Trade, The Fed, Navarro And Trump ‘The Human Third Rail’: Gary Cohn’s Full Interview With Freakonomics

The last time we checked in on “poor” Gary Cohn, his name was popping up in Bob Woodward’s “Fear”, a rather unflattering portrayal of the Trump White House.

Basically, the book paints a picture of a president who is perpetually on the brink of making momentous decisions with seemingly little in the way of regard for the consequences. Woodward’s account documents a tumultuous two years, during which the president’s cabinet, aides and advisors careened from incredulous to terrified and at times went to great lengths to protect the country and the world from Trump’s worst impulses.

In other words, Bob didn’t tell America anything we didn’t already know and couldn’t learn from following Trump on Twitter.

One of the more amusing anecdotes from the book found Cohn stealing a letter off Trump’s desk before he (Trump) could sign it. That letter would have formally withdrawn the United States from a trade agreement with South Korea.

Cohn’s rationale, according to Woodward, was to protect national security. Woodward also said Cohn prevented Trump from pulling the US out of NAFTA. Oh, and during one meeting about the metals tariffs, Woodward claims Cohn had a rather pointed response after Peter Navarro called Gary “a Wall Street establishment idiot.”

“[You two] shut the f– up and listen. You might learn something”, Cohn reportedly told Navarro and Trump.

Cohn’s relationship with the president was notoriously fraught. Following the  Charlottesville press conference, Cohn threatened to resign, denting US stocks and jeopardizing the future of the tax overhaul. He ended up staying, but by last March, Cohn had seen enough. And so, America got stuck with Larry Kudlow.

Well, in a new interview with Stephen Dubner and Freakonomics Radio, Cohn weighed in all of the above and a whole lot more.

Below is the truncated transcript as well as the full audio of the interview which is well worth your time – even if you just kind of open it and let it play in the background as you go about your daily routine.

Stephen J. DUBNER: So your life story, I guess, is pretty remarkable.

Gary COHN: Thank you.

DUBNER: You were not destined for–

COHN: For Wall Street.

DUBNER: For Wall Street.

COHN: Any street.

[…]

COHN: As the rest of the world was telling me, “You’re going to be a disaster, you’re a failure, maybe you’ll be lucky to drive a truck,” my grandparents – who I really admired, who’d built the family business – they kept saying, “You’re going to be fine.” And they were great people in my life, really influential.

[…]

COHN: I treated the President of the United States the way I would have liked to have been treated. That’s how I dealt with him.

[…]

DUBNER: Have you communicated with the President since you left the White House?

Gary COHN: Yes.

DUBNER: Can you tell us anything about that?

COHN: We have a very amicable relationship. We usually talk about the economy. Sometimes about personnel. We’ve talked about personnel, and when he’s had to fill a job or two, I’ve talked to him.

DUBNER: I’m a little surprised to hear that you’re on such good terms with the President still, mostly because I read Fear by Bob Woodward. And you’re kind of the star of that book, or one of the stars of that book. The most famous story concerns you removing a letter that somebody drafted for the President to sign, a letter to the President of South Korea that would have terminated KORUS, the U.S.-Korea Free Trade Agreement. So let’s hear your version of that. Is the reporting in Fear essentially true, and did you participate?

COHN: I’m not going to comment on that.

DUBNER: Do you want to comment on whether you participated in the writing of the book. Did you talk to Woodward or–

COHN: I’m not going to comment. I’ve said all I’m going to say on the Woodward book. And as far as I’m concerned, it’s sort of come and gone.

[…]

COHN: I think the President is about results, and when he looks back at our time together, I was part of a team that got a lot done. We got tax reform done.

[…]

COHN: So the story is: when I was asked by Lloyd and the board to become president, chief operating officer, Lloyd called me and Jon Winkelried into a room. We were co-’s at the time and said, “Guys, will you give me two years? I got to know you’re committed for two years.” And I said, “Lloyd, I’ll give you two. Two’s not hard. But you’ve got to understand, I think these are seven-to-10-year jobs. I don’t think these are lifetime jobs.”

DUBNER: And you did it for 10, correct?

COHN: I did it for over 10. And literally at seven years, I started getting a little antsy. Lloyd, at that point, ended up getting sick. And I wasn’t going to rattle the boat or rock the boat at all in year seven or eight, or maybe it was eight, nine–

DUBNER: He was treated for cancer. I don’t know if you were technically acting C.E.O. but you were essentially–

COHN: I did whatever I did to protect the firm. I went when I needed to go, I did what I needed to go. And to me the most important thing for Lloyd was for him to get healthy. We had worked together our whole life. But at that point, I was letting the board know that I wasn’t going to be here forever. So I sat down, and I made it clear that I would be gone by the end of the year.

