Gary Cohn emphasizes need for more workers

Former Director of the National Economic Council Gary Cohn joins Yahoo Finance to discuss the state of the U.S. economy.

Video transcript

ADAM SHAPIRO: We've got Gary Cohn standing by. We are going to talk with him about the implications of tax increases on American business competitiveness globally.

But we've got to talk about first this market and the drive up. Let's bring in Emily McCormick to explain to us what is driving these markets right now. Emily.

EMILY MCCORMICK: Well, Adam, a lot of green across the screen this afternoon. Stocks are pacing toward a back-to-back session of gains, and the S&P 500 is heading toward its best day since July 20.

Now, all major equity indexes are solidly in the green here, and investors are looking past ongoing concerns about China Evergrande. That stock closed higher by nearly 18% today on the Hong Kong Stock Exchange, and the broader Hang Seng Index was also higher on the day.

Now, the "Wall Street Journal" reported earlier today that the Chinese government has asked local governments to prepare for the potential downfall of Evergrande, while the People's Bank of China also injected more than $17 billion in liquidity into the system to help shore up sentiment amid this ongoing debt issue. So all of that helping contribute to sentiment here.

Now, stocks are, of course, also reacting to the Federal Reserve's latest monetary policy decision from yesterday, the signals that asset-purchase tapering could begin as soon as the November Fed meeting and continue through the middle of next year against a strengthening economic backdrop.

Now, I should point out that Treasury yields are moving higher across the curve here in response to the Fed as well. We are seeing that benchmark 10-year note move up by about seven basis points to top 1.4%, also the highest level we've seen in two months.

Now, I do want to highlight that we did get some disappointing economic data on the labor front out this morning. Stocks not really taking too much of a hit because of that, but we did see that weekly jobless claims came in at 351,000, a surprise increase from the prior week's 335,000 new claims. And economists are speculating that this rise was likely due, at least in part, because of some delayed effects from Hurricane Ida the past couple of weeks. That may have deterred people from filing until very recently. But again, we are just up slightly from that pandemic-era low of 312 jobless claims earlier this month.

And then finally taking a deeper look at the moves beneath the surface for the S&P 500, this really is a cyclically led market today. Looking at the sector action, we do have the energy, financials, and industrial sectors leading the way higher, while the real-estate sector is the only one in the red this afternoon.

Now in terms of the Dow, of course, we are seeing that index up more than 550 points. Salesforce really the big outperformer there followed by JPMorgan and American Express. Salesforce did have its investor day today and also boosted its full-year forecast for this fiscal year and delivered a forecast for next year that was higher than expected.

So, guys, really seeing a strong move to the upside here on the back of that Fed decision yesterday. Stocks really trying to shake off some of their September blues so far with an hour-- just under an hour to go in today's session. Guys.

ADAM SHAPIRO: Emily, thank you very much. We're going to be checking these markets throughout the next hour.

But our next guest, having returned to the private sector as a vice chairman at IBM-- it's his role in the public sector when he was the former-- or the director of the National Economic Council and advisor to the previous administration, one of the architects of tax reform back in 2017, Gary Cohn-- it's his insight into American business and competitiveness that has instigated us to invite him back in today because there's a lot on the table, Gary. It's always good to see you. Thank you for joining us.

GARY COHN: Adam, it's always great to be with you. I'm excited to have a conversation.

ADAM SHAPIRO: We've got about 20 minutes booked out ahead of us, but let's start-- let's get to the headline. I mean, there's a lot on the table. We don't know what will happen with Washington. We know that tax increases may be on the agenda. But what is your concern? What do we need to know about America's stance as a competitive country businesswise globally, and what's at stake?

GARY COHN: Adam, I think there's an awful lot on the table right now. And that's what's a little bit concerning to me, and I think we have to understand what the objective is.

When I go back to 2017 and think of what we were trying to achieve when we did tax reform, we were trying to create jobs and make sure America was competitive. So we created a tax system that made the United States very competitive. We also wanted to make sure that we were forcing our US-based companies to bring their money back to the United States and not invest it overseas.

So we put restrictions in the tax code where, whether you brought your money back or not, you'd be forced to pay tax in the United States. At the time, there was $4 trillion of US-earned income from US companies offshore. We imputed a tax on that. About $2 and 1/2 trillion of that money came back, and we used that as a lever in the tax code. That was never meant to be punitive. It was meant to force companies to bring money back to the United States and invest.

And if you look at the results, as we were going into the pandemic-- and unfortunate for the pandemic, and it's a horrible event for all of us. If you look at where we were from an economic situation, we had achieved a lot of our objectives. We were at 3% unemployment. We were at 3% wage growth, and we were at 3%-- 2.9%, 3% GDP growth. So we felt that what we were trying to do with the tax code to make America competitive was what we were doing.

I think now the question we need to ask ourselves is coming out of this horrible pandemic, what are we trying to achieve? And the most interesting question to me is how do we get people back into the workforce? How do we get people back into the labor force here in the United States?

We have a interesting situation when we have an 11 million open jobs in the United States and about 9 million unemployed people in the United States. We have more job openings than we have unemployed people. And so to me, we've got to start talking about how do we motivate people back into the labor force, and how do we get them back working again?

ADAM SHAPIRO: When we look at what's on the table in Washington, is there anything specifically though that worries you about turning the page and going backward that would make us less competitive?

GARY COHN: Well, as I said, we are a big economy. We are a huge economy. But to be a big and important economy, we have to continue to lead the world. We have to continue to lead the world through innovation. We have to continue to lead the world through work and getting people back to work. So look, there are always things that concern me.

