CHRIS.
>> Chris: MIKE, THANK YOU.
JOINING US NOW,
PRESIDENT TRUMP'S TOP
WHITE HOUSE ECONOMIC ADVISOR
LARRY KUDLOW.
WELCOME BACK TO
"FOX NEWS SUNDAY."
>> Larry: THANK YOU.
>> Chris: THE PRESIDENT SENDS
A NEW BUDGET TO CONGRESS
TOMORROW THAT WILL REPORTEDLY
CALL FOR STIFF DOMESTIC SPENDING
CUTS IN ENVIRONMENT OF PROGRAMS,
TRANSPORTATION, ANTIPOVERTY
PROGRAMS AT THE SAME TIME IT IS
CALLING BIG INCREASE IN DEFENSE
SPENDING AND YOU'VE STILL GOT
THOSE TAX CUTS.
WHY DO THAT ON THE DOMESTIC
SIDE?
>> Larry: WHY NOT?
IF YOU WANT TO DEAL WITH BUDGET
DEFICITS YOU'VE GOT RAPID
GROWTH, WHICH MEANS KEEP THE TAX
CUTS IN PLACE.
WE BELIEVE THE 3% GROWTH RATE OF
2018 WILL CONTINUE IN 2019 AND
BEYOND 2020 SO I THINK THE OTHER
ELEMENT IS ALWAYS TO LIMIT
SPENDING AND THE PRESIDENT IS
PROPOSING ROUGHLY A 5%
ACROSS-THE-BOARD REDUCTION IN
DOMESTIC SPENDING ACCOUNTS.
IT WILL BE A TOUGH BUDGET.
WE ARE DOING OUR OWN CAPS THIS
YEAR AND I THINK IT'S LONG
OVERDUE.
SOME OF THESE RECENT BUDGETS
HAVE NOT BEEN FAVORABLE TOWARD
SPENDING SO I THINK IT'S EXACTLY
THE RIGHT PRESCRIPTION.
>> Chris: ALL RIGHT HERMES
THEY ARE GOING TO HAVE A 5%
DOMESTIC SPENDING CUTS.
ON THE OTHER HAND, REPORTEDLY
ARE GOING TO ASK FOR ANOTHER
$8.6 BILLION FROM DHS, HOMELAND
SECURITY AND THE PENTAGON TO
BUILD A WALL SO THERE'S GOING TO
BE ANOTHER BUDGET FIGHT OVER THE
WALL?
>> Larry: I SUPPOSE THERE WILL
BE.
I WOULD JUST SAY THAT THE WHOLE
ISSUE OF THE WALL AND BORDER
SECURITY IS OF PARAMOUNT
IMPORTANCE.
WE HAVE A CRISIS DOWN THERE.
I THINK THE PRESIDENT HAS MADE
THAT CASE VERY EFFECTIVELY.
IT'S A CRISIS OF ECONOMICS.
IT'S A CRISIS OF CRIME AND
DRUGS.
IT'S A CRISIS OF HUMANITY.
WE HAVE TO BE MUCH TOUGHER AND
HAVE MORE CONSTRUCTIVE
IMMIGRATION POLICY, WHICH WE
WILL BE DEVELOPING OVER A PERIOD
OF TIME.
SO YES, HE'S GOING TO STAY WITH
US WHILE AND HE'S GOING TO STAY
WITH THE BORDER SECURITY AND I
THINK IT'S ESSENTIAL.
>> Chris: OKAY.
HERE'S THE PROBLEM WITH THIS.
YOU TALK ABOUT BALANCING THE
BUDGET AND THE WAY YOU'RE GOING
TO DO IT IS BY CUTTING 5% IN ALL
DOMESTIC SPENDING BUT YOU KNOW
THAT IF YOU TAKE ENTITLEMENTS
OFF THE TABLE THAT YOU JUST
CAN'T GET ENOUGH FROM DOMESTIC
DISCRETIONARY SPENDING TO CUT
THE BUDGET AND YOUR NEW BUDGET
IS A CASE IN POINT.
TRADITIONALLY REPUBLICAN
PRESIDENTS HAVE SAID WE ARE
GOING TO BALANCE THE BUDGET AND
THE BUDGET THEY PROJECTED OUT
THAT IT'S GOING TO BALANCE THE
BUDGET IN TEN YEARS.
YOUR NEW BUDGET DOESN'T BALANCE
THE BUDGET UNTIL 15 YEARS, UNTIL
THE 2030'S AND THE QUESTION I
HAVE IS YOU AND I HAVE KNOWN
EACH OTHER A LONG TIME.