DUBNER: Oh, regardless?

COHN: Yeah, I was going. And the Trump thing was pure lucky coincidence.

[…]

COHN: So if you remember, after the convention in Cleveland, the first debate in September at Hofstra was supposed to be an economic debate. And remember, the operative word there is “supposed to.”

[…]

COHN: And said, “Hey, we’re preparing the nominee for the economic debate at Hofstra. Can I come in and talk to you about what’s going on in the U.S. economy?” We had a mutual friend.

DUBNER: And what was your initial response to whatever the Trump economic ideas were at that point?

COHN: I clearly support deregulation. I clearly support lower taxes on corporate repatriation, redoing the tax system. So there were a lot of big, high-level things I supported on the economic side.

TRUMP: You are going to approve one of the biggest tax increases in history. You are going to drive business out. Your regulations are a disaster. And by the way, my tax cut is the biggest since Ronald Reagan.

DUBNER: Then on the other hand, there was trade and tariffs and immigration and so on.

TRUMP: NAFTA is the worst trade deal, maybe ever signed anywhere.

COHN: On the flip side there were things that I support on Hillary Clinton’s side, and things that I didn’t support on Hillary’s side. And it was interesting, when Jared called, I walked down three offices to the chief of staff of the executive office of Goldman, John Rogers, a political veteran, and I said, “Hey, John, should I meet with him?” And he’s like, “He’s the Republican nominee. If the Democratic nominee called you’d meet with her too right?” I go, “Yeah. Okay.” “So go meet with him.”

DUBNER: Were you not put off at all by the fact that he was considered by a lot of people to be, whatever adjective you want to use – I mean, the most anomalous major party candidate we’ve had probably ever.

COHN: But he was still the nominee.

DUBNER: Right.

COHN: He was still the Republican nominee for president.

DUBNER: But I’m asking you if you were put off as you – reputationally, for Gary Cohn or for Goldman – whether that was a consideration.

COHN: And that’s why I went, and I asked John Rogers who really is one the most astute political guys I knew – had been in and around Washington forever, been in the Treasury, been in the White House. I said “John, should I do this?” He goes, “What are you asking me? Of course you’re going to do this. If any nominee for president calls you from one of the major parties you’re going to meet with them.” And I didn’t meet with him. I met with his advisers.

[….]

COHN: The meeting with Donald Trump happened after I’d already made my decision. So I was in motion.

DUBNER: Did anyone say to you, however, “Gary, this president is anomalous, and he is a human third rail, and what are you thinking about?” Did anyone say that to you?

COHN: Of course.

DUBNER: And what did you say?

COHN: I said, “The President of the United States has asked me to work for him. I am going to go in and serve and do the best I can for my country.” Remember, I am taking an oath to the Constitution of the United States to protect and defend, not an oath to the President of the United States. And I am going to go serve the people of the United States.

[…]

COHN: This is not a secret that at one point he wanted a 15 percent corporate tax rate. And I just told him a 15 percent corporate tax rate will not work.

DUBNER: Will not work – will not raise enough money, or politically?

COHN: It just a) politically and b) algebraic. I mean, when you start understanding the numbers of what a 15 percent tax rate means, we’d have to manipulate so many other things in the code. So, I personally would have settled for 25. The corporates would have settled for 25.

He then said, “Okay. I could live with 20. But if you –” and he was talking to Mnuchin and I at the time, he said, “If you guys start at 20, you’ll end up going higher. I know you. I know you can’t negotiate that well.” I said, “If we start at 20, we’ll end up at 20, we’ll hold it. We’ll hold it.” And we were holding 20. He was the one that kept willing – he was willing to go higher.

DUBNER: So what did it end up, 22?

COHN: Twenty-one. Yeah, 21.

[…]

COHN: When we were really working taxes hard, there was no way I could deal with the president going after any one of those Republican senators – I need every one of their votes. I don’t have a spare.

DUBNER: So did you steal his phone? What did you do?

COHN: No, no, no. We and Secretary Mnuchin and others, we kept reminding him. That was one of the reasons that we didn’t do anything in tariffs in the first year, is because a lot of our marginal voters are free-traders. And we didn’t want to give anyone an excuse to hold up a tax vote because they were going to retaliate on trade in the tax vote.

[…]

MARCHERS: Anti-white, anti-white, anti-white.

MARCHERS: Jews will not replace us. Jews will not replace us.

TRUMP: You had some very bad people in that group. But you also had people that were very fine people, on both sides.

