue problem,” emphasized Cohn. “We have a massive spending problem in this country. We take in about $3.6 trillion a year and spend $4 trillion plus.”
The situation is only going to get worse, unless something is done to decrease entitlements, he believes.
“When you look at what's going on with our aging population and life expectancy, and how long people are going to get Medicare and Social Security, we're going to end up spending substantially more money on those services,” said Cohn. “They are going to continue to grow every year. And without dealing with those issues, we're going to have no discretionary spending in the budget.”
The defense spending bill for fiscal year 2019 that President Trump signed into law in August is $717 billion. Military spending is considered discretionary. To put that figure into perspective, according to Cohn, that means the U.S. military is projected to spend nearly $2 billion every day during fiscal year 2019.
— Matt Valley