THEBUSINESS AGENDA, - Dow Jones & Company...MIKE PENCE ‘By eliminating the mandate, we will enact...

© 2017 Dow Jones & Company. All Rights Reserved. THEWALL STREET JOURNAL. Monday, November 20, 2017 | R1

JOURNAL REPORT

MIKEPENCE

‘By eliminatingthe mandate, wewill enact tax relief forworking families.’

BETSYDEVOS

‘We stillfundamentallyoperate on amodel that wasbrought to us 150years ago by thePrussians.’

WILBURROSS

‘Job creation isthe real purposeof reducing thetrade deficit.’

THEBUSINESS

AGENDA,ONEYEARIN

AMYKLOBUCHAR

‘My issue with thisreform bill is the debtpiece, the $1.5trillion.’

GARYCOHN

‘We need tomake ourbusinessesmore

competitive.’

At the annual gathering of TheWall Street Journal’s CEO Council,top executives heard from theadministration about what it hasaccomplished—and the prospectsfor more change in the near future

Mike Pence on tax reform, tradeand the president’s leadershipqualities, R2

Steven Mnuchin says with reformthe corporate tax rate isn’t goingabove 20%, R4

Wilbur Ross explains why theadministration prefers bilateraltrade deals, R4

Mitch McConnell on taxes,bipartisanship and divisions in theRepublican Party, R6

Amy Klobuchar and MarkWarner lay out the Democrats’vision of tax reform, R8

Gary Cohn on the GOP tax plan’simpact on productivity and thehousing market, R11

Anne Case and Angus Deatondiscuss the dire state of white,working-class Americans, R12

Kevin Hassett tells how the U.S.can get to sustained 3% GDPgrowth, R12

Betsy DeVos says the educationsystem needs to turn around andlook forward, R13

Lawrence Summers sees dangersin the Trump administration’sapproach to trade, R14

PLUSJohn Ford on how who is benefit-ting most from innovation, R6

John Ferriola on the Trumpadministration’s engagement withmanufacturers, R8

Jay Walker imagines a lie-detect-ing app at the intersection ofbiology and business, R9

Jerry Kaplan on the effects ofartificial intelligence on societyand labor, R11

Chris Liddell says the WhiteHouse will listen to businessesof all kinds, R13

INSIDE

STEVENMNUCHIN

‘This isaboutmiddle-income taxcuts andmaking ourbusinesstaxes

competitive.’

KEVINHASSETT

‘We’re goinginto nextyear with asignificantamount ofmomentum.’

MITCHMcCONNELL

‘This is notyour father’s

Democratic Party.There are veryfew moderateDemocrats left.’

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R2 | Monday, November 20, 2017 THEWALL STREET JOURNAL.

got a way to go to make thesale about a combination of acorporate tax cut and an indi-vidual cut. Can you do that?MR. PENCE: I think we can. Itraveled around the country,meeting with businesses largeand small, and people get it.They understand what a bar-rier our tax code has been togrowth and to jobs. But weneed business leaders in thiscountry to tell that story too.

MR. SEIB: Are you going tohave 52 Senate votes goingforward, or is this problem inAlabama going to cost you oneof those?MR. PENCE: We believe we’llhave the votes. We believethat we’re making steadyprogress in the United StatesSenate and in the House ofRepresentatives and that we’llhave the votes. But we’re tak-ing nothing for granted.

Dealing with KoreaMR. SEIB: Is there an openingfor diplomacy to solve theNorth Korea nuclear problem?MR. PENCE: President Trumpmade very clear what our pol-icy is. First and foremost, theera of strategic patience isover. We’re absolutely com-mitted to resolving this issue.All options are on the table,but we continue to hope andwe continue to work to resolvethis issue peaceably, by bring-ing economic and diplomaticpressure to bear.

We believe that we’ve iso-lated North Korea economi-

cally and diplomatically inways that have never occurredbefore. China’s taken actionthat they’ve never taken be-fore. We believe they need todo more. Other countries inthe region need to do more.

President Trump is abso-lutely committed to achievewhat is the consensus objec-tive of the world community,and that is that North Koreawould abandon its nuclear andballistic missiles program. Andthat we would have a nuclear-free Korean Peninsula.

MR. SEIB: We earlier todaycanvassed this group andasked them for questions thatI might pose to you. One per-son said, “I voted for Trump12 months ago. I would votefor him today. I believe oursystem needs to be shaken up,but it’s painful to watch attimes. Being a sensible Mid-westerner,” that’s you, “how

do you put up with all thechaos and periodic silliness?”MR. PENCE: I couldn’t be moreproud to be vice president forDonald Trump. The Americanpeople elected the right manat the right time.

When we got the call aboutbeing considered for this job,I’d only met the presidenttwice. We said we were hon-ored, but never expected wewould be asked.

I said, “There’s two thingsI’d want to know. Number one,I’d like to know the job de-scription.” Because there’sonly one person that writes it.The second thing I said is,“We’d need to know them as afamily.” I said, “Now, I knownone of that’s possible.” Thiswas late June. I said wewouldn’t be able to spend thekind of time together that wecould get to know each other.

Two days later I got a callthat said, “Not only did the

candidate like your response,but he wanted to invite you tospend Fourth of July weekendwith him, and bring yourwhole family. And his family’sgoing to be there.” We arrivedon a Friday night. We went tothe clubhouse. My wife andmy daughter were with me.

Dave’s been running Bed-minster since the presidentbought it a number of yearsago. He walked over to the ta-ble and he said to me, “I justwanted to check and makesure everything’s OK, and youguys have what you need.” Isaid, “Oh, it’s wonderful.”

Dave said, “You know howhe is. He’s called a couple oftimes from the car to makesure everything is squaredaway.”

There were two things inthat moment that I’ve seen ev-ery single day with PresidentDonald Trump. Number one is,he has high standards. Thingshave to be right. I’ve spokento the president every dayduring this trip, with few ex-ceptions, and every day he’stalked to me about tax cuts.He’s totally focused.

The other thing I saw wasanother quality of leadership,because when Dave said to me,“He’s going to want to makesure things are right,” he saidit with a smile. There’s twogreat qualities of leaders. Vi-sion and standards. Numbertwo, you’ve got to inspire peo-ple to want to work for you.That’s the kind of leader Presi-dent Trump is.

The Trump administrationis one of the most pro-businessin recent memory. What do itsagendas mean for companies?Vice President Mike Pencespoke on the state of the na-tion, and then discussed arange of issues with The WallStreet Journal’s executiveWashington editor, Gerald F.Seib. Here are edited excerpts.

Where we areMR. PENCE: The president iswinging his way back from ajourney across the Asia Pa-cific. He has been about thebusiness of restoring Ameri-can leadership on the worldstage. He joined President Xiin China to announce agree-ments that will benefit theAmerican economy.

President Trump earlierthis year made the decision towithdraw from the Trans-Pa-cific Partnership. America willpursue bilateral trade agree-ments. We expect that marketswill be open to an equal de-gree on both sides.

America’s economy, andconfidence in America, is re-bounding. Businesses from theoutset of this administrationhave created 1.5 million newjobs. The stock market is set-ting new records. The econ-omy has grown by at least 3percentage points for the pasttwo quarters. Before the endof this year, we’re going to cuttaxes for working families andbusinesses.

Let me also say that thepresident and I welcome wordthat the Senate Finance Com-mittee will include the repealof the individual mandate ofObamacare. By eliminating themandate, we will enact tax re-lief for working families.

The trade issueMR. SEIB: In his work in Asia,the president enunciated aparadigm shift in trade. We’regoing to focus on bilateraldeals that are better for the

U.S. But let me pose the prob-lem that some people see withthat approach, which is thatby leaving the multilateralarena, you’re creating a vac-uum, in Asia in particular, thatChina will step in and fill. Isthat a concern to you?MR. PENCE: President Trumpbelieves in free and fair trade,but that multilateral deals re-sult in the United States losingleverage. He believes we’ll beable to advance the interestsof our country and the coun-tries we’re trading with moreeffectively with arm’s-lengthrelationships.

MR. SEIB: When the other 11countries in the Trans-PacificPartnership say, “We’re mov-ing on,” is that a train leavingwith us left behind?MR. PENCE: We don’t think so.This is the most powerfuleconomy in the history of theworld. We’re in the midst ofrenegotiating the North Amer-ican Free Trade Agreement.The president is very passion-ate about this, that the UnitedStates has not pressed our in-terests enough in recent years.

I have heard it many timesin private, but the presidenthas said it very much in publicthis week, “Well, I don’t blameChina for a bad trade deal.” Heblamed the policy makers inthe United States who have al-lowed that kind of a relation-ship to evolve.

So I think the honesty ofthat kind of dialogue, thestrength of the Americaneconomy, puts us in a positionto move toward what the pres-ident envisions, bilateral win-win trade relationships.

MR. SEIB: Let me turn to yoursales pitch on the tax bill. Wedid a national poll in whichonly 16% said they favoredcutting corporate taxes. And37% said businesses are pay-ing less than their fair share,which would suggest you’ve

TheVice President onTaxes andTradeMike Pence says theadministration thinks they havethe votes for tax reform—andoffers a defense of thepresident’s leadership qualities

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Biggest Worries

THEWALL STREET JOURNAL.

Source: PricewaterhouseCooperssurvey of 114 CEOs in the U.S. as

part of the 2017 Global CEOSurvey, conducted from

September to November 2016.

Overregulation

Cyberthreats

Increasing tax burden

Uncertain economic growth

Geopolitical uncertainty

Speed of technological change

Protectionism

56%

50%

41%

38%

34%

32%

27%

Percentage of CEOs in the U.S. who say they are extremely concernedabout these threats to their organization's growth prospects

MIKE PENCE | ‘We believe that we’ve isolated North Korea economically and diplomatically in ways that have never occurred.’

JOURNAL REPORT | CEO COUNCIL

(Chief executive officersexcept as noted)

Dennis Abboud, ReaderlinkNicholas Akins, American

Electric PowerKeith Allman, Masco Corp.Mukesh Ambani, Chairman

and Managing Director,Reliance Industries Ltd.

Carl Armato, Novant HealthJohan Aurik, Global

Managing Partner andChairman, A.T. Kearney

Ziv Aviram, OrCamMitch Barns, NielsenJohn Barrett, Western &

Southern Financial GroupDominic Barton, Global

Managing Director,McKinsey & Co.

Patrick Bass, ThyssenkruppNorth America Inc.