WHEN I COVER DURING THE THE
REAGAN YEARS YOU CARED AND YOU
THOUGHT THAT DEFICITS AND DEBT
MATTER.
WHAT HAPPENED?
>> Larry: NOT OVERWHELMINGLY
SO, BY THE WAY, DURING THE
REAGAN YEARS.
LOOK, I DON'T THINK -- I DON'T
THINK GOOD GROWTH POLICIES HAVE
TO OBSESS NECESSARILY.
ABOUT THE BUDGET DEFICITS AND SO
FORTH.
LOOK, CHRIS, MY VIEW AND I
BELIEVE THE VIEW OF THE
ADMINISTRATION, WE ARE GOING TO
POINT A STUDY GUIDE PATH TOWARDS
LOWER FEDERAL SPENDING AND
FEDERAL BORROWING AS A SHARE OF
THE ECONOMY, AS A SHARE OF GDP.
THAT LOWERS THE BURDEN --
>> Chris: DEFICIT INCREASED BY
AN ENORMOUS AMOUNT IN THE FIRST
FEW MONTHS OF THIS FISCAL YEAR,
I THINK 70%.
>> Larry: WE ARE GOING TO RUN
I THINK ABOUT 4.5-5% OF GDP,
THAT'S A VERY MODERATE NUMBER.
>> Chris: IT COULD BE CLOSE TO
A TRILLION DOLLARS.
>> Larry: PERHAPS SO BUT THE
ECONOMY IS $20 TRILLION AND NET
WORTH TODAY, HOUSEHOLD NET WORTH
IS ABOUT $100 TRILLION SO I
DON'T THINK THAT'S A BURDEN ON
THE ECONOMY.
AND I THINK ALL THE INCOMING
DATA.
HEAR SOMETHING, LET'S GO TO THE
FINANCIAL MARKETS.
YOU HAVE A 10-YEAR TREASURY BOND
RIGHT NOW THAT'S ABOUT 2.60%,
.263 I THINK AT THE CLOSE ON
FRIDAY.
IF THE MARKETS WERE
OVERWHELMINGLY WORRIED ABOUT OUR
BUDGETS AND ARE SPENDING AND ARE
DEFICITS YOU WOULD SEE THAT
INTEREST RATE RISE AND BE A
GREATER PENALTY.
I DON'T SEE IT RIGHT NOW.
AND AGAIN COME A LONG ONE, WE DO
WANT TO REDUCE THE BURDEN OF
SPENDING AND BORROWING,
ABSOLUTELY.
BUT ALWAYS AS A SHARE OF GDP.
THAT'S THE SAME POLICIES, THAT'S
THE SAME APPROACH WE HAD DURING
THE REAGAN YEARS.
>> Chris: OKAY, LET'S TALK
ABOUT SOMETHING THE MARKETS WERE
WORRIED ABOUT A FRIEND AND
THAT'S THE FACT THAT YOU GOT A
BAD JOBS REPORT.
TAKE A LOOK AT IT.
ONLY 20,000 JOBS ADDED IN
FEBRUARY.
THE PROJECTION HAD BEEN 180,000
JOBS.
GOOD NEWS, WAGES ROSE 3.4%,
WHICH WAS THE FASTEST IN ALMOST
TEN YEARS.
QUESTION, ARE WE REACHING --
REACHING FULL EMPLOYMENT WEATHER
JUST AREN'T GOING TO BE THAT
MANY PEOPLE WHO WANT JOBS
BECAUSE THEY ARTY HAVE JOBS?
>> Larry: LET ME SAY ON THAT
NUMBER ON FRIDAY, THE PAYROLL
NUMBERS IN THE ESTABLISHMENT
SURVEY WAS ONLY 20,000 -- A VERY
FLUKY NUMBER.
IT HAS A LOT TO DO WITH THE
GOVERNMENT SHUTDOWN AND THE TIME
OF JOBS.
>> Chris: YOU DIDN'T SAY THAT
WHEN HER 330 JOBS THE MONTH
BEFORE.
>> Larry: WE DIDN'T HAVE THE
SHUTDOWN ISSUE OF THE MONTH
BEFORE.
>> Chris: MY POINT IS NUMBER
WAS THE NUMBER.
>> Larry: AND THE HOUSEHOLD
SURVEY FROM WHICH UNEMPLOYMENT
IS DERIVED, 255,000, SO THAT'S A
BIG HOME RUN.
