Taking Back Trump's America, page 27
The intense internal debate that would erupt over the payroll tax cut within the White House would be yet another example of Bad Personnel and Bad Process leading to Bad Politics. As a strong proponent of that payroll tax cut, I would have more than one knock-down drag-out fight with Steve Mnuchin over a measure that both Tyler and I saw as an absolute no-brainer.
On the worker side, a payroll tax cut was equivalent to an immediate wage hike of more than 7 percent.6 By putting more cash in the pockets of workers, we would achieve a greater consumption stimulus—while taking very good care of the Trump working classes.
On the employer side, businesses, particularly small businesses, would be better able to manage their cash flow—and therefore less likely to lay off any employees. Notch another win for the Trump Deplorables.
According to Tyler’s econometric modeling, an immediate Trump payroll tax cut would increase America’s gross domestic product by a full 2 percent in 2020 alone while lowering the unemployment rate by as much as 1.8 percent. What’s not to love about that?
Unfortunately, with Mnuchin, it was apparently quite a bit. Stevie was just dead set against that payroll tax cut, and he wouldn’t—or couldn’t—even clearly articulate why.
After one particularly brutal Oval Office showdown between Mnuchin and me, the Boss gave Secretary Stevie a very strong and crystal clear command to negotiate a payroll tax cut as part of any package up on Capitol Hill. The Boss’s directive went something like this:
The Boss: Get it done, Steve.
Mnuchin: Yes, sir.
The Boss: I mean it, Steve. I want that payroll tax cut and I want that two trillion dollar package. Get it done now. I mean it.
Mnuchin: Yes, sir.
Upon hearing that, I should have been happy for what looked to be an apparent victory. Yet, call me a cynic, all I did when I watched the Boss’ directive to Mnuchin was roll my eyes.
I rolled my eyes because here’s pretty much all you need to know about Steve Mnuchin: In the presence of the Boss, Steve was always the quintessential “Yes Man.” Outside the Oval Office, however, this munchkin was far more of a “Say Yes, Do No” kind of most willful Bad Personnel denizen of the West Wing that one might ever conjure up.
Predictably, as soon as Mnuchin got up to Capitol Hill, he immediately folded on the Boss’s payroll tax cut proposal. Said one news account: “When pressed…about why the Trump administration caved on the payroll tax cut so quickly, Mnuchin responded that ‘it was very clear that the Democrats were not going to give us a payroll tax cut.’”7
Back at the Oval, after Mnuchin’s quickest surrender in Capitol Hill history, the president was predictably PISSED! When called to account, Mnuchin would whine:
Nancy and Chuck and Mitch didn’t like the payroll tax cut so we had to drop it from the negotiations.
All I had to say in the Oval when the topic came up was: “More weak-ass shit from Mnuchin.” Yes, that’s exactly how I talked about Mnuchin to the Boss and anybody else who would listen by that point in the administration. Steve was just weak-ass, shiny, whiny, Wall Street, Goldman Sachs, on the spectrum, off the Trump reservation stink-to-high-heaven manure.
Which begs the question as to why Mnuchin would be allowed to lead the negotiations on the Phase IV deal to begin with. In this case, POTUS saw Mnuchin—a not-so-closeted liberal Democrat—as one of the few people in the administration who appeared to get along with the Democrats’ lead negotiator, Nancy “The Pill” Pelosi. Of course, others of us in the West Wing—I was not alone on this one—believed that the only reason why Stevie got along so well with Pelosi was because of his obsequious tendency to let Nancy have her way with him.