Inga Beale, Lloyd’sBrendan Bechtel, BechtelTodd Becker, Green PlainsSwan Gin Beh, Chairman,

Singapore EconomicDevelopment Board

Marc Benioff, SalesforceAneel Bhusri, Workday Inc.Richard Bielen, Protective

Life Corp.Benjamin Breier, Kindred

Healthcare Inc.Heather Bresch, MylanVincent Brun, President,

Vacheron ConstantinNorth America

Michael Burke, AecomGregory Cappelli, Executive

Chairman, Apollo GlobalWilliam Carstanjen,

Churchill Downs Inc.Anil Chakravarthy,

InformaticaJim Chirico, AvayaMichael Choe, CharlesbankAndrew Collins, Sentient JetSteven Collis, Amerisource-

Bergen Corp.Steven Corwin, NewYork-

Presbyterian HospitalRoger Crandall, Massachu-

setts Mutual LifeBal Das, Chairman, BGDJ. Roberto Delgado,

Founder and GroupChairman, TransnationalDiversified Group Inc.

Douglas DeVos, President,Amway Corp.

Craig Donohue, OptionsClearing Corp.

Michael Dowling, NorthwellHealth

Gina Drosos, SignetJewelers

Francisco D’Souza,Cognizant

Joachim Eberhardt,President, Jaguar LandRover North America LLC

Richard Edelman, EdelmanBilal Eksi, Turkish AirlinesHikmet Ersek, Western

UnionSharb Farjami, Global CEO,

StoryfulMichael Farrell, ResMedThomas Farrell, Dominion

EnergyBradley Feldmann, CubicJohn Ferriola, Nucor Corp.Dan Florness, Fastenal Co.John Forsyth, Wellmark Inc.Eric Foss, AramarkSimon Freakley,

AlixPartnersAdena Friedman, NasdaqJack Fusco, Cheniere EnergyIgnacio Galan, Iberdrola SAMark Ganz, Cambia HealthRobert Garrett, Co-CEO,

Hackensack MeridianHealth

Thomas Gayner, Co-CEO,Markel

Eli Gelman, AmdocsPatrick Gelsinger, VMwareMike George, QVCKristalina Georgieva, World

BankEric Gernath, SUEZ North

AmericaSeifi Ghasemi, Air Products

& Chemicals Inc.Susan Gilchrist, Group CEO,

Brunswick GroupDaniel Glaser, Marsh &

McLennan Cos.Alex Gorsky, Johnson &

Johnson Services Inc.C.P. Gurnani, Tech

Mahindra Ltd.Mauricio Gutierrez, NRGJim Hagedorn, Scotts

Miracle-Gro Co.John Haley, Willis Towers

WatsonGregory Hayes, United

Technologies Corp.Tom Hayes, Tyson FoodsEdward Heffernan, Alliance

Data Systems Inc.David Holmberg, Highmark

HealthLisa Hook, Neustar Inc.

David Hunt, PGIMBasheer Janjua, IntegnologyBarbara Jenkins,

Superintendent, OrangeCounty Public Schools

Jo Ann Jenkins, AARPAlan Joyce, Qantas AirwaysRana Kapoor, Yes BankAlex Karp, PalantirMichael Kasbar, World Fuel

Services Corp.Brad Katsuyama, IEX GroupMargaret Keane, SynchronyDeclan Kelly, TeneoBrian Kesseler, Tenneco Inc.Christopher Klein, Fortune

Brands Home & SecurityDaniel Knotts, RRDHenry Kravis, Co-Chairman

and Co-CEO, KKR & Co.Sarah Krevans, Sutter

HealthVinod Kumar, Group CEO,

Tata CommunicationsDonald Layton, Freddie MacClaude LeBlanc, AmbacWilliam Lewis, Dow JonesJim Lico, FortiveRobert Livingston, DoverJames Loree, Stanley Black

& DeckerPeter Lowy, Co-CEO,

Westfield Corp.Rob Lynch, VSP GlobalElie Maalouf, CEO, the

Americas, IHGAlex Mahon, Channel 4Kevin Mandia, FireEye Inc.William Mansfield, MUFG

Securities Americas Inc.Kathryn Marinello, Hertz

Global HoldingsMasahiro Maruyama,

Mainichi NewspapersTimothy Mayopoulos,

Fannie MaeJohn McAvoy, Con EdisonBill McDermott, SAP SEKarl McDonnell, Strayer

Education Inc.Tom McGee, ICSCThomas McInerney,

Genworth Financial Inc.Michael McKelvy, Gilbane

Building Co.Richard McKenney, UnumWilliam McMullen, KrogerManoj Menda, Corporate

Chairman, RMZ Corp.Fernando Mercé, Nestlé

Waters North AmericaLarry Merlo, CVS HealthChris Michalak, Alight

Solutions

Shunichi Miyanaga, Mitsub-ishi Heavy Industries Ltd.

Matthew Moynahan,Forcepoint

Deanna Mulligan, GuardianLife Insurance

Oscar Munoz, UnitedAirlines

Rupert Murdoch, ExecutiveChairman, News Corp

Clarke Murphy, RussellReynolds Associates

Eileen Murray, Co-CEO,Bridgewater Associates

Albert Nahmad, WatscoPierre Nanterme, AccentureRonald Nersesian, KeysightC.L. Max Nikias, President,

University of SouthernCalifornia

Ray Nolte, ManagingPartner, Chief InvestmentOfficer, SkyBridge Capital

Indra Nooyi, PepsiCo Inc.Gary Norcross, FISJohn Noseworthy, Mayo

ClinicPatrick Pacious, Choice

Hotels International Inc.Paul Perreault, CSL BehringStefano Pessina, Walgreens

Boots AllianceYitzhak Peterburg,

Teva PharmaceuticalDouglas Peterson, S&P

GlobalCharles Phillips, InforNicholas Pinchuk, Snap-onRichard Plepler, Home Box

Office Inc.Anne Pramaggiore, ComEdAnthony Pratt, Executive

Chairman, Visy IndustriesLawrence Prior, CSRA Inc.Serge Pun, Chairman, SPA

MyanmarJoel Quadracci,

Quad/GraphicsThomas Quinlan, LSC

Communications Inc.Karan Rai, Asgard PartnersKrishnan Rajagopalan,

Heidrick & StrugglesD. Rajkumar, Chairman and

Managing Director,Bharat Petroleum Corp.

Nitin Rakesh, Mphasis Ltd.Punit Renjen, Global CEO,

DeloitteGina Rinehart, Executive

Chairman, HancockProspecting Group

Girish Rishi, JDA SoftwareChuck Robbins, Cisco

Ginni Rometty, IBMJohn Rosanvallon, Dassault

Falcon JetPanu Routila, KonecranesMitchell Rudin, Vice

Chairman, Mack-CaliGisbert Ruehl, KloecknerTim Ryan, U.S. Chairman,

PwCAmy Schabacker Dufrane,

HR Certification InstituteGeorge Schindler, CGIDavid Seaton, Fluor Corp.Jahja Setiaatmadja,

President Director, PTBank Central Asia Tbk

Charles Shaver, AxaltaTakumi Shibata, Nikko

Asset ManagementMichael Silvestro, FlexjetKeith Skeoch, Standard LifeFrederick Smith, FedExGerry Smith, Office DepotMartin Sorrell, Group CEO,

WPP PLCK.R. Sridhar, Bloom EnergyArthur Steinmetz,

OppenheimerFunds Inc.Todd Stevens, California

Resources Corp.Motokuni Takaoka,

AirweaveAnthony Tersigni,

AscensionRobert Thomson,

News CorpAlan Trefler, PegasystemsPaul Tufano, AmeriHealth

CaritasN.V. Tyagarajan, GenpactTien Tzuo, ZuoraJing Ulrich, Managing Di-

rector, Vice Chairman ofAsia Pacific, J.P. Morgan

C. Vijayakumar, HCLJay Walker, UpsideJeffrey Walker, CIMC

CapitalTimothy Wallace, Trinity

Industries Inc.Mark Weinberger, EYDion Weisler, HP Inc.Elliot Weissbluth,

HighTowerJim Whitehurst, Red HatMichael Wolf, ActivateMark Wrighton, Washington

University in St. LouisJefferyYabuki, Fiserv Inc.Yuanqing Yang, LenovoHarold Yoh, Day &

ZimmermannWei Zhao, Executive

Director, President, ZTE

PARTICIPATING GUESTSAnne Case, Professor of

Economics and PublicAffairs, Emeritus,Princeton University

Gary Cohn, Director, Na-tional Economic Council

Angus Deaton, NobelLaureate in Economics;Senior Scholar andProfessor of Economicsand International Affairs,Emeritus, Princeton

Betsy Devos, U.S. Secretaryof Education

John Ferriola, Chairman,President and CEO, Nucor

Martin Ford, Author, “Riseof the Robots: Technol-ogy and the Threat of aJobless Future”

Michael Froman,Distinguished Fellow,Council on ForeignRelations; former U.S.Trade Representative

Kevin Hassett, Chairman,White House Council ofEconomic Advisers

Jerry Kaplan, Adjunct Pro-fessor, Stanford; Author,“Humans Need NotApply: A Guide to Wealthand Work in the Age ofArtificial Intelligence”

Sen. Amy Klobuchar(D., Minn.)Chris Liddell, Assistant to

the President, Director ofStrategic Initiatives, TheWhite House

Steve Mnuchin, U.S.Secretary of the Treasury

Theresa Payton, Presidentand CEO, FortaliceSolutions; former CIO,The White House

Mike Pence, Vice Presidentof the United States

Wilbur L. Ross Jr., U.S.Secretary of Commerce

Matthew J. Slaughter,Dean, Tuck School ofBusiness, Dartmouth

Lawrence H. Summers,President Emeritus,Harvard; former U.S. Sec-retary of the Treasury

Jay Walker, Founder andCEO, Upside; Founder,Priceline.com; Founder,Library of the History ofHuman Imagination

Sen. Mark Warner (D., Va.)

CEO COUNCIL MEMBERS

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President Donald Trump,who has called for new tradedeals since he hit the cam-paign trail, made it clear onhis recent trip to Asia that theU.S. will drop out of theTrans-Pacific Partnership. TheNorth American Free TradeAgreement, meanwhile, is be-ing renegotiated. Secretary ofCommerce Wilbur Ross dis-cussed what revamped tradepolicies could mean for theU.S. and its trading partnerswith Paul Gigot, editorial pageeditor of The Wall Street Jour-nal. Edited excerpts follow.

