The Drift: Stopping America’s Slide to Socialism
Kevin A. Hassett
Regnery Publishing, 211 pages, $29
Kevin A. Hassett is a prominent supply-sider, former resident scholar at the American Enterprise Institute, and senior economist for the board of governors of the Federal Reserve System. He became chairman of the White House Council of Economic Advisers (CEA) in the Trump administration. He was caricatured, in his words, as “a stripey-pants globalist establishment RINO” and a “globalist asshole,” as slimmed by that charmer, Peter Navarro, head of President Trump’s Office of Trade and Manufacturing Policy. Hassett suspects that Navarro, along with Steve Bannon, attempted to undermine his Senate confirmation. Nevertheless, Hassett seems to have developed tolerable relations with both at least in their White House dealings.
Hassett was also co-author with James K. Glassman of Dow 36,000: The New Strategy for Profiting from the Coming Rise in the Stock Market in 1999, when the Dow was under 11,000. They were off by 22 years on that prediction. Glassman and Hassett thought the Dow would reach 36,000 in three to five years, revealing the peril in violating the rule articulated by economist Alan Meltzer to Glassman, “Never associate a date with a number.” Meltzer had provided a blurb for the book.
Directionally, the authors got it right. Historically, a diversified portfolio of stocks is a very sound investment. It just takes a bit more patience. Hence, discipline is required to “buy and hold.” Be an investor, not a trader.
As Hassett told his Senate confirmation committee, quoting one critic, “it was a ‘youthful indiscretion,’ and I think as youthful indiscretions go, it was not such a bad one…. If you can be a good long-term investor, to invest in equities because they are a good investment in the long run but not the short run. And I think that looking back, folks that bought and held were glad they did.”
Fortunately for the nation and for President Trump, Hassett was confirmed and managed, with tact and good humor, to work with many volatile personalities in the administration, most notably the president, and accomplish a historic tax reform that energized the economy while furthering the administration’s populist goal of improving the incomes and economic viability of the working class, Hispanics, and Black Americans. It also repositioned American business to be more competitive in the world economy with rational corporate tax rates, thereby repatriating jobs from overseas. Hassett believes that less government regulation and lower individual and corporate tax rates will broaden the economic base and generate nearly compensating economic growth and job creation, overcoming the current vogue in favor of socialist policies by the likes of Bernie, AOC, and the current occupant of the White House.
As the president came to trust Hassett, Hassett came to appreciate the president’s insights into the flaws in American trade policy and the predatory nature of the Chinese government, all without abandoning his belief in the benefits of free trade that is truly free and fair.
This most excellent adventure is set out in Hassett’s new book, The Drift: Stopping America’s Slide to Socialism. It is part White House memoir, part defense of supply-side theory, and part apologia for free markets, limited government, and, therefore, liberty and economic opportunity. These are his paramount values, derived from his economic research and his experiences growing up in a Rust Belt town in western Massachusetts. He settles a few scores and pokes a few sacred cows here and there, albeit with a light touch.
Hassett recognizes the “polite skepticism,” at home and abroad, “that an economist with a Ph.D. could support President Trump” given the reigning view that the president was “economically illiterate.”
“My foreign counterparts didn’t like it, but they respected the fact that the Trump administration saw that foreign governments had fleeced previous administrations,” Hassett writes. “I explained that his disruptive style was a way to keep everyone off balance to open a path to fresh thinking leading to reasonable compromise.”
“The Drift” is the latest book documenting the real-world success of supply-side tax policies in the postwar era.
“Before Trump introduced tariffs, our trading partners had politely declined when previous presidents had attempted to negotiate more level trade agreements,” he continues. “Trump’s approach gave the U.S. leverage, and he used it with great effect.”
This was the same approach the president took in goading NATO partners to increase defense spending.
The heart of the book lays out Hassett’s case for the efficacy of supply-side economics going back at least to President Kennedy, Congressman Jack Kemp, and President Ronald Reagan. It offers a cogent explanation of some basic truths of tax policy that Hassett discovered during graduate school in his public finance class at the University of Pennsylvania under Alan Auerbach.
The foolishness of America’s tax code is illustrated by the fact that the OECD average of leading countries saw their corporate tax burden decline from 32.3 percent in 2000 to 23.8 percent in 2017. “But the U.S. rate only declined from 39.3 to 38.9 percent and most of that was driven by reductions at the state level,” Hassett writes. This was devastating to American international competitiveness and sent businesses and jobs overseas “in droves.” Despite that, “the Democrats and their pet economists were in denial.”