A Perverse Mnuchin-Pelosi Incentive
Arguably the second worst Mnuchin surrender to Pelosi would come in the Phase III CARES Act passed on March 27, 2020. During those negotiations, Mnuchin meekly acceded to Pelosi’s demand for a one-size-fits-all $600-per-week unemployment compensation benefit for laid-off workers, and here was the problem:
While this one-size-fits-all payment may well have represented a decent lost wages offset in high-cost-of-living states like Chuck Schumer’s New York and Nancy Pelosi’s California, it was at least a prince’s ransom in low-cost-of-living states like Alabama, Arkansas, and Mississippi.8 The practical effect of this “perverse incentive,” as we say in economics, was this:
It was far more rational for millions of American workers in low-cost-of-living states to kick back and collect a far bigger $600 government check in the safety of their homes than work for a much smaller paycheck while exposing themselves to the virus.
To say that this perverse Mnuchin-Pelosi incentive created a significant drag on the economy by distorting our labor markets, disrupting our supply chains, and spawning significant stagflationary pressures is to understate the obvious.
As for the “Trump MAGA Trillion” portion of the Phase IV package I would design, my goal was not just to create more jobs for Americans by onshoring production. I also sought to dramatically reduce our dependence on foreign imports of our essential medicines and personal protective equipment (PPE).
My Buy American, Hire American vision was hardly orthogonal to earlier phases of the congressional pandemic response. These previous packages had contained billions of dollars for both the Department of Health and Human Services (HHS) and the Pentagon to use for the onshoring of our PPE and essential medicines production.
With those earlier funds available, I had worked particularly productively with HHS Deputy Secretary Bob Kadlec to allocate them to a wide variety of domestic manufacturing projects. These projects had indeed significantly boosted our domestic PPE and pharmaceutical production—while lighting a Roman candle underneath Operation Warp Speed.
In a similar vein, the proposals I developed in conjunction with Kadlec for the new Trump MAGA Trillion package included $7.5 billion for the domestic production of masks, face shields, and gowns and another $6 billion for manufacturing our essential medicines.
Bob and I also included $3.5 billion for the construction of a Kadlec favorite—a Domestic Pandemic Response Complex and Advanced Technology Center. It would “feature an annual drug substance capacity of 1.5 billion doses, with the ability to finish and fill up to 1.4 billion doses.” Just very good MAGA stuff.
As a nice Tough on China twist, my favorite line item in the memo that Tyler Goodspeed and I sent to Mark Meadows was a $70 billion set of incentives to bring American factories home from China. This particular gut punch to Beijing was an homage to a similar 220 billion yen package Japan had already implemented with considerable success.9
To qualify for these funds, all an American multinational enterprise had to do was liquidate its plants, property, and equipment in China and invest an equal amount in the good old US of A. And note here:
Eligibility for the program was not limited to the medical industry. In other words, this was a “Get Out of China Free” card for any American manufacturer yearning to come back home.
A Puerto Rico Big Pharma Renaissance
My second favorite line item in the Trump Trillion is likewise worth mentioning because of its important political implications. This was a $10 billion tax break to reestablish the pharmaceutical industry in Puerto Rico.
When President Bill Clinton let a previous tax break lapse, Big Pharma had fled the island like it was being chased by a large navy of tax collectors. And mostly Big Pharma fled not back to the American mainland but rather to the sweatshops of Asia and tax havens like Ireland.
I had been working hard since Hurricanes Irma and Maria had flattened large portions of Puerto Rico back in 2017 to get the Puerto Rican economy back on its feet. In this case, a tax break clearly targeted at workers rather than at the Big Pharma corporations themselves would be a great way to create the maximum amount of new jobs while lifting real wages on the impoverished island.
And here was the fortuitous political twist: more than a million Puerto Ricans live in Florida, and that number had swelled dramatically after Irma and Maria hit. Whenever we at the White House could provide good news for Puerto Rico, that augured better news at the ballot box in the Sunshine State.
Drowning in a Mighty Sea of Coronavirus
Beyond such political considerations, the most strategic Trump MAGA Trillion appropriation was a $21 billion allotment for domestically produced “active pharmaceutical ingredients” and so-called “starting materials.” To understand the national security implications of this gambit, a quick lesson in Drug Manufacturing 101 might be useful.
