>> He's the President's top economic adviser, facing uncharted territory, this week on "Firing Line."

>> Put socialism on trial and convicted.

>> A veteran of the Reagan White House, Larry Kudlow became known for his TV shows... >> Things are so much better >> ...and market optimism.

>> Tonight, I can report the first day of dollar recovery.

>> Less than a year after he arrived at the Trump White House, the pandemic hit.

>> This is a terrible situation.

It's hardship and difficulty everywhere.

>> With record economic plunges and the price tag for recovery already in the trillions... >> I don't think the economy is going south.

I think it's going north.

>> ...what does National Economic Council Director Larry Kudlow say now?

>> "Firing Line with Margaret Hoover" is made possible in part by... And by... Corporate funding is provided by... >> Larry Kudlow, welcome back to "Firing Line."

>> Thank you.

Thank you very much.

Appreciate it.

It's been a while.

>> We are now in the midst of a pandemic.

More than 150,000 Americans have died in several months.

Would you also agree that when it comes to America's economic health, we are also in uncharted territory?

>> Well, look, it's a difficult story because, obviously, the economy has depended on the virus and the various mitigation measures, essentially shutting down the economy, affected, you know, stores, shops, everything, sports.

At one point in April, you had almost a complete shuttering.

Factories were down.

So it took quite a toll.

There was a lot of hardship, a lot of heartbreak.

People were laid off.

And as we meet here today, even though there's still some difficulties, there are always gonna be uncertainties on this story, I think the economy is coming back.

I think there's a V-shaped recovery in the making.

Jobs are rising.

>> Yeah.

>> Things are improving.

And I can also report from -- I sit on a coronavirus healthcare team, and actually, these pop-ups we've had in the virus, particularly in the Southwest, finally look like they are flattening out and even hooking down.

That's a relief.

That answers some prayers.

And again, the mitigation, you know, masking and distancing and testing where appropriate and hygiene, that stuff works.

That may be -- And closing a bunch of bars.

So I'm hoping we're getting through the hot-spot stage, and I think there's a lot of solid economic information out there.

>> So, let's go back to one thing you said.

You, for the sake of the audience, define what you mean by a V-shaped recovery.

>> Well, if you put it on a chart, you know you can -- I'm sorry we don't have a blackboard.

This goes a crash coming down.

I mean, it's not like a regular macroeconomic decline because it's really more in the nature of a natural disaster, kind of a super awful hurricane or a super awful -- >> So the idea of the upside of the V is that it recovers back to where it was previously.

>> Right.

And, you know, just -- It's just a V. Now, we've argued -- I argued -- that we came in a very strong economy -- 3.5% unemployment, no inflation, strong stock market, middle- and lower-income wages doing very, very well.

So, I think, coming out of this, we will also do okay.

I don't know that it's going to be even or perfect.

There may be some moderation, but judging from what we know, it looks like a V, and the V can continue for a while.

>> So then, we just recently received some new GDP numbers from the second quarter of 2020.

And what we learned is that the United States economy actually contracted at a record rate, about 33%, as you know, which is the largest quarterly decline in recorded history of the GDP.

So as you think about a V-shaped recovery, do you do you mean that we will recover that full 33%, those trillions of dollars the economy lost in the time since the coronavirus came to us?

>> Well, it isn't really 33%, because that's an annualized number, to the fourth power or multiplying times four.

And I don't -- >> But is that what you mean?

Are you talking about GDP recovering?

Is that what you mean in the V-shaped recovery?

That we recover our gross domestic products output?

>> Yes.

Output, employment, manufacturing, autos, housing.

There's a whole series of areas.

And the economy fell by 8% to 9% in the second quarter.

It's gonna take a while to make that up, but the signs suggest -- >> How long do you think it will take?

>> Well, I think you're gonna get a good 20% growth rate or more in the second half of this year.

And in 2021, under right policies, I think you'll get 5% or 6% economic growth.

Could be a big, bad year.

And we probably can get back to the -- to the prior peak in real GDP perhaps sometime in the middle of 2021, maybe a little sooner, maybe a little later.

But it'll be someplace around there.

>> There's a Harris Poll, which is conducted weekly about American attitudes about the coronavirus.

And what it tells us is that more than 50% of Americans believe that if they get the virus, they will die.

And the truth is, what we know, at least according to Johns Hopkins, is that the fatality rate in the United States is much closer to 3.3% and perhaps even substantially lower if you take out the comorbidities.

So, what we know is that there is real fear slowing down the American economy and that sits in the hearts of the American people.

And I wonder, do you agree that that is one of the problems with American activity and economic activity returning robustly?

>> Well, I think there's something to that.

I can't vouch for that poll, but I don't deny it.

I think the fear factor is there.

On the other hand, Americans are very resilient.