Out of TPP?MR. GIGOT: You don’t thinkthere’s a chance the U.S. mightenter the TPP, even to be ableto renegotiate some of theterms?MR. ROSS: First of all, why dowe favor bilateral versus multi-lateral? The problem we seewith multilateral is, first of all,it takes too long to do. TPP it-self took something like 10years, then never even cameinto being. Now, during thatkind of a period you’ve got asort of negotiation exhaustion.Can you imagine if at the endof 10 years you go back to yourspouse and you say, “Youknow, dear, I just blew 10 yearsof my life. We couldn’t make adeal.” That’s a tough, toughthing. So by the end of it, youget to where people want adeal even if it isn’t the deal.

Second problem is, let’s sayyou’re China and let’s pretendyou were going to be part ofTPP, and I say, “I want thesereforms from you,” intellec-tual-property rights, so on.You’ll say, “Sure, but here’swhat I want in return.” So weget a little nick for that.

Then maybe he’s Japan andI say, “Well, we need from youmore agricultural reforms.”And he says, “Fine, but I needthis from you.”

What does that mean? Youboth benefit from the nickseach other took out of us, eventhe ones you didn’t ask for.Reproduce that 12 times andyou have a pretty well nicked-up body.

MR. GIGOT: But you’re talkingabout having what the presi-dent announced on this trip.He’s willing to do bilateralswith all comers. That means 11different bilaterals. Those arenot easy either.MR. ROSS: Let’s take a look atNafta. Nafta is on a very shorttime fuse. It’s a very largeagreement, a very complicatedagreement, needs a tremen-dous amount of revision. If infact that’s accomplished bymore or less March of nextyear, which is what the cur-rent hope and plan is, mostlydue to the political calendar,that would be an enormouslycomplex thing done in a year.

MR. GIGOT: You’ll line up anynumber of bilateral dealsthose TPP countries are inter-ested in? You’ll knock ’em off?MR. ROSS: I think so. And oneof the things we hope willcome out of Nafta, eventhough it’s a trilateral ratherthan a bilateral, is some lan-guage that we can roll out inother agreements. For exam-ple, intellectual-propertyrights is not a particularlyhuge issue between us andCanada and Mexico. So weshould be able to get a decentset of wording for intellectual-property rights. Same thingwith some of the other sec-tions. We think that havingsome standardized language,

rather than starting with ablank book every time you ne-gotiate, will also save a lot oftime.

Tax billMR. GIGOT: Would you agreethat one of the goals of the taxbill, particularly the corporatereform, is to make the U.S. areal Mecca for investment?MR. ROSS: Absolutely.

MR. GIGOT: Let’s say it passesin a form close to what theHouse and the Senate havenow submitted. Have you toldthe president that, if that hap-pens, the dollar is likely to goup, because investment’s goingto flow here, and you’re likelyto see a big increase in thedollar?MR. ROSS: The dollar going upwould be a function of a wholelot of things. Monetary policycomes into effect. The amountof the federal budget deficit isgoing to have an impact.There’s a lot other than taxesthat would have an impact onwhere the dollar trades.

MR. GIGOT: If you get that bigcapital inflow, you’re going toget an increase in the tradedeficit, almost by definition.And that’s not something thepresident says he wants.MR. ROSS: It is true, obviously,that both sides must balance

Please see ROSS page R9

It’s a time of tremendousconfidence in the U.S. economyand stock market. But thereare large question marksabout the immediate and long-term prospects—from pro-posed tax changes to the fateof trade deals.

To put those matters in per-spective, Wall Street JournalEditor in Chief Gerard Bakerspoke with Treasury SecretarySteven Mnuchin. Here are ed-ited excerpts of the discussion.

MR. BAKER: Does it worry youthat expectations in the mar-ket and in business and con-sumer confidence are maybetoo high?MR. MNUCHIN: No, it doesn’tworry me. People are very ex-cited about what the Trumpadministration’s economic pol-icies are. The president hasbeen very clear this is allabout creating growth. Thatwe’ve been in a period for the

last eight years of very lowgrowth. The president funda-mentally believes we can getback to 3% or higher sustainedGDP.

We have a high degree ofconfidence in getting tax re-form done between now andthe end of the year. It’s criticalto the economy.

MR. BAKER: Taxes are verymuch a moving target rightnow because we have theHouse proposal for tax reformand the Senate proposal, andobviously those two have to bereconciled in some way.Twenty percent corporate rateof tax. The House proposal isto have it begin immediately inthe next fiscal year. The Sen-ate defers it for a year. Doesthat worry you? Given that wehave these high expectationsfor a lower-tax environment,does it concern you that theSenate defers that tax cut?

MR. MNUCHIN: It doesn’t. Ourpreference is to start thissooner. But let me just put thisin perspective. When you lookat fundamentally where weare, the president’s objectives,the House’s objectives and theSenate’s objectives are allaligned.

We want to create a com-petitive business-tax system.We have one of the highest taxrates in the world. We have acrazy concept of, “If you leavethe money offshore, you don’tpay taxes.” So it’s not a sur-prise trillions of dollars aresitting offshore.

The president also wants usto have middle-income taxcuts. That’s what the Houseplan is about. That’s what theSenate plan is about. Whenyou look at them, there aresome minor differences. Butthe good news is, the objec-tives are exactly the same.Whatever differences there

are, I’m comfortable that wewill get them together.

MR. BAKER: Is that 20% ratelow enough in terms of the in-ternational environment to getthe kind of boost to investmentin the U.S., investment in jobsthat you want? How importantis it that it stays as close to20% as possible? Becausethere is some suggestion thatas part of the compromiseprocess it might drift up.MR. MNUCHIN: No, it’s not go-ing up. I can tell you this isone of the things that thepresident feels very stronglyabout. Twenty percent. So thiswill be a significant tax cut forcorporations.

MR. BAKER: Turning to some ofthe provisions on the personal-tax side, one that’s causing alot of neuralgia for a lot ofmembers of Congress, particu-larly Republican members ofCongress in high state- and lo-cal-tax states, is the provisionto eliminate or to significantlyreduce the deductibility ofstate and local taxes.

You know very well thereare a number of Republicanswho have already come out inthe House and said they can’tsupport it. The Senate doesaway with it completely in itsproposal. Is that somethingthat you’ll be willing to beflexible about?MR. MNUCHIN: The issue hereis fundamentally we believethat the federal governmentshould get out of the businessof subsidizing the states. Hav-ing said that, if you’re in NewYork, you’re in New Jersey oryou’re in California, for a me-dian income of $75,000, a fam-ily of four, you’re going to geta tax cut that’s over $1,000.For someone who makes$300,000, you’re going to geta tax cut, even in the high-taxstates, of several thousanddollars.

For someone who makes $1million in the high-tax states,you are going to get an in-crease. But those people willget the benefit of lower busi-

ness taxes. As the presidentsaid, this is not about cuttingtaxes for rich people. This isabout middle-income tax cutsand making our business taxescompetitive.

MR. BAKER: Almost the veryfirst thing the president did ashe took office was to take theU.S. out of the Trans-PacificPartnership. The other 11 TPPsignatories or planned signa-tories have agreed to go aheadand push on with their owntrade pact. The worry is thatthe U.S. is missing out here onan opportunity for leadershipthat other countries in the re-gion are seizing. Isn’t it a riskthat you’re not going to bepart of critical discussions asthis critical region continues togrow and seek opportunitiesfor growth?MR. MNUCHIN: We fundamen-tally disagree with that inter-pretation. When I showed upat my first G-20 meeting, itwas right after the presidenthad been elected. People wereconcerned. People were con-cerned about our policies ontrade. People were concernedabout protectionism.

Let me be clear. The presi-

dent believes in free and fairtrade. We are one of the larg-est trading partners in theworld. We have one of themost, if not the most, open in-vestment market in the world.The president wants to makesure that other markets are asopen to us as we are to them.

Two of the conversationsthe president had with Presi-dent Xi were on trade andNorth Korea. The presidentwants to make sure theseother markets are open andthat we have fair trade for theU.S.

MR. BAKER: What about Nafta?The president keeps threaten-ing to withdraw the U.S. fromNafta if it doesn’t get the kindof concessions it wants. TheWall Street Journal polls econ-omists, and 89% of the econo-mists polled said for the U.S.to pull out of Nafta would hurtthe U.S. economy. Are theywrong?MR. MNUCHIN: If the end resultis we have a better deal, whichis what the president wants,that will be better for the U.S.economy and for U.S. business.I’m optimistic that we will re-negotiate this deal.

TheBottomLine on theTaxCutsTreasury Secretary Steven Mnuchin, optimisticabout completing tax reform before year-end,says the corporate rate isn’t going above 20%

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Deficit Outlook Before Tax ReformThe Congressional Budget Office's comparison of its baselineestimate of federal budget deficits and its estimate of deficits underPresident Trump's proposed budget, in billions of dollars

THEWALL STREET JOURNAL.Source: Congressional Budget Office

Note: The amounts shown do not include estimated macroeconomic feedback effects onthe federal budget. Taking into account the smaller deficits under the president’s budget,the CBO estimates that the effects of that economic feedback would further reduce thecumulative deficit between 2018 and 2027 by roughly $160 billion. The resulting cumulativedeficit would be 2.8% of estimated gross domestic product, compared with 2.9% of GDPexcluding such feedback.

$1,500

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Baseline

’27’26’25’24’23’22’21’20’19

Budget

STEVEN MNUCHIN | ‘Fundamentally we believe that the federal government should get out ofthe business of subsidizing the states.’

Talking About TradeWilbur Ross explains why the administrationprefers bilateral deals to multilateral ones

WILBUR ROSS | ‘The problem we see with multilateral is, firstof all, it takes too long to do.’


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As the GOP tax bill headstoward completion, are con-gressional Republicans in syncwith the president?

Gerald F. Seib, The WallStreet Journal’s executiveWashington editor, spoke withMitch McConnell, the U.S. Sen-ate majority leader. Here areedited excerpts.

MR. SEIB: We’ve had a lot ofconversations about tax cuts,tax bills, tax reform. You’rethe guy who has to make ithappen. Will this happen, andwill it happen by the end ofthis year? [The House passeda tax bill after this interviewtook place.]SEN. MCCONNELL: Yes, it willhappen. Everybody believesit’s important for the country,and obviously it’s important to

us politically.We’ll pick it up in the Sen-

ate the week after Thanksgiv-ing. The markup, the draftingof the bill in the finance com-mittee, is going on as wespeak this week. It’ll be on thefloor the week after Thanks-giving.

MR. SEIB: The president’s madeit clear via Twitter that hehopes you will include in thetax bill an elimination of theindividual mandate underObamacare. That complicatesthe picture because you’recommingling taxes and health.Are you going to do that?SEN. MCCONNELL: The Senatefinance committee has decidedto include that. It helps in sev-eral ways. The additional reve-nue helps do a couple of

things that are important. Ithink it gives us a shot atmaking the corporate tax ratepermanent, and it providessome additional funding tomiddle-class tax relief. So it’spretty appealing to us.