To manufacture finished dosage form medicines—from pills like Lipitor to injectables like insulin—you have to start with, yes, “starting materials.” These are the raw chemical building blocks of modern pharmaceutical manufacturing.
From such starting materials, you can then produce the APIs—the active pharmaceutical ingredients. Just like at the paint store where you start with basic white and mix in colors, it is the palette of various APIs that can be used to mix up your finished dosage form medicines.
Now, as bad as our foreign dependencies are for finished dosage form medicines, the situation is even worse for starting materials and API—and much of that dependency is with Communist China.
This is no small strategic matter: At one point during the pandemic, China’s state-run Xinhua News Agency threatened to plunge America into a “mighty sea of coronavirus”10 by cutting off our supplies of PPE and medicines. Yes, chew on that one for a bit the next time you buy a product made in China.
Faced with the specter of such ongoing blackmail, I saw it as extremely critical that we quickly begin producing starting materials and API in large quantities on home soil. If only Trump apostates like Larry Kudlow had seen it the same way. And that is the next part of our stimulus interruptus, checkers in a chess world story.
Twenty Five
V-Shaped Kudlow Nonsense in a K-Shaped World
[White House economic advisor Larry] Kudlow claims US is in “a strong V-shaped recovery” despite Wall Street selloff. NEC director doubts recovery depends on “so-called second stimulus package.”
—Fox News, September 21, 202011
Even as Tyler Goodspeed and I were working with Mark Meadows to try and move POTUS’s $2 trillion package, National Economic Council Director Larry Kudlow was doing everything in his considerable powers to put the brakes on any Phase IV bill. His repeated comments about a V-shaped, rocket ship of an economic recovery were emblematic of his mindset. Such an alleged V-shaped recovery made it totally unnecessary in Kudlow’s mind to engage in any further stimulus.
For months, Kudlow had been preaching this false gospel of a V-shaped recovery when, in fact, this recovery resembled far more of an anemic K-shape. In this K-shaped recovery, only some sectors of our economy were recovering smartly.
These booming sectors included, sadly, alcoholic beverages; curiously, bicycle production; and most intuitively, telemedicine. And in this economist’s alphabet soup, these and other buoyant and growing sectors were evidenced by the upward sloping portion of the letter K.
On the other hand, plummeting sectors of the economy—think, for example, the airlines, cruise ships, the oil patch, restaurants, commercial office buildings, and brick-and-mortar retail—were all being hammered by the pandemic and heading straight into a ditch. Of course, this carnage was evident in the downward sloping portion of the letter K.
Now here’s the broader point and buried lede:
The problem with Kudlow preaching his V-shaped nonsense in a K-shaped world was that it created a false sense of security at the same time that it significantly undermined any public perception of the real urgency of passing an additional stimulus and relief package.
It’s not for nothing that both Tyler and I found Larry’s rose-colored, V-shaped rhetoric on TV, at senior staff meetings, and in the Oval Office to be frustrating and counterproductive.
Here, it must be said that of the five worst days I had during my four years serving in the Trump administration, the day I heard that Larry Kudlow had been hired to replace Gary Cohn as NEC director was certainly one of those days. It was March 14, 2018, to be exact, and beware of anything that close to the Ides of March.
Frankly, I was astonished that the globalist Kudlow had been hired for the most powerful policy position in a putatively nationalist White House. I was astonished because I had been all-too-familiar with Larry’s anti-Trump rants during the 2016 campaign. Just consider this little poison pill in the Never-Trump National Review, and you will quickly get my drift:
Given the recent rise of presidential candidate Donald Trump, we should all be thankful that stocks haven’t plunged. Trump’s agenda of trade protectionism, dollar devaluation, and immigrant deportation is completely anti-growth. It’s like Fortress America in an economy that is completely globalized and where the U.S. must compete in the worldwide race for capital and labor. Trump’s policies don’t fit.12
Even after Trump was elected, Larry continued his globalist harangues, particularly after POTUS began implementing tariffs on both steel and aluminum as well as China. So I thought that based on Larry’s Never-Trump history—other candidates for administration positions had been vetoed for much less—Kudlow would never be allowed to join the administration.
