What follows is a transcript of my recent interview with former Texas Senator Phil Gramm. Mr. Gramm boasts a long, distinguished, pro-growth track record. Currently a UBS investment banker, Gramm has long been a steadfast supporter of free markets, a staunch free trader, tax cutter, budget cutter, and entitlement reformer. He also happens to be GOP presidential nominee John McCain’s chief economic advisor. As a recent piece in Fortune magazine put it, [Gramm] “is the ultimate pure play in free market faith.” I remain quite confident that Mr. Gramm would help steer a McCain presidency in the right direction.
Kudlow: Senator Gramm, it is wonderful to see you. Senator McCain said a while back, “I don’t know as much about the economy as I should.” What’s he trying to tell us on that?
Gramm: Well, first of all, he’s trying to tell us that A, he’s honest, and B, he’s humble. How many people know as much about the economy as they should? Certainly I don’t. I think you can make a strong case that of the three people that are still in the race, that John McCain’s got a lot more experience on economic matters. But one thing I think that makes him a leader that I feel confident in, is that he’s the kind of person that reaches out to people, that listens to both sides of the debate, that gathers the facts, and that tries to make the best decision he can. And I think he’ll do that on economic matters.
Kudlow: Well, let me ask you this. A President McCain could inherit a tough situation. I mean, most economists believe we’re on the edge of recession, if not in one. And I’m particularly worried about the falling dollar and the rising inflation rate. Some people are mocking us Senator Gramm. The dollar keeps falling. Our enemies say it shows America’s decline. In your judgment, would Senator McCain be a currency reformer? Would he resurrect the dollar?
Gramm: Well, I think he would resurrect the dollar, but not through currency reform. I think his position would be that sound economic policies produce a sound dollar. I think he would cut taxes. I think he would institute a program of long-term fiscal restraint at the federal level. I think he would reduce the regulatory burden. And I think in the process, we would attract capital. The dollar would get stronger. The economy would recover. And I think it’s important in looking at our economy today—the states that have the lowest taxes, the least regulatory burden, the most pro-growth governments, are the ones that are succeeding. [But look at] the ones that are failing, Michigan for example. A lot of automobile jobs are being created in America, including the new jobs in Arlington, Texas, for the new electric car. Now, all of Toyota’s Tundra trucks are produced in San Antonio. But they’re not investing in Michigan because of high taxes and high regulations. So what we need to do is implement Texas policies in America.
Kudlow: Alright, I hear you on that. But some people are asking the following question. In the McCain economic camp, how do you all get along with each other? You got yourself—nobody is more free market, rock-solid than you are. You got supply-siders like Steve Forbes and Jack Kemp. On the other hand, as Senator McCain travels around, he mentions some of his root-canal advisors. He’s got Pete Peterson, and he’s got Warren Rudman, who tend to be high taxers. He’s got the Concord Coalition, who’s never met a tax they didn’t want to raise, allegedly to balance the budget. It sounds like there’s a war between the growth guys, and the austerity guys, in the McCain camp. How do you resolve that?
Gramm: No, I don’ think there’s a war. But look, when we have a president who is making decisions that are going to affect the lives of real people, I want him to listen to every side of the argument. I know where he stands. I know what he believes. I know what his instincts are. But look, I don’t think you want a president who, A, surrounds himself with “yes” people, and I don’t think you want a president who’s listening to only one side of the argument. I think there are times when supply-side economics does, and should, carry the day. But I think there are demand-side factors. I think we want a president, in these tough times, who’s going to get the best advice he can [get], who’s going to bring together the best people he can get, and then make a decision. So, look, I view it as a plus that he’s got differences of opinion.
Kudlow: …It’s very interesting to me. In both diplomatic terms, and economic terms, Hill-Bama, as I call them, have not been at all bashful in stopping out, or proposing to stop out, a very important treaty, namely NAFTA. And they don’t seem to care about the trade benefits to the United States. Where does Senator McCain come out on this crucial issue?
Gramm: Well, Senator McCain was for NAFTA. He would like to see NAFTA expanded in terms of opening up more markets for more American jobs. But let me just give you my response to this NAFTA thing. First of all, when you listen to the two Democrat candidates, what they’re really saying is we can’t compete with Canada! Well, if we can’t compete with Canada, who can we compete with? And are they proposing that we build a wall around America? Go hide under a rock somewhere? You can’t lead America and hide from the world. Secondly, we have a treaty obligation with Canada and Mexico. And to suggest with our closet ally and friend in the world, with our neighbor, that we’re just going to unilaterally change the treaty because we’re pandering for union votes in Ohio, I think is outrageous. I think it’s dangerous. I think it’s irresponsible. NAFTA has created jobs. And it’s created the most jobs in the states that have had the best policies.
Kudlow: You know Senator Gramm…years ago, you were probably the leader in the U.S. Senate, and perhaps the Republican Congress—no, it was a Democratic Congress in 1993, 1994—in stopping [then First Lady Hillary] Clinton’s big government solutions for health care. So let me ask you this. What do you and Senator McCain hear? You hear Obama. You hear Clinton. You’re an expert on healthcare. Mr. McCain believes in consumer power for healthcare. How does this crucial issue to Americans play out in your judgment, in your mind?
Gramm: I think healthcare is going to be a big issue. And I think it’s going to be a very simple choice. The Democrats want the government to control your healthcare. Senator McCain wants your family to control your healthcare. Not the government. Not the insurance company. The problem with healthcare is not quality. The problem is cost. And Senator McCain wants to address that problem with more competition, and more efficiency, and things like legal reform. The Democrats want the government to take over and run the healthcare system. And in every [government-run healthcare] country in the world, that [approach] has limited freedom, it’s lowered quality, and it’s tended to bankrupt the country in question.
Kudlow: Alright, we’re gonna leave it there. Senator Phil Gramm, we appreciate it very, very much.
Gramm: Thank you Larry. Take care of yourself.