MR. SEIB: What do you want tohappen in Alabama? You saidyou hope Roy Moore with-draws from the race. Do youthink that’s going to happen?If that doesn’t happen, whatrecourse do you have?SEN. MCCONNELL: First, it willnot impact taxes. No matterwho’s elected they won’t becertified till Dec. 23, and sowe’re pretty confident that thetax issue will be dealt with bythe current members of theSenate.

With regard to the Alabama

McConnell onTaxesAndBipartisanshipThe Senate majority leader also weighs in onthe Alabama race and the divisions within theRepublican party

race, Roy Moore should with-draw. The women who’vecome forward are completelycredible.

His campaign is collapsing,and from a Republican pointof view it produces a dilemmabecause the ballots have beenprinted. I’ve spoken with thepresident. He called me fromVietnam. I talked to Gen. Kellyand the vice president.

We’re in discussion abouthow to salvage this seat ifpossible. It appears as if theonly option would be a write-in, and that’s very seldom suc-cessful, although we had anexample of it in 2010. LisaMurkowski from Alaska ran awrite-in campaign in the gen-eral election and actually won.

The name being most oftendiscussed may not be avail-able, but the Alabamian whowould fit that standard wouldbe the attorney general. Thatobviously would be a big movefor him and for the president,but as the president is wind-ing his way back to the UnitedStates, I’m confident this is anissue they’re discussing.

MR. SEIB: If he wins, would youseat him or would you seek tohave him expelled?SEN. MCCONNELL: The SupremeCourt in a case in 1969 saidthe act of seating someone,swearing them in, is limited toconstitutional qualifications.

For example, are you a resi-dent? Are you 30 years old?Continued service is a differ-ent matter. It’s safe to say thatif he were sworn in, he wouldimmediately be in a processbefore the Senate ethics com-mittee under which thewomen would be sworn in. Hewould be asked to testify un-der oath as well. It would be arather unusual beginning.

MR. SEIB: Does it bother youthat we are continuing to tryto enact big domestic, socialand economic changes alongpartisan lines?SEN. MCCONNELL: It’s a prettypartisan period. This is notyour father’s DemocraticParty. There are very fewmoderate Democrats left.

We look at the last eightyears and find not achievingone year of 3% growth apretty underperforming econ-omy. I think the administra-tion’s doing an outstandingjob to begin to roll back regu-lations. If we can put on top ofthat pro-growth tax reform,we think there’s a legitimateshot at getting the growth ofour country up.

They don’t look at it thesame way. They think theeconomy’s stagnant, and nomatter how you arrange taxes,behavior doesn’t change. Ifyou’re looking for bipartisan-ship, I don’t think you’re going

to see it on this issue.

MR. SEIB: It’s not your father’sRepublican party, either, andSteve Bannon is busy provingthat. He says you should beout of your job by the end ofthe year, or the end of nextyear at least. There’s a deeprift in your party, and is thatgoing to stop you from havingcohesion on important legisla-tion?SEN. MCCONNELL: We’ve dealtwith this element for severalyears. I remind people thatthose who win elections makepolicy, and losers go into an-other line of work.

This is an element thatemerged in 2010 and 2012,succeeded in nominating can-didates who lost in Novemberand kept us from taking theSenate back.

I said, “This is not working.We need to start being asser-tive in primaries, start nomi-nating people who can actu-ally win.” We did that in 2014,took the majority. Did it againin 2016, kept the majority.

MR. SEIB: Did not do it, argu-ably, in Alabama in 2017.SEN. MCCONNELL: Very unusualsituation in Alabama. A specialelection. It’s an odd time. Andwe’re optimistic that we’re notgoing to allow people like RoyMoore to be nominated in anyother state.

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SEN. MITCH McCONNELL | ‘I think the administration’s doing an outstanding job to begin toroll back regulations.’

VOICES FROM THE CONFERENCE

“Once machines were clearly tools. They weresomething that workers used that made thoseworkers more valuable. Now, increasingly, at leastrelative to many workers, the machines are be-coming autonomous. This means that rather thancomplementing workers and making workersmore valuable, the machines are, in many cases,substituting for workers.“In fact, making those workers less valuable.

And I think that that is one of the things that’sdriving this significant gap between compensa-

tion and productivity. In essence, what’s happening here is that the fruits ofinnovation and of progress are now accruing almost entirely to people atthe top of the income-distribution scale. It’s business owners, managers,investors. And average people are really getting very little of that.”John Ford, Author, “Rise of the Robots: Technology and theThreat of a Jobless Future”

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MR. BECKETT: Do you, yes orno, approve of a 20% corpo-rate tax rate?SEN. KLOBUCHAR: I don’t ap-prove of the bill right nowwith that rate in it, for a lot ofthe reasons Mark just out-lined. But I do want to bringdown the corporate tax rate. Iwant to simplify the taxes.

My issue with this reformbill is the debt piece, the $1.5trillion. I wish, when the presi-dent had gotten elected, thathe had worked with Sen.Chuck Schumer—who wantedto do something about theoverseas money—and tied it inwith infrastructure, which hadalways been our plan, andthen combined that withthings that could truly helpthe middle class, which wouldinclude a minimum-wage in-crease that we haven’t seenfor years, doing somethingabout the student-loan refi-nancing.

There are a number ofthings that we could’ve done.But right now, this waited tillafter all this divisiveness, andwe are where we are.

MR. BECKETT: Should I takethat as a long no?SEN. KLOBUCHAR: OK.SEN. WARNER: At $20 trillionin debt, a 100-basis-point in-crease in interest rates addsabout $150 billion, $160 billiona year, in additional debt pay-ments. That’s more than wespend federally at the Educa-tion Department and Home-land Security together.

There’s nothing in this taxcode that will discourage in-

ternational companies fromcontinuing to use tax havensin a way that I think will evensee further abuse than we’vegot right now. So whether therate is 20% or 25%, if you’vegot large multinationals pay-ing effective rates of 2% or 3%,that is not fair to our domesticcore who are going to be pay-ing a much, much higher ratein the current plan.

Recent gainsMR. BECKETT: Democrats hadvery good elections in Virginiaand in New Jersey and Wash-ington state last week. Onelesson from each of you, suc-cinctly please, on what weshould take away from that.SEN. WARNER: If the Republi-can party continues down thiscivil war, and an agenda thatis anti-immigrant, divisive inan America that is increas-ingly diverse, they’re going toget wiped out in not just tradi-tional areas but in the sub-urbs. And increasingly, weeven saw in parts of rural Vir-ginia, a shift around. So Ithink those of us who are pro-business, who are pro-compet-itive, maybe there could besome strange new alliances.

MR. BECKETT: Your one take-away, Sen. Klobuchar?SEN. KLOBUCHAR: People wanta positive message. Theydidn’t like how Ed Gillespie[the losing Republican candi-date for governor in Virginia]ran the campaign. And all thisnegativity is going to boomer-ang back at the people thatrun campaigns like that.

HowDemocrats See It

With Republicans in controlof all three branches of thefederal government, Paul Beck-ett, Washington bureau chiefof The Wall Street Journal,asked two Democratic sena-tors—Amy Klobuchar of Min-nesota and Mark Warner ofVirginia—what their party’smessage will be heading intothe 2018 elections. Edited ex-cerpts follow.

Social-media adsMR. BECKETT: You are bothsponsors [along with Sen.John McCain] of a bill thatwould require disclosure ofsponsorship for political ad-vertising on social media, as isrequired in other media, liketelevision. What’s behind thatbill and does it have anychance of passage?SEN. KLOBUCHAR: I think itdoes have a chance of passage.First of all, there’s the obvious

national-security issues withfinding out that Russia actu-ally used rubles to buy ads onFacebook. But it is bigger thanthat: $1.4 billion was spent onthese online ads by politicalcampaigns, by issue groups,just in the last election. Sothis isn’t about regulating theinternet. You’re going to haveanother set of eyes looking atthese ads, to help ferret outwhere they came from.

GOP tax planMR. BECKETT: Republicanssound very optimistic aboutgetting tax cuts through. Thatwill give them some momen-tum going into 2018, and aneconomic stimulus andachievement they can tout.What is the Democratic mes-sage to counter that?SEN. WARNER: We need sub-stantial tax reform; having thehighest nominal corporate rate

does not keep us competitive.But the real disadvantage

spot right now is for low- andmoderate-income people nothaving the training they needto continue to upgrade theirskills.

If we’re going to do repatri-ation, which I agree, and givefolks an enormously advanta-geous rate, why not say partof the price of that repatria-tion would be a meaningfulworker-training program foranybody that makes less than$80,000 a year so that there issome assurance that the bene-fits that are going to go, writlarge, to corporate America,will at least flow through tosome of the workforce?

Why not think about a por-table-benefit system so thatpeople can move from job tojob? We have a social-benefitssystem where you only get so-cial benefits if you work long-

term as a full-time employee.Those jobs, again, are disap-pearing. Think about a tax-code reform that’s going to beforward-leaning. And unfortu-nately, I don’t think that’swhat’s taking place right now.

Sens. Amy Klobuchar and Mark Warner say they are for taxreform. But not the way the Republicans are going about it.

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Amy Klobuchar and Mark Warner



“This administration and particularly this presidenthas been very engaging with manufacturing com-panies, businesses in general. I think that’s some-what expected, given his background. But I havefound the president and the administration to bemore open and willing to engage and have seriousdiscussions about the issues that face manufac-turing, more so than in the past.”John Ferriola, Chairman, President and ChiefExecutive Officer, Nucor Corp.

The Wall Street Journal would like to thank the

sponsors of the 2017 CEO Council Annual Meeting

for their generous support.

For more information, please

visit CEOCouncil.wsj.com

© 2017 Dow Jones & Co. Inc. All rights reserved. 6DJ6150

P2JW324000-0-R00800-1--------XA



more risk than a five-year sun-set.

MR. GIGOT: You referred to thepolitics of the timetable ofNafta, and you have the Mexi-can election that’s coming up.Obviously that will affect theirwillingness, their ability tocompromise. If you can’t worksomething out by March, is thepresident prepared to unilater-ally withdraw from Nafta?MR. ROSS: I think the presidenthas spoken for himself on in-numerable occasions. His gen-eral point of view is that nodeal is better than a terribledeal.