I thought this to be particularly true after the president’s crash and burn experience with the traitor in our midst, Gary Cohn. Surely one Wall Street globalist and obnoxious airhead as NEC director was enough for a first presidential term. Silly me.
It Is Really Hard to Be That Wrong That Often
In light of Kudlow’s star-crossed love affair with a V-shaped recovery that didn’t exist, I should also note that Larry had a well-established and long-standing reputation as one of the worst economic forecasters to ever walk the streets of New York and pontificate on such matters.
For example, while I was warning of a catastrophic collapse in the housing market in 2005, Kudlow was calling people like me “bubbleheads who expect housing-price crashes in Las Vegas or Naples, Florida, to bring down the consumer, the rest of the economy, and the entire stock market.”13 Of course, that’s exactly what happened. Score one for the bubbleheads.
And then there is also this: while I was warning my investment newsletter subscribers in November of 2007 to cash out of the market, Kudlow was confidently declaring:
There’s no recession coming. The pessimistas were wrong. It’s not going to happen. At a bare minimum, we are looking at Goldilocks 2.0. (And that’s a minimum). Goldilocks is alive and well. The Bush boom is alive and well. It’s finishing up its sixth consecutive year with more to come. Yes, it’s still the greatest story never told.14
Not content to be that spectacularly wrong once the recession hit, Kudlow would then triple down with pearls of wisdom like these:
•Kudlow–February 2008: “Lay off the panic button…the economy will be rebounding sometime this summer, if not sooner. We are in a slow patch. That’s all.”15
•Kudlow–July 2008: “We are in a mental recession, not an actual recession.”16
•Kudlow–August 2008: “With the U.S. dollar up and oil down and businesses investing, I think [the] Goldilocks [economy] is back in business.”17
Of course, several weeks later, Lehman Brothers in particular went spectacularly out of business and almost took the entire financial sector with it.18
Here’s the obvious question for historians: Just how can you be that wrong that often and wind up as the top economic cop in the White House? And why would anybody on Wall Street or Main Street—much less in the White House—ever take a Larry Kudlow V-shaped recovery forecast seriously after Larry’s well-publicized serial screw ups?
The answer to the first question is very simple. POTUS loved Larry, and he loved him for one simple reason. Despite his reputation for almost always being wrong in his predictions, no one could give pleasure to the stock market better than the golden-throated Kudlow.
With a voice made ever more deep and resonant by his chain-smoking—the easiest way to find Larry at the White House was to go to the canopy outside the West Wing where he would often catch a smoke—Larry was the fluffer of all time when it came to getting on television and getting the Dow Jones Industrial Average up.
In one story the president loved to tell—it pained me every time I had to listen to it—Larry had done a star turn on Fox Business and moved the Dow up five hundred points. Of course, in order to move the Dow up like that, Larry often had to undermine our entire China negotiating strategy.
Here, the scenario was always the same. Our US trade representative Bob Lighthizer would take a hard line in the Communist China negotiations, and the markets would fall. The next day, Larry would get on the tube and start freelancing about how our side might be willing to lift the tariffs or get back to the bargaining table if only China were willing to do this or that or whatever it was Larry could come up with that day.
Of course, the markets would rally on Kudlow’s rosy scenario. And of course, Larry’s gambit would also significantly weaken Lighthizer’s negotiating position with the Chinese.
In a perfect world, the Boss would have hired Larry as the director of the Office of Communications rather than the National Economic Council. Just let Larry do a weekly White House TV show, interview the Boss once a month, and, in between, Larry could go out to the cameras on the North Lawn of the White House and pimp the latest economic data.
Instead, the Boss put the anti-tariff, open border Kudlow Fox in charge of the White House trade policy henhouse. This was not just a headache for me. It was a full-blown, two-year migraine for Lighthizer and the Trump trade agenda.
