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CNBC "Kudlow & Company" - Transcript


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CNBC "Kudlow & Company" - Transcript

MR. KUDLOW: On this evening's program, I sat down a short time ago for an exclusive interview with a man who very well could be the 2008 Republican nominee for president, former Republican Governor Massachusetts Mitt Romney, in Detroit for an economics club speech, talked about his economic platform for the first time today. And I began by asking him if the U.S. car business could ever regain its footing, or is it just doomed forever to play second fiddle to Toyota, Honda and the other foreign carmakers -- take a look.

(Begin videotaped segment.)

MR. ROMNEY: -- the U.S. auto industry is that they have about $2,000 per vehicle more in health care costs and pension costs than Toyota and Honda have. Those companies are, of course, manufacturing vehicles here in the United States quite successfully. And GM and Ford and Chrysler just have to out-innovate and out-compete them. They've done a pretty good job, actually, when you consider that some of the best styling has come from Chrysler with those new Dodges and Chryslers. The new Ford Fusion has extraordinary quality. And I saw just today that The Wall Street Journal indicated that the Chevrolet Silverado is one of the best values in America today.

Detroit is competing, but it's got a big, heavy load on its back, and it's going to have to find a way to get that load off. I think the answer is technology, innovation. That's where America has always established its lead.

MR. KUDLOW: Do you favor the CAFE fuel standards that so many Democrats favor? It's something that I think has got to hurt the car business, at least in the short run.

MR. ROMNEY: Well, they had a big impact when they were first introduced. But over the last 20 years, there's been no increase in the average fuel economy of the American automotive fleet. And so, what we're going to have to do is find a better measure if we can. CAFE has worked, but it's distorting on the market. It's also very harmful to domestic manufacturers. I'd like to sit down with them and others who care deeply about this town and see if we can't find a more market-oriented way to drive the improvement of our automotive fleet in terms of its miles per gallon, because doing it through CAFE has proved to be very damaging in some respects. And so, let's see if we can find a better way. But of course, the answer is going to be more fuel economy in the overall American fleet.

MR. KUDLOW: I mean, more broadly looking at this whole energy independence movement, we're talking about mandates and regulations and government subsidies and so forth. It all kind of has a Nixon feel or a Jimmy Carter feel. It doesn't sound like we're really using market substitution effects or the kind of technology breaks here that you're talking about. If elected president, would you continue with energy independence?

MR. ROMNEY: No question, we're going to have to recognize that energy independence and energy security are important to our economy. It's critical for us, Larry, because you recognize that our economy runs on oil along with a few other things. And if oil were to be shut off or if the oil prices were to go through the roof, they could have an enormous impact on American families. We could lose jobs. And we're not dealing with a true market when we're dealing with oil, because there's a cartel that runs the oil world. And as a result of that, you got people like Chavez and Ahmadinejad who have an enormous impact on what's happening in the world of oil. And with that being the case, we need to make strategic decisions as a nation to rid ourselves of our over dependence on foreign energy. Right now, some 60 percent of our fuel oil is coming from overseas. And so, we have to find a way, in my view, through technology and through incentives to get ourselves more independent from that foreign-sourced oil.

MR. KUDLOW: But actually, energy expert Dan Yergin has said on this program and elsewhere that as far as this so-called price setting of OPEC, we only get 19 percent of our oil from OPEC. And actually, our biggest source is Canada with whom we have friendly relations.

MR. ROMNEY: Yeah, we do have good relations with Canada. And of course, the price of oil is set on a global basis. I'm not suggesting we'd have to go towards a route of independence in order to reduce our prices. The prices will be set on a global basis. But I do believe that from a strategic standpoint, the prospect of potentially having a significant slowdown in our economy because of a shutoff of oil in any place in the world, that's something that has to concern us. And at the same time, the things we do to create energy independence also allow us to put less carbon dioxide into the atmosphere. There are multiple reasons for us saying we want to be less dependent on foreign energy and develop our own sources. That's the real key, of course. Additional sources of energy here as well as more efficient use of energy. That will allow the world to have less oil being drawn down from the various sources it comes without driving prices to too high a level. It will keep people, some of whom are not real savory characters, from getting too wealthy and having an influence on our foreign policy.