MR. GIGOT: What do you thinkthe economic impact would beof unilateral American with-drawal from Nafta?MR. ROSS: For one thing, it

would be devastating to theMexican economy because it’ssuch a big part. We are 80-some-odd percent of all theirexports and I think theamount of their exports to usis something like 30% of theireconomy. So you’re talkingabout a big, big-time problemfor Mexico. And it’s also a big-time problem for Canada. Itwould be far more damagingto them than to us.

MR. GIGOT: I can’t assume thatyou, as U.S. Commerce Secre-tary, would enjoy economicdamage in two of our biggesttrading partners and neigh-bors. That certainly wouldn’thelp us.MR. ROSS: No. I would cer-tainly prefer them to come totheir senses and make a sensi-ble deal.

because that’s just the way themath works.

MR. GIGOT: Correct.MR. ROSS: But it is not inevita-ble what that does to the cur-rency because of other factors.

MR. GIGOT: But let’s just dealwith a trade deficit then. Ev-erything works, you get the taxbill through, growth pops uplike your White House Councilof Economic Advisers says,you get an influx of capital,and wages are going up, youget 3% growth—uh-oh, thetrade deficit’s also going up.Can you live with that if you’rethis administration?MR. ROSS: We’re using tradedeficit as a shorthand way ofsaying job creation. Job cre-ation is the real purpose of re-ducing the trade deficit, andit’s why the way we mainlywish to reduce the deficit is byincreasing our exports as op-posed to constricting imports.That way you have more totaltrade, and you have a reduc-tion in the deficit.

MR. GIGOT: Nafta negotiationsresume again, I think, laterthis week. Businesspeople areconcerned about some of theU.S. negotiating positions, par-ticularly the five-year sunsetclause. How as a businessper-son can you make an invest-ment decision about where toinvest multibillion dollars, per-haps, if the whole thing you’rebasing it on goes away in fiveyears?MR. ROSS: Right now in Nafta,businesses are exposed to asix-month termination. Any ofthe three countries can termi-nate it on six months’ notice.

MR. GIGOT: But there’s neverbeen an assumption anybodywould do that until—MR. ROSS: It may not havebeen an assumption, but it’s afact. So there’s right now ashorter-term trigger than thefive years, plus the five yearsjust says in effect that thepresident must make a con-scious decision to continue it.Assuming it’s an agreementthat’s working well, and that’sthe general assumption thatpeople are making, why wouldanyone terminate it?

We think the discipline ofsaying, “OK, we’ll do the besttrade agreement we can.Chances are we’ll get some-thing wrong in it that’ll needfixing.” Having this formal pe-riod of five years is a goodway to deal with that.

MR. GIGOT: But your messageto CEOs who are thinking, “DoI build that plant in Mexico ordo I go to Malaysia”—thatsunset provision shouldn’tworry them?MR. ROSS: There are lots ofparts of the world that arevery low-cost that have a lot

ContinuedfrompageR4Ross

FULL PAPER: The entire Wall StreetJournal issue that includes the CEOCouncil report can be obtained for$10 a copy. Order by:

Phone: 1-800-JOURNALFax: 1-413-598-2259Mail*: CEO Council

Dow Jones & Co.Attn: Back Copy Department84 Second Ave.Chicopee, Mass. 01020-4615

JOURNAL REPORT ONLY: Bulk ordersof this Journal Report section onlymay take up to six weeks fordelivery and can be obtained for $5for one copy,$2 for each additional copy up to 50,and 25 cents for each copythereafter. Order by:

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The Journal Report welcomesyour comments—by mail, fax oremail. Letters should be ad-dressed to Lawrence Rout, TheWall Street Journal, 4300 Route 1North, South Brunswick, N.J.08852. The fax number is609-520-7256, and the emailaddress is [email protected].

For advertising informationplease contact Katy

Lawrence at 212-416-4119or [email protected]

THE JOURNAL REPORT


“Biology and business are about to intersectmore and more.…Imagine, for a second, agroup of app writers create a new app to-morrow to come up with a way to detectwhether or not you’re lying. It checks yourrespiration, your pupil dilation, your tone ofvoice. A bunch of things that are completelyunconscious.…Everybody would downloadthe app. If it were free, everybody wouldhave it in a matter of days. And suppos-ing…you could use it the first 20 times free,and after you were sure it worked, it was adollar every time. How big a business would you have with that app?“How many industries would be changed if lying were not possible?”

Jay Walker, Founder, Library of the History of Human Imagination;Founder and CEO, Upside; Founder, Priceline.com

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more risk than a five-year sun-set.

MR. GIGOT: You referred to thepolitics of the timetable ofNafta, and you have the Mexi-can election that’s coming up.Obviously that will affect theirwillingness, their ability tocompromise. If you can’t worksomething out by March, is thepresident prepared to unilater-ally withdraw from Nafta?MR. ROSS: I think the presidenthas spoken for himself on in-numerable occasions. His gen-eral point of view is that nodeal is better than a terribledeal.

MR. GIGOT: What do you thinkthe economic impact would beof unilateral American with-drawal from Nafta?MR. ROSS: For one thing, it

would be devastating to theMexican economy because it’ssuch a big part. We are 80-some-odd percent of all theirexports and I think theamount of their exports to usis something like 30% of theireconomy. So you’re talkingabout a big, big-time problemfor Mexico. And it’s also a big-time problem for Canada. Itwould be far more damagingto them than to us.

MR. GIGOT: I can’t assume thatyou, as U.S. Commerce Secre-tary, would enjoy economicdamage in two of our biggesttrading partners and neigh-bors. That certainly wouldn’thelp us.MR. ROSS: No. I would cer-tainly prefer them to come totheir senses and make a sensi-ble deal.

because that’s just the way themath works.

MR. GIGOT: Correct.MR. ROSS: But it is not inevita-ble what that does to the cur-rency because of other factors.

MR. GIGOT: But let’s just dealwith a trade deficit then. Ev-erything works, you get the taxbill through, growth pops uplike your White House Councilof Economic Advisers says,you get an influx of capital,and wages are going up, youget 3% growth—uh-oh, thetrade deficit’s also going up.Can you live with that if you’rethis administration?MR. ROSS: We’re using tradedeficit as a shorthand way ofsaying job creation. Job cre-ation is the real purpose of re-ducing the trade deficit, andit’s why the way we mainlywish to reduce the deficit is byincreasing our exports as op-posed to constricting imports.That way you have more totaltrade, and you have a reduc-tion in the deficit.

MR. GIGOT: Nafta negotiationsresume again, I think, laterthis week. Businesspeople areconcerned about some of theU.S. negotiating positions, par-ticularly the five-year sunsetclause. How as a businessper-son can you make an invest-ment decision about where toinvest multibillion dollars, per-haps, if the whole thing you’rebasing it on goes away in fiveyears?MR. ROSS: Right now in Nafta,businesses are exposed to asix-month termination. Any ofthe three countries can termi-nate it on six months’ notice.

MR. GIGOT: But there’s neverbeen an assumption anybodywould do that until—MR. ROSS: It may not havebeen an assumption, but it’s afact. So there’s right now ashorter-term trigger than thefive years, plus the five yearsjust says in effect that thepresident must make a con-scious decision to continue it.Assuming it’s an agreementthat’s working well, and that’sthe general assumption thatpeople are making, why wouldanyone terminate it?

We think the discipline ofsaying, “OK, we’ll do the besttrade agreement we can.Chances are we’ll get some-thing wrong in it that’ll needfixing.” Having this formal pe-riod of five years is a goodway to deal with that.

MR. GIGOT: But your messageto CEOs who are thinking, “DoI build that plant in Mexico ordo I go to Malaysia”—thatsunset provision shouldn’tworry them?MR. ROSS: There are lots ofparts of the world that arevery low-cost that have a lot

ContinuedfrompageR4Ross

FULL PAPER: The entire Wall StreetJournal issue that includes the CEOCouncil report can be obtained for$10 a copy. Order by:

Phone: 1-800-JOURNALFax: 1-413-598-2259Mail*: CEO Council

Dow Jones & Co.Attn: Back Copy Department84 Second Ave.Chicopee, Mass. 01020-4615

JOURNAL REPORT ONLY: Bulk ordersof this Journal Report section onlymay take up to six weeks fordelivery and can be obtained for $5for one copy,$2 for each additional copy up to 50,and 25 cents for each copythereafter. Order by:

Email: [email protected]*: Dow Jones LP

Attn: Mailing Operations Dept.84 Second Ave.Chicopee, Mass. 01020-4615

REPRINT OR LICENSE ARTICLES: Toorder reprints of individual articles orfor information on licensing articlesfrom this section:

Online: www.djreprints.comPhone: 1-800-843-0008Email: [email protected]

*For mail orders, do not send cash.Checks or money orders are to bemade payable to Dow Jones & Co.

REPRINTS AVAILABLE

The Journal Report welcomesyour comments—by mail, fax oremail. Letters should be ad-dressed to Lawrence Rout, TheWall Street Journal, 4300 Route 1North, South Brunswick, N.J.08852. The fax number is609-520-7256, and the emailaddress is [email protected].

For advertising informationplease contact Katy

Lawrence at 212-416-4119or [email protected]

THE JOURNAL REPORT


“Biology and business are about to intersectmore and more.…Imagine, for a second, agroup of app writers create a new app to-morrow to come up with a way to detectwhether or not you’re lying. It checks yourrespiration, your pupil dilation, your tone ofvoice. A bunch of things that are completelyunconscious.…Everybody would downloadthe app. If it were free, everybody wouldhave it in a matter of days. And suppos-ing…you could use it the first 20 times free,and after you were sure it worked, it was adollar every time. How big a business would you have with that app?“How many industries would be changed if lying were not possible?”

Jay Walker, Founder, Library of the History of Human Imagination;Founder and CEO, Upside; Founder, Priceline.com

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don’t buy houses because ofdeductibility of interest. Peo-ple buy houses because they’rebullish on the economy,they’re gainfully employed,

they think they’re going to beemployed for a long time, theythink the business they’reworking for is solvent, theythink their pay is going up, not

going down. Potentially, theirspouse is getting a job and isin the same fundamental char-acteristics. That’s when peopletend to buy houses.

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GARY COHN | ‘The regulatory environment has had a huge impact on productivity.’


“Artificial intelligenceisn’t magic. In fact,it’s not really aboutintelligence at all. It’sbetter understood assimply the latest ad-vance in automation.Its effects on societyin general and labormarkets in particular

are likely to be very much like previous waves ofautomation, such as the invention of the electriclightbulb or air travel or the automobile or tele-vision or the digital computers. Now, each ofthose innovations put plenty of people out ofwork. But more importantly, they increased ourwealth and created a raft of new jobs and pro-fessions.”Jerry Kaplan, Adjunct Professor, StanfordUniversity; Author, “Humans Need Not Apply”

Taxes are front and centerin the minds of businesspeopleand citizens as the House andSenate try to hash out a bill.There are potentially sweepingchanges in the works, includ-ing removing the deduction forstate and local taxes.