Very resilient.

And with the right incentive structure to work and invest and take risks and entrepreneurship, I think we will see those characteristics pop back again.

Look, in May and June alone, roughly 8 million people returned to work.

I believe that's the fastest return in history.

Now, what that told me is not that we've solved all the problems.

No.

But that there is a desire to go back to work.

That's what people love to do, And I don't think we're finished with that.

There's still way too many people unemployed, but I think chipping away in the next bunch of months and into next year, we're going to we're going to put them back to work.

Now, I will add this with respect to the anxieties, you know.

No question about that.

But that's why the guidance is so important.

You know, I will repeat distancing, getting tested where appropriate masking and personal hygiene.

And that's a mantra we are repeating time and time again.

And it's working.

I think that gives people confidence and a lot of our experts and a lot of experts outside the administration, they're saying perhaps at warp speed we will have a vaccine toward the back end of this year.

I'm not one of the experts, but I'm repeating their view.

And I think that will have a tremendously positive impact on people's attitudes.

>> Masking, social distancing, hygiene, and testing are the things that you say are important in terms of how we behave to mitigate the spread of the virus.

You've been saying that for a while.

The White House coronavirus task force has been saying that, but we still had well over 50,000 cases per day for most of July, and the cases were increasing in a dozen states.

So how do you explain the difference?

I mean, you've been saying it, but it hasn't actually mitigated the spread yet.

>> Well, for one thing -- I know, I don't agree that it has mitigated.

I think the terrible winter story was mitigated.

Then, it came back in late June and July.

And I think we are in the process of mitigating that.

You know, this is a tough one.

It happens every hundred years.

And not even I am so old to have experienced the one in 1918.

>> Let me ask you about unemployment, 'cause you brought it up.

I can show you a chart from the Department of Labor.

And what you see is a sharp decline from April and May.

But then since then, claims have stopped declining and they've plateaued.

And they remain elevated where 1.4 million initial claims recently, which is 6.6 times higher than a year ago.

So how do we get it to start declining more?

How does economic activity really recover in the V shape you suggest, if that number is plateauing?

>> Well, listen, I think the plateau, by the way, is a response to what we saw with the hot spots in the Southwest and up North, particularly surprised.

But as those hot spots are dealt with, I think you're going to see a continued decline.

We've fallen quite a bit on the claims and the continuing claims, but I'll go a little deeper on this.

I think it's very important that we have as growthier an economy as possible and that President Trump's policies, which are essentially supply-side-oriented policies, large-scale, across-the-board tax cuts, across-the-board rollback of regulations, unleashing of the energy sector, and free and fair trade deals, those were powerful tonics for this economy for three years and two months.

And I think we need to stay on that same path, and I think at some point, Margaret, the rescue mission, the liquidity rescue, as I'll call it, and then the reopening, which we are in right now, and acknowledging that some of it slowed down in certain places, but nonetheless, now we have to move into an economic growth incentive stage to make sure we have the kind of high-velocity growth that we had before the pandemic set in.

I'm an optimist.

I believe in these supply-side policies.

So does the President.

As you know, years ago, I worked for Ronald Reagan.

That was the first model.

So I think we're on the right track, in terms of policies.

I surely hope we stay there.

And I want a growthier economy, across the board.

We've seen good signs.

But you can remember that word, growthier.

>> "Growthier" -- it makes me laugh.

Listen, I mean, the -- So, the fiscal policy, the COVID-19 fiscal policy by the White House and also by the Congress, it seems to have two parts, if we're going to just break it down very simply for an audience.

You know, the first part is keeping businesses afloat, even though revenues are very low, and the second part is giving money to unemployed workers so that they can continue to consume goods and services just as almost as though they were employed.

Now, this could serve if this were a short-term problem, like a bridge loan.

But this has been going on for six months, and it's probably another six months, at least, until there's a vaccine that is proven and widely available to the public.

So we're maybe a year away.

I mean, this is going to keep going for a while.

And the deficit, which is something, as a Reagan Republican, I know is something that doesn't pass you lightly, is already record-breaking.

So how will policy adjust in the coming months to walk back from those levels of -- those deficit levels that are so record-breaking?

>> Well, I confess, I'm not very worried about the deficit right now.

>> Why?

>> Well, it's the least of our problems.

Because the government is taking emergency measures, which is what governments have to do during situations like this.

I think it was the right approach.

It will not last forever.

It will probably end at the end of this year.

Deficits, you know, there's no evidence of any harm.

10-year treasuries, to take a benchmark, are about one half of one percent.

And I think, essentially, what we're doing here, yes, we are borrowing, yes, we are sensitive to the borrowing, but at very low rates, we're borrowing to reinvest in the health and welfare of the American economy.

>> I'm sorry.