DUBNER: From what I’ve read, you were ready to resign then, and kind of had to be talked out of it. You were talked out of it.

COHN: Yeah, we had had two or three, I would say, very intense, very open, very honest discussions. And it boiled down to the president asking me, as his leader of tax reform in the White House and the person that he felt could help him get it done, to please stay on through tax reform.

DUBNER: All right.

COHN: And I did agree to that.

[…]

COHN: There was a very big tech company in California I was at two weeks ago, where all the senior management was bitching at me because how much their taxes are going up. I said, “Please tell Nancy Pelosi, because she was the first one that came out and said this was a tax cut for the rich.” Well, it was not a tax cut for the rich in San Francisco and it was not a tax cut for the rich in New York City or in Illinois. One of the ways that we made the tax tables work, and we pushed money down into lower-income brackets, is you have to find revenue. We found revenue in this deduction, which if you see who it affects, the vast majority of the people it affects are the high-income earners.

DUBNER: Big question: it’s been a while now, too early for big macro results, but how do you think your tax plan is working so far?

COHN: I’m glad you say that, that it’s too early, because it’s amazing how everyone wants to take a 10-year tax plan and judge it after one year. We talked about increasing economic growth by one percent. And I think in essence we did that in the first year. We went from sort of two to sub-two percent to three and just below three-percent growth. We finally have real wage growth, wage growth in excess of inflation in the United States. It’s still not as high as we’d like to see it. We’re seeing job creation. We’re seeing movement in the labor force. And I do think that we’ve seen that disposable income in the system.

So when you look at corporate earnings and you look at what’s going on in the stock market, a lot of that’s being driven by excess disposable income because of the tax rates. And I will be happy to be criticized if I’m wrong in the tax system, but we won’t know for five-plus years. We gave companies 100 percent of capital-expenditure expensing for the first five years, trying to get companies to make a long-term investment in the U.S. economy. And all we’re hearing right now is how U.S. companies aren’t paying taxes because they’re using that opportunity to invest in capital to manage their tax rate down. That is going to pay dividends for the next 20, 30 years.

[…]

COHN: It’s no secret, I am known as the globalist in the White House. Thank you Breitbart for putting little globes next to my name every time you print my name. It’s one of my crowning successes in the White House that I’m now known as a globalist, not a nationalist.

DUBNER: I don’t think it was a compliment, by the way, when they put it next to you.

COHN: It wasn’t a compliment for Breitbart. It was a compliment for me, though! It was a compliment for me though. So the fact that I’m a globalist, also I – that’s a synonym for realist. Because I believe we live in a globalized world and we’re not putting that toothpaste back in the tube.

The president ran on coal and coal jobs. I remember vividly having a conversation with the president on coal jobs versus solar-panel installers. We ended up putting tariffs on solar panels, which I didn’t understand either. And I did turn to him one day and I said, “Mr. President, how many coal miners do we have in the United States and how many solar-panel installers do we have?” And I said, “I’m not here to trick you up – the answer’s – I’ll make it simple: less than 50,000 coal miners in the United States and more than 350,000 solar-panel installers. And by the way, 10 years ago we had no solar-panels installers. It’s a growth industry in the United States. In fact in California now, you cannot build a house without solar panels. It’s an industry that’s going to continue to grow. And we have to recognize where this country is going, not where this country has been.”

DUBNER: And was his connection to that, what most people would consider an outdated belief, was that political, was it intellectual, was it just kind of spiritual?

COHN: I think it was all the above. I think during his formative years growing up, coal might have been an integral part in thinking about the energy sectors, but clearly in states like West Virginia and parts of Pennsylvania, he understood, and he was a bit of a marketing genius on this. He understood in West Virginia, and southern Ohio and Pennsylvania, you better go talk about coal. And he understood in certain steel towns, when he looked at the empty steel mills, he should talk about bringing back steel jobs.

[…]

COHN: And when you put tariffs on goods that people in the United States consume every day, it’s a consumption tax. So all the tariffs did is they made products that Americans were going to buy more expensive. And in fact we got the final trade data numbers this morning for what trade deficit looked like for last year in the United States. And lo and behold, we hit an all-time record-high trade deficit globally, and with China.

DUBNER: Despite the best efforts of the White House.

COHN: Tariffs don’t work. If anything, they hurt the economy because if you’re a typical American worker, you have a finite amount of income to spend. If you have to spend more on the necessity products that you need to live, you have less to spend on the services that you want to buy. And you definitely don’t have anything left over to save. So we should try and make the goods as cheap as possible. And we don’t produce the goods in the United States; we import the goods from other countries. And if we could produce the goods as cheaply as other countries do, we would produce them in the United States.