Wall Street Journal Editorin Chief Gerard Baker spokewith Gary Cohn, a formerGoldman Sachs executive andcurrently assistant to the pres-ident for economic policy anddirector of the National Eco-nomic Council. Here are editedexcerpts of the conversation.

Why now?MR. BAKER: Why is now a goodtime to be cutting taxes, to beincreasing the deficit signifi-cantly?MR. COHN: When you look atwhat’s happened to the U.S.workforce since the recession,yes, we’ve created jobs. Butwages have been growing ba-sically in line with low infla-tion. One of the big drivers ofour tax-reform policy is to get

real wage growth back intothe United States. When wetalk about lowering taxes onbusinesses, one of the resultsof that is that the businessesare going to be able to paytheir workers more. We knowthat individuals know how tospend their money much moreefficiently than the govern-ment does. The multiplier ef-fect of individuals spending issubstantially higher than themultiplier effect of govern-ment spending.

MR. BAKER: U.S. economicgrowth has been about 2% forthe last 10 years. A large partof the reason why the trendseems to have dropped from3% 20 years ago seems to bedemographics. The other phe-nomenon is productivity,which has been weak. What’sgoing to go on with this taxcut to raise productivity?MR. COHN: One of the big com-ponents of the tax bill is im-mediate expensing for capitalexpenditures. There’s an enor-mous amount of capital expen-ditures that can be spent inthe system that enhance pro-ductivity.

MR. BAKER: But we’ve seen thisenormous investment in tech-nology in the last 25 years, yetthere has been no increase inproductivity in that time. Pro-

ductivity’s declined. How isthat going to change?MR. COHN: The regulatory en-vironment has had a huge im-pact on productivity. Nonpro-ductive regulation is chewingup enormous amounts of com-pany earnings that they can’treinvest into what is reallyproductivity. We need to rollback that regulation. We needto make our businesses morecompetitive. I’m not looking toderegulate our businesses. Butwe’re looking to allow them tocompete and be more produc-tive than businesses aroundthe world.

MR. BAKER: Is it really impor-tant to have the tax bill doneby Dec. 31?MR. COHN: We’ve got to gettaxes done this year. The legis-lative calendar is going to getvery crowded come the first,second week of December.There are a bunch of issuesthat got punted for a fewmonths into the first and sec-ond week of December.

MR. BAKER: One item I want toask you about is a plan to re-introduce the removal of themandate requiring people tosign up for health insurance.There are concerns that onceyou start pulling on thatstring, all kinds of difficultthings arise. Would you wel-come that?MR. COHN: We’re supportive ofit. Tax reform is really impor-tant to us in the administra-tion. I think it’s important tothe House and Senate. Wehave to get that done. If wecan get the individual mandaterepealed as well, that to us isa real windfall, and we’d loveto see that happen. But we’restill plodding ahead on tax re-form whether it happens orwhether it doesn’t happen.

Local mattersMR. BAKER: The state- and lo-cal-tax deduction elimination.Do you think there should beat least some support for somepeople who are going to be hitwho pay a lot in state and lo-cal taxes?MR. COHN: I don’t think that’sa proper characterization. Thequestion should be, do thebills deliver middle-income taxrelief? And the answer is yes.How they get there is differ-ent. The only way to gradewhether it’s successful or notis to literally look at the ta-bles, look at the distribution,and say, “Does this do whatwe want it to do? And doesthis deliver tax relief to hard-working American families?”And the answer to both bills isyes, it does. So yes, they’ve at-tacked it different ways, butultimately they get to thesame answer.

MR. BAKER: The doubling ofthe standard deduction willfor a lot of people mean thatthere’s no point anymore indeducting their mortgage in-terest because they have some-thing that’s below the stan-dard deduction. There’s a lotof concern in the housing sec-tor, lots of lobbying’s goingon, that this could really cause

a lot of damage.I know that people think

that only affects the wealthy.But actually, there’s a hugenumber of people who haveloans in that range. There’sconcern that could do reallyquite significant damage tothe housing sector. Do youworry about that?MR. COHN: I worry about ev-erything. So of course I worryabout it. But I think when youlook at the data and you lookat the reality, people really

In Defense of theCurrent TaxBillsGary Cohn on removing the health-insurancemandate, as well as why the plans will improveproductivity, and the impact on housing

THEWALL STREET JOURNAL.

Source: Business Roundtable survey of 119CEOs in the U.S., conducted in April

Focused on TaxesPercentage of CEOs who choseeach of these actions as the bestway to accelerate U.S. economicgrowth in the following 12months

Corporatetax reform

71%

Regulatoryreforms

InfrastructurespendingOther | 5%

13%

12%

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P2JW324000-0-R01100-11EFFB7178F



Nobel Prize-winning econo-mist Angus Deaton and his fel-low Princeton University pro-fessor and wife, Anne Case,made headlines two years agowhen they reported that mor-tality rates among white,working-class Americans aregoing up in contrast to otherdemographic groups in theU.S.

Since then, the two havecontinued to dig into what isbehind the increase in “deathsof despair” among white, mid-dle-aged Americans with lowlevels of education. They satdown with Wall Street JournalNews Editor Janet Adamy todiscuss their latest findings.Edited excerpts follow.

Two AmericasMS. ADAMY: You were here twoyears ago. Since then, DonaldTrump has been elected presi-dent. The opioid crisis hasworsened. What has your re-search found since then?DR. DEATON: We’ve dug a lotdeeper into the details. We’vediscovered that it was no flashin the pan. The numbers were

correct. Bad things are reallyhappening, and they’re con-tinuing to happen.

We dug down a lot moreinto the educational differ-ences and found that it is verymuch a two-Americas situa-tion, where people with bache-lor’s degrees are doing prettywell and those without themaren’t doing very well at all.

MS. ADAMY: And you discov-ered that the mortality ratesamong this population ofwhite Americans have wors-ened in a way that has no his-torical precedent?DR. DEATON: That’s right. Youcan find episodes like the fluepidemic or wartimes whenmortality rates go up, but sus-tained increases in mortalityfor any major group in any so-ciety are really quite rare. It’san indication that somethingis very wrong.

MS. ADAMY: Anne, why exactlyis this happening?DR. CASE: I think there are sev-eral answers to that. Mortalityrates for suicide, for drug

overdose, for alcoholism arerising for people without acollege degree. Those are thebig increases that we’re see-ing, and it isn’t just about thefinancial crisis. This startedback as far as we can breakout education in death certifi-cates, which is 1990. It hasbeen a slow, steady trend upin all three of those for peoplewithout a B.A.

In addition to that, we’vestopped making progress onheart disease in the U.S.,which is stunning. Every othercountry continues to watchmortality fall. Antihyperten-sives and people stoppingsmoking had huge effects ondeaths from heart disease. Butour mortality rates from heartdisease have flatlined andthat’s a really big killer. So wehave to better understand whythat has happened in the U.S.

MS. ADAMY: There is a starkdifference in terms of what ishappening in the U.S. versusour peer countries. Why iswhite mortality going up in theU.S., but not in other coun-

The Trump administrationhas an ambitious economicplan: It says the U.S. canachieve gross-domestic-prod-uct growth of 3% or more an-nually, fueled in part by theRepublican tax-cut proposalcurrently working its waythrough Congress.

Whether 3% growth is likelyor even possible, however, re-mains a matter of debateamong analysts and econo-mists.

Kevin Hassett, the chairmanof the White House Council ofEconomic Advisers, sat downwith Jon Hilsenrath, the globaleconomics editor of The WallStreet Journal, to discuss the3% growth target and theforces and trends that couldhelp or hinder it. Edited ex-cerpts follow.

’Magic moment’MR. HILSENRATH: So the ad-ministration is looking for 3%growth. Why do you think theU.S. can sustain that level ofgrowth in the months ahead?MR. HASSETT: We’ve had acouple of quarters in a row of3% growth. The first one ofthose was something of aweather-related phenomenon,but the fourth quarter is look-ing like it’s going to be inabout the same range, sowe’re going into next yearwith a significant amount ofmomentum. And if you lookdown into the nuts and boltsof the numbers, the thing thatjumps out at me is that capitalformation is really starting topick up this year.

Business capital spendingwas really, really bad over thelast few years. Now, businesspessimism seems to havewaned and capital spending isheading back up, and I thinkthat has something to do withoptimism about tax reformand something to do with thepresident’s regulatory agenda.

MR. HILSENRATH: The FederalReserve projects long-termgrowth around 1.8%. What doyou see that the Fed isn’t see-ing right now in terms of theeconomy’s long-run prospects?

MR. HASSETT: In the nearterm, we’ve got business taxreform planned, and it lookshighly likely to pass. Every-body who is counting votesseems optimistic. And it’s go-ing to repair a badly brokencorporate tax system. TheOECD, probably about a de-cade ago, told us that we needto have corporate reform inthe U.S. because we’re chasingcapital off shore. And if we fixthat, we’ll get a surge in capi-tal spending in the U.S., whichwould drive up GDP growth inthe short term.

I don’t know what the Fed’sassumptions are aboutwhether the tax reform passes.But I would guess that if youreduce the user cost of capitalby about 15%, which is our es-timate of what it does, thenthat should increase capitalspending and GDP growth inthe short run, for sure.

MR. HILSENRATH: So are yousaying that 3% growth is pos-sible for the short run, but notso much for the longer run?MR. HASSETT: It depends howfar you go out. There are a lotof things that can be stimula-tive for growth more than justa year out, like attempts to in-crease labor-force participa-tion. The idea that being closeto full employment, becomingan attractive place for capitalto locate again, should mean

that there are going to be a lotof new factories going in theU.S., driving up the demandfor workers and driving upwages.

That should lead to morelabor-force participation,which has been heading in thewrong direction lately. But if itturns around, you could getnorth of 1.8%.

MR. HILSENRATH: Unemploy-ment is at 4.1%. This is a levelthat economists sometimes de-scribe as “at or even below fullemployment,” the idea beingthat if it goes much lower, theeconomy risks potentiallyoverheating. Would you saythat is where we are now?MR. HASSETT: If you look atthe history of business cycles,it is precisely now, when labormarkets are pretty tight inplaces, that you start to seeincome inequality decline andwage growth increase. And ifwe were to take that sort ofmagic moment, where thingsare teed up to reconnect peo-ple to the labor force and givethem a wage hike, and then wereform our tax code so thatfactories want to locate in theU.S., it could be really trans-formative for our economy.