THE ON EMPLOYMENT RATE FELL FROM
4% TO 3.8.
NOTED CORRECTLY WAGES ARE A
3.4%.
THAT'S A TERRIFIC SIGN AND
WHAT'S HAPPENING AS WAGES HAVE
BEEN RISING, PEOPLE ARE COMING
OUT, MOVING BACK INTO THE LABOR
FORCE.
THEY ARE ONLY COMING OFF
UNEMPLOYMENT TO WORK AT THE
HIGHER WAGE RATES BUT THEY'RE
ACTUALLY SORT OF COMING OUT OF
THE WOODWORK.
PEOPLE WHO WERE NOT PART OF THE
LABOR FORCE ARE NOW COMING BACK.
AND I THINK IS VERY IMPORTANT.
PARTICIPATION RATES ARE VERY
HIGH AND THAT'S A SIGNAL THAT WE
STILL HAVE LOTS OF LABOR
RESOURCES.
BY THE WAY, THE BIGGEST CATEGORY
OF IMPROVEMENT, PEOPLE COMING
BACK TO WORK AND SUPPLYING THE
LABOR, WOMEN ACROSS THE BOARD
AND I THINK THAT'S VERY --
>> Chris: THAT WAS A GREAT
NUMBER THIS MONTH.
THE OTHER CONCERN IS THAT AFTER
TEN YEARS OF GROWTH, IS THE
ECONOMY SLOWING DOWN?
I WANT TO PUT UP SOME NUMBERS ON
THIS.
GROWTH IN 2018 WENT FROM 4.2% IN
THE SECOND QUARTER, YOU CAN SEE
DOWN IN HIS THIRD QUARTER AND
ALL THE WAY DOWN TO 2.6% IN THE
FOURTH QUARTER AND WITH THE
ECONOMIES IN EUROPE AND CHINA
SLOWING, THERE IS A GLOWING G
SLOWING, THERE IS A GLOWING O
SLOWING, THERE IS A GLOWING I
SLOWING, THERE IS A GLOWING G
CONSENSUS AMONG EXPERTS WHO ARE
NOT GOING TO MAKE 2% FOR THE
FIRST QUARTER THIS YEAR, DO YOU
AGREE WITH THAT, THAT YOU WILL
BE IN THE ONES FOR THE FIRST
QUARTER OF 2019?
>> Larry: ARE NOT GOING TO
SCORE IT JUST YET.
I WILL TAKE THE OVER ON THAT
FORECAST.
AS I GENERALLY DO, BY THE WAY.
>> Chris: I WAS GOING TO SAY.
>> Larry: I WOULD SAY AS LONG
AS WE KEEP OUR POLICIES INTACT,
LOW TAX RATES FOR INDIVIDUALS
AND BUSINESSES ACROSS THE BOARD,
DEREGULATION, LIGHT AND THE
PAPERWORK BURDEN, LET SMALL
BUSINESSES BREED AND GET A GOOD
RATE OF RETURN.
THE PRESIDENT HAS ENDED THE WAR
ON BUSINESS.
THE PRESIDENT HAS PROVIDED
INCENTIVES FOR ECONOMIC GROWTH.
WE'VE OPENED UP THE ENERGY
SECTOR.
OUR POLICIES ARE STRONG AND I
THINK THE GROWTH RATES THIS
COMING YEAR WILL EXCEED THESE
ESTIMATES JUST AS THEY HAD LAST
YEAR.
>> Chris: 2.3% THIS YEAR BRING
YOU WON THE PRESIDENCY 3% GROWTH
AS FAR AS THE EYE CAN SEE IN THE
FEDS HAS 2.3%.
>> Larry: WE WILL SEE.
WE HAD THIS CONFLICT LAST YEAR
AND THE PRESIDENT WAS RIGHT.
THE FED WAS WRONG.
MY COLLEAGUE IS STRONGLY
ENDORSING HIS FORECAST --
>> Chris: THE COUNCIL OF
ECONOMIC ADVISORS.
>> Larry: A GOOD FRIEND OF
MINE AND I'M IN KEVIN'S CAMP AND
AGAIN, THE INVESTMENT INCENTIVES
ARE SO STRONG THAT I THINK
YOU'RE BEING UNDERRATED.
CAN I JUST GET ONE NUMBER IN?
>> Chris: THEN I WANT TO MOVE
TO TRADE DEFICIT.
>> Larry: YES, SIR.
PRODUCTIVITY OUTPUT PER HOUR, IN
A GOOD MARKET CAPITALIST
ECONOMY, DEMOCRATS TAKE NOTE,
PRODUCTIVITY IS THE CENTER OF
IT.