After studying President Reagan’s 1986 Tax Reform Act, he came to reject the standard academic view that high taxes have no effect on the economy. He realized that the economic drag of high tax rates was aiding and abetting Ameria’s drift toward socialism.
“Countries with lower rates of taxation on average did better in terms of jobs, income, and social progress than high-tax countries,” Hassett argues. “Economists who have studied the effects of taxes over time have developed a consensus: lower marginal tax rates and a broader base increase rates of economic growth and well-being.”
According to Hassett, Trump refused to accept weak growth as a “new normal” and asked his economic team to deliver “at least 3 percent economic growth, wage increases for the middle class, and job gains for the American heartland.” This was a point short of the president’s campaign promise of 4 percent growth, but Hassett and CEA staff argued it was unattainable and, with the support of Secretary of the Treasury Steven Mnuchin, were able to convince the president to run with the lower figure. The CEA is established by statute and designed to be bi- or non-partisan so that independent, solid analysis and good data can support sound policymaking.
The tax code, of course, is a mess. It contained 400,000 words in 1955 and ballooned to over 2.4 million words by 2016. In recent years, it has taken Americans almost nine billion hours to file their tax returns, according to the Office of Management and Budget’s Office of Information and Regulatory Affairs. This is something big companies can handle, but it is truly a burden on small businesses, the main engine of job creation.
Hassett told the president that, if they got it right, “the average American family would have between $4,000 and $8,000 more dollars in their annual budget.” POTUS went with the smaller figure. “When you go on TV, Kevin, I want you to stick to $4,000,” the president said. “Let’s under-promise and over-deliver.”
What became the Tax Cuts and Jobs Act of 2017 provided tax relief and simplification for middle-income families and individuals, economic growth through business tax relief, and, again, repatriation of overseas earnings. It raised the standard deduction for low-income citizens and reduced income taxes by as much as 4 percent. The top corporate tax rate was reduced to 21 percent from 35, and firms were allowed to fully expense investments in capital. Basically, it gave “working people of America a raise for the first time in a decade.”
Spoiler alert: the Trump tax cuts exceeded expectations. Capital spending was 4.5 percent higher than before. Nominal wages for the lowest 10 percent of American workers rose 7 percent and 9 percent for those without a high school diploma. Seven million came off food stamps. Three million fewer people were enrolled in Medicaid and the Children’s Health Insurance Program. The list of successes goes on and on.
“And about that $4,000? Real disposable personal income per household has increased $6,000 since the tax cuts were passed,” crowed Hassett. Just before COVID-19 shut down the economy, Americans experienced an $8,000 increase in yearly income.
The Drift is the latest book documenting the real-world success of supply-side tax policies in the post-war era. Its predecessors include Jude Wanniski’s The Way the World Works (1978), Jack Kemp’s An American Renaissance: A Strategy for the 1980s (1979), George Gilder’s Wealth and Poverty (1981), and former editorial editor of the Wall Street Journal Robert L. Bartley’s The Seven Fat Years, and How to Do It Again (1992). The latter famously described how the Reagan era’s Kemp–Roth tax cuts grew the economy by nearly a third, adding 18 million new jobs. Let’s hope the lessons sink in.
While tax policy is the centerpiece of Hassett’s focus, he does discuss other issues relating to the gradual drift into socialism by means of greater government control, if not ownership, of the means of production, including over-regulation, groupthink on the part of academic and media elites, loss of opportunity for the younger generations, and the changing nature of communications in the digital age. All of it is quite interesting. One quibble: his discussion of the costs of regulation is useful and welcome, but he fails to account for any benefits of regulation or provide a critique of benefit-cost analysis, which the Biden administrations seems to be abandoning despite support by Republican and Democratic administrations going back to Jimmy Carter. This omission undercuts his argument and opens him up to counterattack. His analysis lacks the sophistication of his writing on tax policy, a subject in which he excels.
Kevin Hassett has provided an interesting, even entertaining memoir of his White House years in service of an often mercurial, at times difficult, but consequential disruptor-in-chief. He served honorably and to the benefit of the nation and its citizens. It is good that he wrote this book.