MR. HILSENRATH: We’ve hadperiods in the past where un-employment was at or near

PleaseturntopageR13

The Basis for 3% GrowthEconomist Kevin Hassett says it’s doable,provided tax reform is passed

KEVIN HASSETT | ‘Capital spending is heading back up.’

tries?DR. DEATON: One of the imme-diate things is opioids. Euro-pean countries have muchtighter controls on the wayopioids are distributed. Therehas been none of this massprescribing of opioids that hashappened in the U.S. We haveto get that genie back in thebottle. That’s very important,but it isn’t all of it. Of thethree [types of] deaths we’velooked at, suicides, opioids,and alcoholic liver disease, thebiggest single one is opioids.But the other two together arebigger than opioids.DR. CASE: I think opioids madeit a perfect storm. But it wasthe case that people were kill-ing themselves slowly with al-cohol or quickly with gunseven before the opioid crisisstarted. OxyContin wasn’teven on the market until 1996.We also want people to under-stand that this [is affecting]women, as well as men.

MS. ADAMY: What do you seein terms of geography? Whereis this happening?

DR. CASE: In every state,deaths from suicide have in-creased between 1999 and2015. In every state but two,alcoholic liver disease and cir-rhosis increases. In everystate, drug overdoses.

MS. ADAMY: Interestingly,among blacks and Hispanics,mortality rates have fallen re-gardless of education level.Why is that?DR. CASE: That was one of thefirst surprises to hit us. Whenwe think about bad things, weusually think that the firstpopulation to be hit are Afri-can-Americans. But the deathrates from alcohol and drugsfell through the ‘90s and theearly 2000s until about 2010for African-Americans, whilethey rose for whites.

So then, if you’re digginginto what the underlyingcauses are, we are beginningto speculate about working-class whites possibly havingthe pillars that held up theirlives beginning to crumble.

Lost generationMS. ADAMY: And what werethose pillars?DR. CASE: Having a job with aladder up, with on-the-jobtraining, with benefits. Havinga job where you could actuallyask a woman to marry you andshe would marry you. Now,marriage rates among work-ing-class people are waydown. She doesn’t want tomarry him if he doesn’t have agood job.

Cohabitation is way up. Butunlike in Europe, where thosecohabitations are quite stable,in the U.S., they are fragile.Neither of them has a goodjob. They aren’t married, sothey don’t have that stability.And they’ve moved away fromwhat we call legacy churches,the Catholic and Protestantchurches, toward evangelicalchurches, which focus on theindividual. It’s my personal re-lationship with my savior,rather than it being about usas a community.

So those pillars of life—church, family, job—have dis-appeared for the white work-ing class in a way that ithasn’t really been the case forblacks.

MS. ADAMY: You found thatthose in middle age now arelikely to be worse off in oldage than the current popula-tion. Can anything be doneabout that?DR. DEATON: Several peoplehave used the term lost gener-ation for those people. It’svery unclear what to do withthem. Their economic statuswill improve a little bit as theymove into old age, simply be-cause initial Social Securitypayments are indexed on aver-age wages.

But we don’t think financialsecurity is the essence of thismatter. We think their liveswill come apart in the waythat Anne has been talkingabout. You’re a 55-year-oldguy. You have never been mar-ried, but you’ve been in threeconsecutive relationships. Youhave three sets of kids, noneof whom you know anymorebecause the younger ones areliving with other guys. Thecommunity that you used tohave has disintegrated.

Many people have mixedviews about unions, butunions used to give peoplesome measure of control atwork. They gave them a sociallife and political representa-tion in Washington, whichdoesn’t really exist anymore.

MS. ADAMY: Can employers doanything to help improve thefortunes of this working-classpopulation?DR. CASE: We don’t think theanswer is getting everyone togo to college. That doesn’tseem realistic. The problem,we think, is that these peopledon’t have any standing in thelabor market anymore.

The minimum wage hasn’tincreased since, what, 1997?Noncompete clauses in laborcontracts, even for working-class people, mean they can’ttake a job for higher wageselsewhere. I think the lack ofenforcement of antitrust lawsmeans that some very largeemployers have [too much]power over the workforce.And so I think that one of thethings that could happen istrying to rebuild the socialcontract between labor andcapital. We are all at risk if wedon’t do that.

‘TwoAmericas,’ UpdatedAngus Deaton and Anne Case discuss what’s behind the risingmortality rates among white Americans without college degrees

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ANNE CASE | ‘It isn’t just about the financial crisis.’ ANGUS DEATON | ‘Something is very wrong.’

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MR. HASSETT: The market islike an expectation mechanismfor the future, right? It looksat all the things that mighthappen and puts probabilitieson them. And if you thinkabout why prices are wherethey are right now, it must bebecause the market has fac-tored in some probability thatthis tax reform will pass. If allof a sudden we learn that itwon’t, then that’s going to bevery bad news for markets.

MR. HILSENRATH: The currentexpansion is more than eightyears old. We’ve never had anexpansion go longer than 10years. What is in this adminis-tration’s tool kit and in theFed’s tool kit for when we gointo the next recession?MR. HASSETT: First, I don’tthink that the evidence is tooconvincing that recoveries dieof old age. Very often, there’sa precipitating event. So whilerecessions are going to comeinto our future for sure, Idon’t think that the odds ofrecession in the next year areunusually high just becausewe’re eight years in.

That said, if the recoverycontinues and the Fed normal-izes monetary policy evenmore, it will have an ampletool kit to draw on. I think themacroeconomics literature hassuggested that the Fed is morenimble in recessions and thatattempts to use Keynesian-style stimulus have often beentoo late.

But if a recession were tohappen, fiscal policy wouldprobably be part of the mix.That is something that evennow we’re studying and start-ing to think about at CEA be-cause you don’t wait for therainy day to buy an umbrella.

Insurance policyMR. HILSENRATH: So what arethe fiscal options that this ad-ministration would look at ifwe hit another downturn?MR. HASSETT: Somethingwe’ve studied a lot since thesummer is that the “shovelready” project idea isn’t nec-essarily a good one. Infra-structure investment is a re-ally great investment for oureconomy and it’s somethingthe president has talked abouta lot since the campaign, butyou aren’t necessarily going toget infrastructure spendingout in the next six months tostimulate the economy. Otherthings, such as tax variables,seem to have a quicker re-sponse time.

MR. HILSENRATH: You’re pull-ing that lever now, with thismajor tax overhaul?MR. HASSETT: Right. Again, ifwe become the most attractiveplace on Earth to locate, whichI think we might be if youweigh all of the factors, thenthere is going to be a big in-crease in capital formation inthe U.S. That should be sometimely insurance this deep intothe recovery.

4%, or even lower, and we hadfinancial bubbles. Is there arisk of that if unemploymentkeeps falling?MR. HASSETT: There is defi-nitely always that risk. But Ithink about it this way: If un-employment is 7% and you’rea firm that wants to increaseoutput, you can get a cheapworker off the unemploymentline. But if the unemploymentrate is what it is now, andyou’re a company that’s gotlistings but nobody is apply-ing, then you have to invest inincreasing the productivity ofthe people you have. And thatproductivity increase likelywill transfer into wage in-creases.

If that happens, if we getthe productivity-enhancingcapital formation, we can ex-pect this to be a sustainablehigher level of growth thatwould affirm the expectationsof markets. I don’t think thesort of productivity enhance-ment that we need to stay at3% growth is something thatanyone who is reasonablewould project if we don’t passtax reform. Therefore, themarket might even already beahead of itself if the tax re-form doesn’t pass.

MR. HILSENRATH: When yousay, “might even be ahead ofitself,” what do you mean?

ContinuedfromthepriorpageHassett

VOICES FROM THE CONFERENCE“We will deal with any businesses that are knowl-edgeable and can contribute in a way that wethink’s constructive on the agenda that we have.The message I would give to people is we’re notthere to necessarily deal with every individualcompany’s every individual issue. That’s not us.We have multiple stakeholders that we need toaddress.“But businesses know that this is an adminis-

tration that is receptive to feedback from busi-ness. This is an administration that will listen to

businesses of all natures, large and small, of any industry in thinking aboutpolicy frameworks. I think from a business point of view, that’s the mostyou can expect.”Chris Liddell, Assistant to the President and Director of StrategicInitiatives, the White House

Education is consistently atop concern of executives atThe Wall Street Journal’s an-nual CEO Council gatherings.Preparing youth for the jobs oftoday, as well as the ever-evolving workplace of tomor-row, is a challenge that manybusiness leaders think wearen’t meeting.

Secretary of EducationBetsy DeVos spoke with MattMurray, the Journal’s executiveeditor, about how Americaneducation can better rise tothat challenge and the role ofthe federal government in mak-ing it happen. Here are editedexcerpts of their conversation.

Stoking curiosityMR. MURRAY: We’ve heard alot during this conferenceabout things like artificial in-telligence, the digitization ofthe workplace, changes thatare already happening andthat we all think are going toaccelerate. You’ve been in thejob almost a year. What’s youroverall assessment of the pre-paredness of U.S. workers to-day for this world and theworld that’s coming?MRS. DEVOS: We have a lot ofopportunity for improvement.There certainly are studentswho leave high school and col-lege well prepared for theworld that awaits them, butmuch of the systems we’ve re-lied on in education for decadestend to be backward-lookingversus forward-looking.

It’s my goal to bring a fo-cus, in the K-12 area, to em-powering parents and studentsin a new way to find the edu-cation environment that isright for them, that is going tostoke the curiosity that is in-nate in every child and not tokill it by the time they’re in

third or fourth grade.When you look beyond 12th

grade, for several decades wehave given the message thatthe only successful path toadult life is through a four-year college or university. Andthat has been at the expenseof lots of great opportunities.

MR. MURRAY: When you thinkabout how many of our stu-dents are prepared for thisworld in the way that youthink they need to be, are halfof them ready for this today?Is it lower than that? Howbadly are we failing here?MRS. DEVOS: Children startingkindergarten this year face aprospect of having 65% of thejobs they will ultimately fillnot yet having been created.You have to think differentlyabout what the role of educa-tion and preparation is.

In talking with a lot of busi-nesspeople and others whohave to ultimately employ in-dividuals, the skills that wehave to be preparing kids withare, simply put, in four areas:critical-thinking skills; theability to collaborate and workwell with others, as we do inall of the rest of life, but notso much in school; the abilityto communicate well bothorally and in written commu-nications; and then creativity.And my observation of a lot ofstudents today is they’re nothaving their needs met to beprepared in those areas.