OKAY?
1.8% INCREASE IN PRODUCT, I
COULDN'T HELP MYSELF.
1.8% INCREASE IN PRODUCTIVITY,
THAT'S THE HIGHEST NUMBER IN
MANY YEARS.
WE'VE GONE FROM 0 TO NEARLY 2%.
I'M GOING TO ARGUE GROWTH AND
JOBS WILL CONTINUE TO EXPAND.
>> Chris: YOU ALSO GOT SOME
BAD NEWS THIS WEEK ON THE TRADE
DEFICIT.
HERE'S WHAT PRESIDENT TRUMP SAID
LAST JUNE.
>> WE HAVE MASSIVE TRADE
DEFICITS WITH ALMOST EVERY
COUNTRY.
WE WILL STRAIGHTEN THAT OUT.
AND I WILL TELL YOU WHAT, IT'S
WHAT I DO.
IT WON'T EVEN BE HARD.
>> Chris: HE SETS IT WON'T
EVEN BE HARD BUT DESPITE HIS
TOUGH POLICIES AND TARIFFS, THE
TRADE DEFICIT IN GOODS WORLDWIDE
YET LAST YEAR WAS $891 BILLION,
THAT'S THE BIGGEST TRADE DEFICIT
WORLDWIDE IN U.S. HISTORY AND
DESPITE OUR TRADE WAR WITH
CHINA, THE DEFICIT AND GOODS
THERE HIT A RECORD $419 BILLION.
SOME EXPERTS SAY THE PROBLEM IS
IF YOU JUST TERRIFY AWAY
DEFICITS, THAT THE REAL ISSUE IS
MACRO ECONOMICS AND TO A DEGREE
WHAT THEY'RE SAYING IS THAT YOU
ARE A VICTIM OF YOUR OWN
SUCCESS, THE TAX CUTS GAVE
PEOPLE MORE DISPOSABLE INCOME,
THEY SPENT THAT BUYING MORE
FOREIGN GOODS.
RISING INTEREST RATES STRENGTHEN
THE DOLLAR.
THAT MADE U.S. EXPORTS MORE
EXPENSIVE IN FOREIGN COUNTRIES,
FOREIGN STOMACH IMPORTS CHEAPER.
BASICALLY WHAT THEY'RE SAYING IS
THAT THE PRESIDENT HAS IT
BACKWARDS, TRADE DEFICITS AND OF
THE SON OF A WEAK ECONOMY, THE
PART OF THE BYPRODUCT OF A
STRONG ECONOMY.
>> Larry: A COUPLE THINGS:
FIRST OF ALL THE PRESIDENTS
TRADE FORMER POLICIES WHICH IN
MY JUDGMENT ARE SUCCEEDING
BETTER THAN ANYONE THOUGHT, HE'S
REALLY TALKING ABOUT FREE, FAIR
AND RECIPROCAL TRADE AMONG
NATIONS.
AND WE'VE ACCOMPLISHED THE U.S.,
MCA, THE SO-CALLED NAFTA
TWO-POINT OH, CLOSER TO MAKE A
LOT OF HEADWAY A MONTH TRYING
PERHAPS WE'LL TALK ABOUT IT IN
ANOTHER MINUTE.
WE ARE NEGOTIATING WITH EUROPE
AND NEGOTIATING WITH JAPAN.
I THINK HIS TRADE POLICIES ARE
SUCCEEDING.
HE'S BEEN TOUGH AND SOMETIMES HE
WILL USE TARIFFS, SOMETHING I'VE
LEARNED THAT WILL BRING PEOPLE
TO THE TABLE.
SECOND POINT, I'M A TRADE
DEFICIT, I DON'T THINK IT'S
EITHER GOOD OR BAD.
YOUR POINT IS WELL TAKEN.
YOU HAVE INCENTIVES FOR
INVESTMENTS AND ECONOMIC GROWTH.
THE U.S. IS BOUND TO HAVE A
TRADE DEFICIT IN GOODS WITH THE
REST OF THE WORLD BECAUSE WE ARE
GROWING MUCH FASTER THAN THEY
ARE GROWING AND SO WE ARE BUYING
MORE OF THEIR GOODS.
WITH RESPECT TO EUROPE FOR
EXAMPLE, ALMOST FLAT ON ITS BACK
NEAR RECESSION, WE ARE THE ONLY
DEMAND -- THEY HAVE.
SO YES.