So, for all good reasons -- improving our economy, making us more independent on a foreign policy basis and potentially reducing the warming of the planet -- it's a good idea to become more energy independent.

MR. KUDLOW: In terms of potential climate change -- and I know there's still a debate about all that -- but insofar as the debate stands today, do you favor carbon caps? Do you favor carbon taxes?

MR. ROMNEY: Well, at this stage, we need to look at what's the best way to incentivize more efficient use of energy. Right now, as I indicated, we're using CAFE standards, and we'll see if there are better measures. But I have to tell you that we're going to see the world adopt measures that allow us to develop our energy without having to rely on sources that are unreliable. So, we'll evaluate those measures. I have to tell you with regards to global warming that that's something which you're right, the scientists haven't entirely resolved. But no question about one thing -- it's getting warmer, and a lot of good reasons for us to use less energy, to use it more efficiently and to develop sources here in this country that could allow us to be more independent of foreign sources.

MR. KUDLOW: So, as I hear it, you're leaving the door open to possible carbon cap or a carbon tax.

MR. ROMNEY: I'm not a man that favors taxes. And so, I'm not going to make a statement of that nature. But I can tell you that, you know, I don't close off inquiry and discussion on a lot of topics, and I'm willing to talk to people about their perspectives.

But taxes and gas taxes are not something that I'd normally be inclined to. But you know, there are other ideas that are out there that have been floated of different kinds, and I want to make sure that we've heard those and considered them before we make a final decision as a nation as to how we're going to create the incentives that improve our efficiency in terms of the use of our energy and stimulate the development of new technologies so we can create new sources of energy.

MR. KUDLOW: One of your senior economic advisers Greg Mankiw from Harvard university -- former President Bush economic adviser -- he is pushing very hard for a $1 increase in the gasoline tax. Since he's close to you, would you go for a $1 rise in the gas tax nationwide?

MR. ROMNEY: Well, I think that would terrify everybody in the whole country. A gas tax of that nature -- I think that's not something that's going to be politically acceptable to the American people. And so, we're going to have to sit down and talk about the widest array of incentive programs to encourage people to move towards more fuel efficient homes and cars and to develop more sources of clean energy here and renewable sources.

In my own state, one of the things I proposed was saying that if you guy a high mile-per-gallon vehicle, you don't pay sales tax or excise tax on it. That's the kind of additional incentive that moves people towards more efficient vehicles. And those are the kinds of incentives I think that have more promise.

MR. KUDLOW: Senator Hillary Clinton, just the other day before the Democratic National Committee meeting there, went to a meeting. She said, I'm going to quote, "I'm going to take those oil profits and put them into an alternative energy strategy run by government." Do you think that's a good idea?

MR. ROMNEY: Well, the idea of government running anything and thinking it's going to do a better job than the private sector is a very bad idea indeed and suggests a lack of understanding of how our economy works. The best way to make new technology occur is by providing incentives in the private sector for that to happen. I think she also misunderstands the fact that it's not our big oil companies that are making the fabulous money on a worldwide basis. It's the national interests that own the oil that are making extraordinary profits. And she can't tax those people, because they're in other countries. So, we have to recognize that this is a global market, and the idea of setting up a government-sponsored program to take away profits from one sector and decide that they're going to create the new technologies I think is a bad course. On the other hands --

MR. KUDLOW: But before you became governor, you were a banker and a businessman and so forth. You don't regard profits as a dirty word, do you? I mean, you're basically a capitalist, are you not?

MR. ROMNEY: Well, you know, I think the American people understand that we want successful enterprise. These are successful corporations. Profits do not go in the pockets of executives. Oh, in some cases they may but by and large, profits are reinvested in new technology and new ideas and growth. And if people want more jobs in this country and more good jobs and a bright economic future, what you want to see if profits in corporations where those corporations then invest in new technologies and new ideas. That's our future. So, high profits mean more investment. More investment means a more promising future.

MR. KUDLOW: Well-known author and satirist P.J. O'Rourke was on this program last week. He called Mrs. Clinton a "Hugo Chavez dressed in a pantsuit." Do you think that's a fair characterization?