I just want to make sure I understood you.

Did you say -- Is it the White House position that deficits don't matter?

>> No, we're sensitive to it.

It's not a question of deficits don't matter.

It's a question that people matter, health and safety matters, and an economic reopening and getting people back to work, helping them while they're on unemployment and furloughed and helping businesses.

I think those priorities come first.

Deficit, as a theory, I certainly wouldn't want to keep this going on forever.

But, you know, you can go back to World War II, we ran deficits that were just as bad.

You do what you have to do, and every country is in the same position.

Because of the government activism during this crisis, I heartily approve.

And I believe, over time, as these programs wither away, as the economy picks up growth and throws off revenues from higher employment and stronger business, I think we will get the deficit down to something that's much more manageable.

But in the middle of the crisis, it's just not the top priority.

>> I mean, we've spent almost $3 trillion so far, and now there's another round of stimulus coming from Congress.

It looks like Republicans are arguing for a trillion and Democrats are arguing for $3 trillion.

What is your position, at least on on the $600 unemployment benefits?

I mean, is there -- is that an opportunity to scale back some of the deficit -- some of the spending?

>> Yeah, I think we can renew it, short-run, and then we can go to reforming it to make sure that there's no disincentive to work.

And what we've done now -- it's very hard to predict in negotiations, as you and I are talking, because it's kind of in a state of flux, if you will, so I don't want to predict the outcome.

But we, our side, has suggested re-employment benefits or re-employment bonuses and things like that to reward people going back to work.

So that will be part of the unemployment-reemployment situation.

I think that will work out very well.

>> Is it the White House position then that the $600 unemployment checks should continue for another round?

>> Short-term.

It's not -- It's not healthy -- it's not a good incentive if the unemployment benefit is higher than your prior wage or higher than wages that are being offered to you at your skill set.

It's not sustainable.

However, I'd let it down very slowly.

And again, I would put in employment or what we call re-employment benefits.

So, unemployment might come down a bit, but these re-employment benefits will be going up, and we will be rewarding people to come back to work.

We'll see what happens with this particular negotiations.

And as you know, there's a regularly scheduled election, and you'll hear a lot more from President Trump about his views on lower taxes and rolling back regulations to promote growth, jobs, and wages.

>> What about restaurants?

I understand there's part of the bill that is about $120 billion bailout for restaurants that, you know, some call it a bailout, but there are -- The OpenTable CEO warns that one in four restaurants are at risk of closure.

Yelp has just released survey results that say 60% of the shuttered restaurants on the platform are closed for good.

Is the White House supportive of a restaurant bailout?

>> Yes.

Well, I wouldn't call it a bailout, but it's one of the areas that needs assistance.

Restaurants just got so badly hurt and, you know, small stores, as well.

So we are going to look to try to help -- once again extend help to those very areas.

That's tough.

>> How many more trillion do you think we're gonna need to spend altogether?

>> I wouldn't want to guess.

I just wouldn't want to hazard a guess on that.

>> Earlier this summer, Vice President Biden unveiled a roughly $3 trillion "Build it Back Better" economic plan, and it would pay for the spending by raising top marginal rates and corporate taxes.

What would that do to the economy, in your view?

>> Well, you know, I think that that whole plan, in policy terms, is exactly the wrong medicine right now.

Those tax increases will damage middle-income people who will wind up paying for it in lost wages and higher taxes.

I think their reregulation is going to be very damaging, very anti-stock market.

That's not what we want.

I mean, I would just say this.

You've experienced this awful pandemic with terrible loss of life and great, great damage to businesses and the workforce and families and so forth and health damage.

Now, why Keynesians and supply-siders should agree, the last thing in the world you want to do as we come out of this contraction is raise taxes.

It's the last thing you'd want to do.

And so it defies belief that Biden is going in that direction.

I mean, again, ironically, give me a -- give me a good Keynesian who will say, "All right, spend more and cut taxes," all right?

Give me a good Keynesian right now.

I don't know what happened to them.

They're probably around someplace.

>> They're not anywhere.

In fact, they've been replaced by the advocates of MMT, modern monetary theory.

So, Larry, this isn't the first time you've been a guest on "Firing Line."

You, of course, were on the original program with William F. Buckley Jr. in 1998.

Let's take a look at what you said then.

>> How would you rate the negative effect, respectively, of unemployment and the welfare state?

>> I think the welfare state was the single biggest governmental contribution to these problems.

Somehow, this notion of victimization and, "Oh, it's not your fault.

Social conditions made you do it, and we're gonna help you by giving you some money to get through the day," which became the month, which became the year, which became the decade, I think these things would absolutely undermine the whole moral fabric of this country.

>> Has your thinking changed since then?

>> Nope, not at all.

>> Does your thinking change in a pandemic?