ON THE OTHER HAND WE HAVE TRADE
SURPLUS ON SERVICES AND WE HAVE
A SURPLUS ON NET INVESTMENT
INCOME COMING IN FROM THE USA.
I DON'T WANT TO GET TOO HUNG UP
ON THAT.
IT'S NEITHER GOOD NOR BAD, IT
JUST IS, BUT WE HAVE TO HAVE
TOUGH RECIPROCAL TRADING
POLICIES WITH OUR NEIGHBORS.
>> Chris: OKAY.
FINALLY, CHINA.
AS YOU PREDICTED.
HERE IS THE PRESIDENT ABOUT IN
JANUARY ABOUT A TRADE DEAL WITH
CHINA AND A MUCH LESS OPTIMISTIC
ASSESSMENT THIS WEEK, TAKE A
LOOK.
>> WE ARE GOING TO HAVE A GREAT
TRADE DEAL WITH CHINA IF IT ALL
WORKS OUT AND WE LOOK FORWARD TO
APPEARING IT'S GOING TO BE GREAT
FOR BOTH COUNTRIES.
>> I'M CONFIDENT BUT IF WE DON'T
MAKE A VERY GOOD DEAL FOR OUR
COUNTRY I WOULDN'T MAKE A DEAL.
IF THIS ISN'T A GREAT DEAL I
WON'T MAKE A DEAL.
>> Chris: SO LET'S LOOK.
IF THE REPORTEDLY REMOVED A TRIP
TO MAR-A-LAGO FOR ASSIGNING
CEREMONY IN MARCH.
>> Larry: NO, YOU CAN'T CANCEL
COME DON'T LIKE SOMETHING THAT
WASN'T SCHEDULED.
>> Chris: SUPPOSEDLY ACCORDING
TO THE REPORT THAT WAS ON THE
SCHEDULE AND IT'S NOW BEEN TAKEN
OFF.
NUMBER ONE.
NUMBER TWO, THE KEY ENFORCEMENT
ISSUE, ENFORCING WHAT THE DASH
IT HAS NOT BEEN HAMMERED OUT.
THE CHINESE ARE REPORTEDLY
CONCERNED THAT IF THERE IS A
CONSUMMATE THAT THE PRESIDENT OF
LIKE THE DEAL HE WILL WALK AWAY
LIKE HE DID WITH KIM IN VIETNAM.
CIVIL QUESTION, HOW MUCH TROUBLE
IS A TRADE DEAL WITH CHINA IN?
>> Larry: I THINK WERE MAKING
GREAT PROGRESS.
AS THE PRESIDENT SAID, ACROSS
THE BOARD THE DEAL HAS TO BE
GOOD FOR THE UNITED STATES AND
FOR OUR WORKERS AND OUR FARMERS
AND OUR MANUFACTURERS.
IT'S GOT TO BE GOOD.
IT'S GOT TO BE FAIR AND
RECIPROCAL AND IT HAS TO BE
ENFORCEABLE.
THAT'S AN IMPORTANT POINT.
SECONDLY, WE MADE GREAT HEADWAY
WHEN THE CHINESE WERE HERE TWO
WEEKS AGO.
IN THE PAST WEEK WE SPENT IN
COMMUNICATIONS WITH THEM EVERY
DAY BY TELECONFERENCING AND SO
FORTH WORKING OUT SOME OF THE
DIFFICULT FINAL POINTS.
I THINK THAT'S WHERE WE ARE IN
THE SUCCESSFUL NEGOTIATIONS.
I DON'T WANT TO PREDICT, IT'S UP
TO THE PRESIDENT AND NOT TO ME
BUT I THINK THE HEADWAY HAS BEEN
GOOD.
THIS MORNING HEADLINE CHINA HAS
ACCEPTED OUR CURRENCY PROPOSALS
TO HAVE STABLE CURRENCIES AND
TRANSPARENT INTERVENTIONS SO
THAT THEY WON'T DEVALUE --
>> Chris: I'M RUNNING OUT OF
TIME.
A SIMPLE QUESTION, WILL THERE BE
A SIGNING CEREMONY BETWEEN THE
TWO LEADERS EITHER IN MARCH OR
APRIL?
>> Larry: I WILL PLAY THAT
FROM THE OPTIMISTIC SIDE.
I WILL TAKE THE OVER ON THAT.
>> Chris: OVER MEANING?
>> Larry: OVER MEANING GOOD,
YES, POSITIVE.
>> Chris: SOMETIME EITHER THIS
MONTH OR NEXT.