MR. ROMNEY: No. I respect Senator Clinton. She has her ideas. I would prefer the comment given by Ronald Reagan. He said, you know, it's not that liberals are ignorant; it's just that what they know is wrong. And I think it's helpful to understand that some of the principles that liberals have been taught over the years just don't line up with what's actually worked in our economy. Look, since Ronald Reagan had been president, our economy has seen a remarkable record of growth. Compare it with the Soviet Union at the time he was there. It's collapsed and gone. Europe has created nowhere near the number of jobs we have; likewise, Japan. Economies that rely on government management and government direction of technology, economies that have high taxes, high regulation, economies that are fearful of foreign trade, those are economies that go slow. If you want to see growth in this economy, you keep taxes down, regulation down, you make the cost of doing business low, you invest in technology, education. You let the American people have the incentives to innovate and create new industry. That's why America is so successful. So, don't go down the path of Europe. Don't go down the path that has proven time and again to be such a failure.

(Pause videotape segment.)

MR. KUDLOW: All right. Yesterday, of course, would have been Ronald Reagan's 94th birthday. Coming up, we'll have much more of my exclusive interview with former Governor Mitt Romney. Governor Romney talks about CEO pay, income inequality, taxes and his views on social issues such as abortion and gay marriage.


PRESIDENT GEORGE W. BUSH: (From videotape.) Government should not decide the compensation for America's corporate executives. But the salaries and bonuses of CEOs should be based on their success at improving their companies and bringing value to their shareholders.

MR. KUDLOW: All right. That was President Bush again expressing dismay at CEO pay packages.

In part two of my exclusive interview with former Governor Mitt Romney, I began by asking him if he shares the president's worries about executive comp. Let's listen.

(Resume videotape segment.)

MR. ROMNEY: Well, in some cases, I'm sure they are. But I can tell you, I think the last thing you'd want to do is have the government step in and decide what the right pay package is for people. The reason we call it the private sector is that it's private, and we expect shareholders and owners and bankers and ultimately boards of directors to stand up and decide what's in the best interest of the owners of their enterprise. And they can do whatever the heck they want to do. In some cases, I think they pay compensation packages that are excessive and unnecessary. That's shame on the board and the owners. In other cases, I think they're doing a good job. But I wouldn't begin to suggest that the federal government should step in and say we're going to now manage the compensation of executives. The best people would leave the country in that kind of setting. What do you pay someone like Bill Gates? How many jobs has he created? He's made fabulous wealth, but I don't begrudge him that. He's created for this country an extraordinary number of jobs. So, I don't -- you know, I don't tell people that sports athletes are making too much money. I don't tell Bill Gates he's making too much money. And I'm certainly not going to see government play that role.

MR. KUDLOW: Massachusetts Congressman Barney Frank, who is now the chairman of the House Financial Services Committee, has argued that shareholders should actually vote on CEO pay packages. Do you agree with Mr. Frank?

MR. ROMNEY: Well, you know, shareholders can do whatever they want, and you can establish the bylaws of a corporation that you think are going to make it more successful. Shareholders could vote to do that if they wanted to. They could vote for board members who will take their direction in that regard. You know, you let the private sector do what it wants to do. I don't think you're going to want to create a federal law saying that compensation is set by shareholders. Let the corporations decide what they want to do, but they have the opportunity to pursue that course if they'd like to. You know, shareholders are the ultimate owners of the business, and they can do whatever the heck they want to do.

MR. KUDLOW: President Bush and Fed Chairman Ben Bernanke have recently spoken about worsening or rising wage and income inequality. Do you share their concerns about that?

MR. ROMNEY: Well, my focus is most on how well people in our middle class are doing, how well people at the lower end of our economy are doing. I don't really worry very much about whether Bill Gates is doing a lot better or whether sports athletes are doing a lot better.

I'm much more concerned about whether the middle class is able to send their kids to college, whether people at the low income levels are able to afford health insurance and get the transportation they need and the schools that they want to have for their kids. So, I'm less concerned with the measures of difference between people. I'm much more concerned about whether we're seeing the growth in the wage levels and the growth in the compensation levels of people in the middle class and the starter part of our economy.