So getting people back to work, getting our economy working, debottlenecking the system, working on the supply chain-- you know, we're in a tough position right now in the chips world. We need to figure out the chips problem because a lot of manufacturing is shut down because of chips. We need to make sure that the United States keeps its huge competitive advantage, that we have risk-based capital here in the United States.

It's not an accident that all of these companies that have been created over the last two or three decades got created in the United States. It happened because we have a tax system that allows people to invest and take risk and sponsor new and innovative companies. And if it doesn't work out, the tax code that allows them to have an advantage-- if it doesn't work out, and it allows them to have an advantage for it to work out. We have to remember that these are important attributes that differentiate us from the rest of the world and really do give us a competitive advantage.

SEANA SMITH: Hey, Gary, it's Seana. The comment that you made on the jobs picture right now, certainly the huge mismatch that we're seeing in the jobs that are available, the number of people out of work, that has been a big topic that we've discussed many times. The Fed discussed it yesterday. Jay Powell mentioned it during his conference. I guess what is the best way then to go about addressing this? Is this a skills issue? Is this an issue that people need more child-care support at home? Was it because of the enhanced unemployment benefits? I guess what would you attribute this large disparity to?

GARY COHN: Well, look, I think we've got to look at its basic issue. So we saw two companies in the last 24 hours report earnings, you know, both Darden Restaurants and FedEx. Both talk about labor shortages being an issue for their growth and their ability to deliver, their ability to grow.

They're not looking for that skilled of a labor force. They need a labor force that's willing to come to work. I think the issue we have right now is how do we get people back into the workforce?

And look, let me back up to where I was and I think most of us were at the beginning of the pandemic. I think I was one of the early people to come on and say at the beginning of the COVID pandemic when businesses were forced to shut down and we had to shut down businesses, we needed to have the federal government step in and make sure that we were giving people money, incentivizing people to stay home so we could get through this horrible pandemic.

And so the federal government did the right thing by stepping in and giving money to people, allowing people to pay their bills, allowing people to buy food, allowing people to stay in their shelter and live their life. That was very important, and I stand behind that.

We're now at the other end of the spectrum. We now need to get people back into the workforce, and we need to force people, in many respects, to reenter the workforce. So I think we have to stop many of these programs at a high level that are encouraging people to stay home and start encouraging to re-enter the workforce.

And by the way, many private employers are doing that. You can go around and look at employers, and they're offering huge signing bonuses. They're offering all types of incentives to get people back to work, but it has to be more than that. We have to do it at a federal-government level all the way down into the employer level.

ADAM SHAPIRO: Given what we know today versus when you joined us at the beginning of the pandemic-- I remember the conversation, this discussion of raising taxes. You look at the FedEx earnings report. Does that impede the ability, if they were to raise the corporate tax-- which you were not-- you said it could go up a little bit, but that was two years ago. If they were to raise the corporate tax now, would that impede the ability to get people back into jobs? Are those two connected, or are they separate?

GARY COHN: Well, I think in many respects they're separate. We need to get people back to work. I'm not sure the corporate tax matters.

What I'm really more concerned about is what you're seeing going on in corporate America today, and I just alluded to it, is corporate America-- it's not just corporate America. Let's call it business America because it's your local restaurateur. It's your person that owns one restaurant. It's your person that owns a dry cleaner or a nail salon or a barbershop.

They're having to go out and pay up to get an incremental worker into their business. So we are starting to see real wage inflation in the system, and we are seeing it. And I hear it from everyone I talk to in the business world, whether you're running a big multinational or you're running a small restaurant on the corner. I hear that you're having trouble hiring people, and I hear that you're having to pay up and you're having to give special incentives for people to come to work.

So that is starting to feed its way through the system, and the price of goods and the price of services are going up. So what's happening is we are increasing wages right now, but I'm not sure we're increasing purchasing power. If you're not entering the workforce, you're not participating in those increased wages. And, in fact, you're losing purchasing power because your wages-- your subsidies are not inflating with wages today.

SEANA SMITH: Gary, let's talk about what we did hear from the Fed yesterday from Jay Powell because certainly the markets are taking this pretty excitedly, I guess you can say, with the Dow now rallying two days in a row. But what we heard from Fed Chair Jay Powell when it comes to tapering plans, he was saying that-- the details that he gave us, they were fairly sparse, but he did say that if progress continues broadly, as expected, tapering may soon be warranted.

You were head of fixed income at Goldman Sachs before you became president. Just your experience in this, where you think the recovery is-- is the economy-- is the market ready for tapering to begin?

GARY COHN: Well, as I think you said, I think Chairman Powell did a good job, as he's always done, of giving the market enough information so they won't be surprised but not enough information they know exactly what's going on. You know, he said probably at our next meeting we'll talk about tapering. And if we start tapering, we could be done by the middle of next year. So, you know, people have sort of done the linear math and said, look, we know what that looks like per month.

But he also went out of his way to remind people-- and I think this is a really important thing to be reminded. Just because the Fed is tapering, which means they're going to stop buying fixed-income securities, that doesn't mean they're necessarily raising interest rates. Bond purchases and interest rates are two different decisions that the Federal Reserve is making, and they haven't clearly laid out a path of what they're doing on interest rates.

So I think the Fed potentially starting to taper, the markets were prepared for that. They think it's probably a good thing. There's enough capital in the market to absorb what the Fed has been purchasing. And remember, the Fed will still have a very large, multi-multitrillion-dollar balance sheet of securities they had previously bought.

ADAM SHAPIRO: When we come back after the commercial break, we're going to continue the discussion with Gary Cohn and American competitiveness, getting people back on the job. And I'm going to ask you, Gary-- I'll give you the commercial break to think about it. Does the bipartisan infrastructure bill address that ability to get people back to the job, or is it more government spending and what comes along with that? After the break.