DUBNER: Now, every Ph.D. economist that I’ve ever come across would agree – I would say, probably 99.5 percent – with what you just said.

COHN: No, I think 99.99999.

DUBNER: But the one that doesn’t, is in the White House, which is Peter Navarro, is that right?

COHN: There’s only one in the world. That we know of.

[…]

COHN: I was losing the war on tariffs every day with the President. I knew I wasn’t convincing him I was right. I was not going to take a 74-year-old man who’s believed something since he was 30 and convince him that I was right. Believe me, I tried. Don’t think I didn’t try. Don’t think I didn’t use every example I could try and use, from windows and buildings, to steel and buildings, to the bike manufacturer in Detroit. I used every example I could come up with.

DUBNER: We know that Trump has his ways of thinking. He admits that he’s not that interested in changing. We’ve read a lot about how you and others tried to educate him on things, give him new options, but at the end of the day it didn’t work. So what does that say about, I guess, either the president or the ability of our political system to absorb the best information?

COHN: Well, it definitely makes a statement about the power of the Executive Office and the presidency. And ultimately, everyone in the White House works at the pleasure of the president. And I was more than happy, I was actually excited to go in and fight with Peter Navarro every day and I was happy to be on the 99.9999 percent of the equation and explain and use real-life examples to what would happen.

DUBNER: And what would his defense be? Because it’s hard to defend – and, to be fair, there have been people in history, Copernicus, who were outliers, but they were right. Okay. Maybe that’s Peter Navarro’s view. What would his defense be?

COHN: Well his defense would be that he was the Copernicus, that he would be right. I don’t think you or I will live long enough to ever see him right. And the data just came out for last year that proves that so far he’s completely wrong. So far he’s been unable to show anyone any facts that he’s right.

DUBNER: And when the president sees these data, why does he not have a change of mind?

COHN: I don’t know. I mean data is data. Data – numbers really don’t lie. Yes, you can manipulate numbers, but these are numbers put out by his own Commerce Department. These are not your numbers, these are not my numbers. These are his numbers. His Commerce Department put out a 2018 trade deficit of $891-point-something billion. That’s an all-time record high. And the China number in there was the biggest single number, at an all-time record.

DUBNER: That number, however, coincides with a newly, I guess, resurgent stock market you could call it. Really, that’s not even fair. It had a brief downfall.

COHN: Yeah.

DUBNER: It had a one-month decline.

COHN: We had a bad December.

DUBNER: It was a bad December.

COHN: Bad December.

DUBNER: We happen to be speaking now in early March, let’s just pretend for a minute that there’d been a bad January and bad February, too. And let’s say the market had fallen 25, 30 percent overall. Do you think that would have substantially changed the President’s view on tariffs and trade, particularly on China? Because I can see how it might be easy to not worry about the deficit numbers when the markets are doing well.

COHN: You’re asking a really good, fun question. Yeah, what are the benchmarks for success of the presidency? The stock market is the most obvious, most transparent, most talked-about-by-the-president benchmark of success. We can debate how much the president should be accountable for the stock market going up or going down. I mean that’s an interesting debate.

DUBNER: All right. How about on the count of three, we both say a number, one to ten, how influential we think the president is overall, stock market. All right. I’m going to think of my number. You got your number?

COHN: Yeah. I got my number.

DUBNER: Okay. One, two, three.

COHN: Four.

DUBNER: Three. All right. So you’re even more cynical than I am.

COHN: Okay.

DUBNER: So that said, this president really uses it.

COHN: He really uses it. And he uses it more when the stock market’s going up, by the way, than he does when it’s going down. By the way, everyone does that.

[…]

DUBNER: It’s interesting because usually the chair of the Fed is, as we know, wildly independent. But here was a case where the president pretty much came out and said to Jay Powell, the chair of the Fed Reserve, “I would really prefer that you stop doing what you’re doing, and stop talking about raising interest rates.” What’s your view of that? And let me ask a two-part question. I know there was – I’ve read at least, that you were interested in that position at one point. I don’t know whether you were under consideration or not. You’re shaking your head no.

COHN: I am totally not the person to be the chairman of the Fed. That would be the worst position you could give to Gary Cohn.

DUBNER: Because you’re too excitable, or why?

COHN: No it’s a real, real, real academic position sitting with Ph.D. economists all day long and debating the economic tilt/slant micro of the U.S. economy. It’s not my skill set. One of my successes in life is knowing what I’m good at, and more importantly knowing what I’m not good at. I would not have been good at that job.

DUBNER: Okay. I totally take you at your word there. That said, did you consider it – and I don’t mean to assail Jay Powell here, but was it essentially – a “cave” is a strong word, but was it a capitulation based on the President’s wishes, and should the Fed work that way?