MR. MURRAY: What’s your phi-losophy of what the EducationDepartment can do and whatit shouldn’t do?MRS. DEVOS: I think there’s amuch larger role for states toplay. The Every Student Suc-ceeds Act that Congress

passed in 2015, which is justnow starting to get enacted,returns a lot of the flexibilityand control to the states forK-12 education.

Now we’re receiving theplans and reviewing them. It’smy goal to approve every sin-gle plan that follows the lawthat Congress passed. Wehope that states will take theopportunity to be creative inhow they’re addressing theneeds of students.

MR. MURRAY: You like to high-light programs that you thinkare unique, programs that youthink are great. But whatshould be the minimal accept-able education attainment?Because there is a real in-equality problem in our educa-tion system, isn’t there? Howdo we raise that floor?MRS. DEVOS: Probably most ifnot all of us in this room havehad the ability to choose ourchildren’s educational settings.The reality also is that manyparents don’t have that power.That has stunted creativity inthe education world for de-cades. We still fundamentallyoperate on a model that wasbrought to us 150 years ago bythe Prussians. We have not de-viated fundamentally from thatapproach, yet everything haschanged in the world.

I fundamentally believe thatif and when we empower allparents to make that rightchoice for their child, we willsee the kind of creativity enter-ing education that we need tosee that will ultimately preparestudents to be active partici-pants in the workforce, and tobe job creators themselves.

School-choice programs arestill at relatively small scale.We have not had a state where

PreparingYouthFor Future JobsBetsy DeVos says the education system hastended to look backward rather than forward

every single parent has thepower to make that choice fortheir child. But in Florida,where there are districts thathave a fairly high percentageof students opting to go to aschool other than their as-signed school, all the perfor-mance in that district has im-proved. So it says to me thatwith even more of those op-tions, we’re going to see evenbetter results ultimately.

After high schoolMR. MURRAY: Now, on post-K-12 education, it sounds likeyou’d like a world that hasmany more options for stu-dents than just the four-yeardegree. How can we developvocational schools and otherkinds of options, other path-ways to careers and success?MRS. DEVOS: First of all, weneed to honor and respectthose various avenues andpathways. To a large extent wehave stigmatized them for thelast couple of decades ormore, yet today we know thatonly about 30% of studentswill ultimately ever graduatefrom a four-year college oruniversity.

We currently have 6.1 mil-lion jobs that require somelevel of education beyond highschool that are unfilled. A lotof students would benefit from

being exposed to learningabout those options and op-portunities at a much earlierstage. It would help kids tolearn early on whether theylike to work with their hands,or whether they want to dosomething that requires themto sit and think all day.

MR. MURRAY: What can thegovernment do to seed andfund those pathways? Is it allup to private enterprise? Is itall up to the states? Is it all upto the institution?MRS. DEVOS: It’s really impor-tant for businesses to engagewith their local community

colleges, for example, or otherlocal institutions. If you haveneeds in your community thatare going unfilled or in yourbusiness that are going un-filled, I’ve seen several greatexamples of community col-leges that have partnered withindustry in their region andhave planned out curriculumand certifications to specifi-cally meet those needs.

Some students enter thoseprograms and take ninemonths to a year of a microdegree for something, and thenthey will go and work for a fewyears, and then come back foranother level of education.

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BETSY DEVOS | ‘We have not had a state where every single parent has the power to makethat choice for their child.’

Source: National Center for the Middle Marketsurvey of 1,000 C-suite executives at midsizecompanies in the U.S., completed December 2016. THEWALL STREET JOURNAL.

Held BackPercentage of U.S. middle-market executives in each industry whosay a shortage of talent constrains their company's ability to grow

Health care

Services

Construction

Manufacturing

Financial services

Retail trade

Wholesale trade

Total middle market

49%

37%

20%

29%

33%

44%

46%

46%

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with or without the tradeagreement.

The clearest example isChina. In the agreement thatlet China into the WTO, we didnot reduce a single tariff inthe U.S. We kept them at thesame level that they had beenfor the previous 10 years. Thereason there was a trade surgewas changes that were takingplace in China, not changes inour trade policies.

MR. IP: What happens to ourgrowth and our trade balancesif we exit these agreements?MR. SUMMERS: Probably ourtrade deficits go up a little bitbecause of the reduced capac-ity to export to those coun-tries. I think our growth,which is determined by many,many things—and exports toMexico are just not that largerelative to the total economy—probably is a little softer than

it would otherwise be. But Ithink our broad national inter-est is hugely affected.

There’s a risk that Mexico’sgoing to elect a Hugo Chávez-like figure. And the best wayto make that maximally likelywould be for us to abrogateNafta in a way that provedthat all those in Mexico whoresent the U.S. are right. Andthat would be catastrophic forour broad security interest.

The biggest strategic giftthe U.S. has given to China inthe last 15 years was leadingthe whole Asian region downthe path of TPP and then with-drawing, dumping them, andleaving them disappointed.

If the U.S. were to just stopmoving forward on trade,abandon treaties that it hadalready agreed to, you won’tsee it in a huge impact on theGDP right away, but I’ve gotvery little doubt that it wouldhave a substantial impact onboth our security, and over thelonger term, on our economy.

MR. IP: Treasury Secretary Ste-ven Mnuchin said the tax cutbeing planned in the Houseand the Senate will pay for it-self. He said even if we onlyget 30 or 40 basis points moreof economic growth, this will

Lawrence Summers wassecretary of the Treasury un-der Bill Clinton and director ofthe National Economic Councilunder Barack Obama. Thus,many of the policies he helpedenact are now being reversedor assailed by President Don-ald Trump. Mr. Summersshared his views on currenteconomic policies with Greg Ip,The Wall Street Journal’s chiefeconomics commentator. Ed-ited excerpts follow.

MR. IP: You played a part inNafta, the World Trade Organ-ization, the Korea-U.S. tradeagreement and the Trans-Pa-cific Partnership. We now havea president and an adminis-tration who believe that allthose things were terrible mis-takes, that the U.S. has been aloser as a result of free trade.Are they wrong?MR. SUMMERS: They’re wrongbecause each of those weregood deals. If you looked athow much trade barriers inthe U.S. were reduced, and athow much trade barriers inthe other countries were re-duced, in every case they werereduced two, three, four, fivetimes as much in the othercountries as in the U.S.

The main thing these tradeagreements have done is toopen other markets to ourbusinesses and to our exports.You don’t have to get into ab-stractions of free trade. If youjust look at it as mercantilism,we’re tearing down their bar-riers lots more than we’re re-ducing any of our barriers,mostly because we didn’t haveany barriers to start with.

What’s happened as a con-sequence of America’s han-dling of the TPP—and there’splenty of blame in my partyfor that as well—is we’re goingto give Japanese producerssubstantially privileged accessrelative to American producersin a whole variety of importantand rapidly growing markets.

Of course trade agreementsshould be made in our na-tional interest. That is theright focus. They should notbe endeavors at altruism. Do Ithink the trade agreementswe’ve had are perfect? No, ofcourse not. But there havefundamentally been muchgreater changes by the othercountries than ours, and if werepeal them, other countries’trade barriers are going to goup much more than any kindof protection we’re going to bein a position to impose, and soit’s going to hurt our economy.

MR. IP: Trump officials saythat after each of those agree-ments our trade deficits, withMexico, with China and Korea,got bigger. They believe thosedeficits are evidence that we’relosing. In the Nafta negotia-tion there’s been talk about re-quiring the Mexicans and theCanadians to adhere to targetsfor the bilateral trade deficit.What’s wrong with that logic?MR. SUMMERS: Bilateral tradedeficits as a concept don’tmake any sense. I run a hugebilateral trade surplus withHarvard [where he is presi-dent emeritus and a profes-sor]. I run a huge bilateraltrade deficit with my golf club.It makes sense to think aboutwhether I’m selling more tothe rest of the economy thanI’m buying from the rest of theeconomy. It makes no sense tothink about that entity by en-tity. And so I can see no logicto the use of the bilateraltrade deficit as a concept forjudging what’s happening.

Look, we sign trade agree-ments with countries thathave rapidly emerging andsuccessful economies. That’swhy we sign trade agreementswith them. So it can’t be asurprise that those are coun-tries that are exporting sub-stantially more and enjoyingrapid growth to the U.S.

That would be happening

pay for itself. Is he right?MR. SUMMERS: Could it turnout that growth accelerated?Yes. If you were about [to roll]a die and I predicted that itwas going to come up 12, Icould turn out to be right, butit would be a crazy prediction.

I don’t think there is anyrational basis for the judg-ment that the tax cut will payfor itself. There is nothing inthe experience of past taxcuts, nor in the experience of alarge number of modeling ex-ercises that suggest that thistax cut would pay for itself.

I read carefully what thesecretary said here last nightand he said the Treasury hadpublished a study that demon-strated this. We have soughtto receive that publication,and there is no publication.

And I would make thisjudgment: I am still familiarwith the kind of models andanalysis that the career pro-fessionals at the Treasury do,and their career professionalanalysis, I am 99% certain, willnot support the judgment thatthis tax cut will raise revenue.

Look, reasonable people candiffer [on how tax cuts will af-fect the deficit and inequality]and there’s argument on bothsides, and that’s somethingthat will be worked out.

But there’s a profound re-sponsibility for people in posi-tions of responsibility who aremaking factual claims aboutthe economy to have a basisfor those factual claims, whenthey indicate that they’rebased on publications, to beprepared to come forward withthose publications. And I’mafraid I haven’t seen that fromthe Treasury Department.

[In response to a queryfrom The Wall Street Journalabout Mr. Mnuchin’s assertionthat Treasury had publishedan analysis showing that thetax cut will pay for itself, aTreasury official said the sec-retary was “referencing inter-nal work” done in support ofCouncil of Economic Adviserspublications and did not meanto suggest that Treasury hadpublished its own report.]

TheWrongWay toThinkAbout TradeLawrence Summers on thedangers of current policies

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Feeling StrongAmericans' response to the question, "Today, which one of thefollowing do you think is the world's leading economic power?"

Source: Pew Research Center surveys of 1,002American adults in 2014 and 1,505 American adults in2017 as part of the Spring Global Attitudes Survey THEWALL STREET JOURNAL.

Japan Countries of the EU Don't know/Refused

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2014 2017

China41%

U.S.40%

U.S.51%

China35%

LAWRENCE SUMMERS | ‘Bilateral trade deficits as a concept don’t make any sense.’

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