>> Margaret, they're just not the same.

This is an emergency rescue mission, which is completely different.

Once the economy gets going again, and I'm always the optimist who believes, under the right incentive policies, it will get going again, then these programs will run off.

>> Back in 2010 -- I went through some of your transcripts -- you spoke with President George W. Bush about his book, "Decision Points," and some of the choices that he made during the global financial crisis.

And I want to read one quote from that interview.

You said to him this.

Reflecting back on that question you phrased to George W. Bush, how are the government bailouts now different?

>> He didn't like it, by the way, when I interviewed him on the book.

>> He didn't.

He did not like that question.

>> No, he didn't like it at all.

Let me just say this.

This is completely different than what happened in 2008 and '09.

Completely.

>> The nature of the crisis is different.

But I want to know how the bailout is different or how the emergency measures not becoming commonplace is different.

>> Well, I don't think we've done bailouts.

I don't think we've done bailouts.

I think we have provided broad-based assistance to every sector of the economy.

>> How do we keep them from becoming commonplace?

>> There's no Chrysler here.

There's no General Motors here.

There's no Fannie and Freddie.

There's no banking collapse.

It's a completely different story.

Again, it's a pandemic-based contraction.

It's not a macro-based contraction.

>> I get it.

No, no, no.

The economic circumstances are different, but the response -- how do you prevent the extraordinary government spending from becoming commonplace?

>> Well, I would just suggest, as we get across the bridge into a stronger economic story, these programs, which are meant to be temporary, will, in fact, be temporary.

>> Let me ask you then about monetary policy, because some emergency measures were put in place in the wake of 2008 with respect to the Fed, with respect to monetary policy.

Of course, interest rates came down, money was printed, quantitative easing, several rounds of it happened.

People can argue or not reasonable measures in the aftermath of that event, but 12 years later, interest rates are still zero.

And you have said that you don't expect that interest rates will go up in your lifetime.

>> Probably not.

>> Is this not an example of emergency measures becoming commonplace, that there is -- there is no path for returning to normalcy?

>> Look, I think the Fed's done a great job in this crisis.

I really do.

I think they acted reasonably quickly.

You know, they had been raising interest rates.

By the way, I don't know why.

>> Well, they tried in 2018.

The markets responded poorly, so they returned them to close to zero.

>> Yeah, they started in 2016.

They went to 2017, 2018.

They finally stopped in 2019.

There was no inflation, so they were getting back to something called normal, although I had some problems with it.

Nonetheless, I think they acted quickly in this emergency, in this pandemic.

I think they did exactly the right thing.

I think they learned a lot from the crisis of 2008, '09, and '10.

They put liquidity into all the markets.

I give the Fed very high marks.

I think J-PAL has done a good job during this crisis.

>> Keeping interest rates at zero percent as a long-term policy is not a policy that is is good for Main Street, right?

Ordinary people, how are they supposed to be encouraged to their savings if they can't put their savings in the bank and let it grow?

Let me ask you, with all the increase in the money supply, are you worried that we might be setting the stage for inflation?

>> Nope, not worried at all.

>> There's a huge demand for currency and money and liquidity -- huge demand.

But in a broader framework, this is what government has to do.

In effect, you know, talk about the Fed as the lender of last resort, okay?

Really, what happened this time around with the coronavirus pandemic was both the federal government and the Federal Reserve acted as the lender of last resort.

And I wouldn't want that to happen every year in the future, but when you're in a crisis like this, when people are suffering hardships, when we close the economy down to try to solve the virus, this is a tough one.

We had to do whatever it takes and use all the federal levers in order to help folks out.

Now I think we're pulling out of it.

Not everyone agrees with me, but I think we're pulling out of it, and I think we're going to see much, much better economic growth, as we did before this crisis.

>> You go to the White House every day for work, and a number of people at the White House have come down with COVID-19.

Is COVID-19 under control in the White House?

And what do you do as a precaution?

>> I'm tested every day.

I'm in and out of the Oval, and a bunch of us are tested every day to protect each other and protect him.

But actually, yes, we have had some cases.

My dear, dear friend, Robert O'Brien, a great national security adviser, he had it.

He's come out of it beautifully, thank goodness.

A wonderful person, doing a great job.

We've had some cases.

Not too many, though.

The percentages, as far as I know, is very, very low.

And we take every precaution possible.

So we've done the best we can.

And I might add, although we don't wear masks in our offices, people wear masks as they move about the executive campus.

So we try to be true to that, as well.

>> Larry Kudlow, thank you for your time.

Thank you for returning to "Firing Line."

We appreciate it very much.

>> My pleasure.

Thanks for having me.

>> "Firing Line with Margaret Hoover" is made possible in part by... And by... Corporate funding is provided by... >> You're watching PBS.