COHN: I’m going to hope it wasn’t. I’m going hope it wasn’t. I’m going to hope that Jay Powell and the Fed governors in seeing all of the data they see – I mean, they’ve got more Ph.D. economists than anyone else. They talk to all the companies in the world and the United States, and the regional Fed system is designed to bring them real-time data from the local economies. I surely hope, and I almost pray, that what the Fed did was in reaction to what they were seeing in the data, that they felt that there was an actual slowing of the economy and they were in the wrong place.

[…]

COHN: The chronology goes something like this: We signed tax reform on Dec. 22, it was a Friday.

DUBNER: 2017.

COHN: 2017. President left for Mar-a-Lago for vacation. I left with my family for vacation. We all came back in early January. And I sat down and had a one-on-one lunch with the President. And I was at the point now where I was getting ready to move on. And I said “I want to work with you to make sure there’s a smooth transition, that you hire someone. I’m happy to work with you to transition that person and I’ll leave as soon as you need me to, or I’ll stay as long as you need me to.”

DUBNER: And was this with the understanding that you were essentially losing the war on the trade war?

COHN: No, no. It really wasn’t. It was with the understanding that my main mission of getting tax reform had been done.

[…]

COHN: There’s absolutely a possibility that that happens. The one thing the president and I completely, 100 percent agree upon is the Chinese stealing of intellectual property, the forced technology transfer into China, the market access for businesses into China. That has been a huge issue for the United States for years. And the president and I completely agree on the biggest problem with China. I’m not here defending China and China policy and China tactics. I have been on the other side of the store Chinese issue for a long time, I just differ on how we get to a conclusion.

DUBNER: What would you have proposed that’s different? Again, nothing’s been resolved as we speak. But basically, tariffs were used as a threat, essentially. That may have–

COHN: Here’s my problem with this. So tariffs were used as the threat. Did it hurt the Chinese at all? We had record trade deficits.

DUBNER: So why do the Chinese seem to be, at least at this point, amenable? Or is that a smokescreen?

COHN: I think the U.S. is desperate right now for an agreement.

DUBNER: An agreement or headline?

COHN: The president needs a win. The only big open issue right now that he could claim as a big win that he’d hope would have a big impact on the stock market would be a Chinese resolution. Getting the trade deficit down I will never say is easy, but of the issues on the table, that’s relatively easier. Getting the intellectual property, the forced technology transfer and the market access – much more difficult. I think market access, the Chinese will give because they’ve been close to giving it for a while. But how are we going to stop the Chinese from stealing intellectual property or not paying for it? How are we going to stop them from copyright infringement? What is the enforcement mechanism and what are the punitive damages if they don’t stop?

[…]

COHN: The president has come in and looked at the tax system, and looked at the economy, and looked at the regulatory environment, and said, “Hey can we, can we as a federal government, can we help stimulate economic growth?” Something that the prior administration had tried for eight years and never really got. So the president did come in and say, “I do believe in creating a stronger America. I do believe in creating jobs at home. I do believe in wage growth. And I do believe in making America more competitive.” And so those are things that he has executed on. And you have to give him credit. We continue to have a pretty robust market, a pretty robust economy. There’s a couple things going on in the U.S. that don’t really get the attention they deserve. There’s one report that everyone in Washington, the geek world, sort of hangs on. It’s called the JOLTS report, it’s jobs open, jobs lost. We have 7.3 million job openings in the United States. These are like $50-, $60-, $70,000 jobs with benefits.

DUBNER: So this points to you – you’ve always been pro-immigration generally, anti-wall.

COHN: Yep.

DUBNER: Did you try hard on that fight with the President, or–

COHN: I tried a little bit, but honestly I tried to stay in my lane of the economy. If I had bullets to shoot, I want to shoot them on the economy.

DUBNER: I mean it’s pretty easy to argue that immigration is a major part of the economy.

COHN: So we have 7.3 million jobs openings in the United States. We have 6.3 million unemployed people. If all those people were capable of working, which they’re not, we still have a million more jobs than people to fill them. So we need a million immigrants today just to balance the equation. So this is pretty simple to me.

And then I think back – think about my grandparents. They’re all immigrants. They were the ones that helped build this country. This country was built by some natives, but we had a huge immigrant population that came in. And were really all the construction in this country. All the homes, all the bricklayers, the electricians, the plumbers, most of them were immigrant labor and were willing to work 60, 70, 80, 90 hours a week. And willing to get dirty and work and most of those people built good businesses and did very well for their families.

Full audio interview