MR. KUDLOW: A lot of people are arguing now -- including more recently Senator Jim Webb in his response to President Bush's State of the Union -- that in order to deal with these inequalities and somehow the middle class is falling behind -- in his view, in Mr. Webb's view -- we need to restrict immigration, we need to stop outsourcing, we need to restrict trade, especially with China. Immigration, outsourcing and China trade -- how do you feel about those issues?

MR. ROMNEY: Well, immigration is a different topic. I do believe that we need to secure our border, and I believe we need an employment verification system for employers to be able to tell who's here legally and who's here not and to make sure that we're only hiring those that are here legally. But putting that aside for a moment, I don't think that has a lot to do with what's happening in wage levels here. I think, likewise, the suggestion by Senator Webb that we somehow wall ourselves off is a very bad idea altogether. Any economy that's tried to put barriers up to keep itself from having to compete with innovation around the world is an economy which ultimately ends up collapsing and becoming second tier. High economic growth, higher incomes for our citizens, a brighter future for our children depends on our making products that are competitive globally. And if we don't think we can compete -- if he doesn't think that the American innovator and manager and worker can compete, then he's in the wrong business, because we can compete, we do compete. Manufacturing output has doubled over the last couple of decades. You're going to see America continue to compete successfully. But walling ourselves off and saying we can't compete is a very bad direction. It would lead to America becoming a second-tier economy down the road. Oh sure, there would be a short-term gain, but the short-term gain would be quickly eclipsed by a weakening of our ability to compete, just like it was for the Soviet Union.

MR. KUDLOW: Do you favor the McCain-Kennedy immigration reform bill which would put up the borders and make the right IDs but would also provide for undocumented workers and ultimately a path to citizenship? President Bush favors this approach. Would you favor it?

MR. ROMNEY: I don't favor the McCain-Kennedy bill. I don't favor a guest worker program if, associated with it, you bring families in, they stay for three years, and they get an automatic renewal -- another three years then another automatic renewal. I think in that case you're potentially opening a door to a vast number of immigrants that, frankly, would prevent us from being able to bring in people from all over the world, immigrants that can help and build our economy. Look, we're a nation of immigrants. We're almost all descendants of immigrants or immigrants ourselves. That's a wonderful thing about this country. It gives us vitality and energy in our culture and our technology. But we want to make sure that we bring in people from all over the world that have the skills and education that make us a stronger land. And the guest worker program, as suggested in McCain-Kennedy, is a course I think that's off a bit. We do have a visa program for people who come in and migrant worker visas. We have H1B visas. Let's bring in people who bring skill and particular abilities that we need in our economy rather than opening a floodgate, which I understand The Heritage Foundation has said that McCain- Feingold (sic) would result in some 100 (million) or 200 million immigrants coming into the country. That's too big of a bite.

MR. KUDLOW: Yes, not many agree with those estimates. But I want to move on. What sort of tax policy did you talk about in your speech to the Detroit Economics Club?

MR. ROMNEY: Well, the first thing we have to do in tax policy is to make sure we don't put in place, just a few years from now, a massive tax hike. Taxes over time have averaged about 18 percent of the gross domestic product. If the Bush tax cuts are allowed to expire and that would result in a massive tax increase, why you'd see that go up and up and up. That would hurt our economy. It would slow down job growth. It would reduce the income levels of people across this country. It's a bad idea, and we've got to make --

MR. KUDLOW: Just on that point, sir.


MR. KUDLOW: Do you think that if the Bush tax cuts are not extended in 2010, do you think that would cause an economic recession in the U.S.?

MR. ROMNEY: Well, I can't tell you when it would cause a recession, but I can tell you that over time, raising taxes well above the 18 percent of gross domestic product level would cause a slowdown in growth of our economy, would reduce our employment, would reduce the wages and salaries of people in this country. It's a bad idea. Ronald Reagan and, before him, John F. Kennedy proved that by keeping tax rates low, you create more jobs, more innovation in this country. And the second part of what I talked about today was not just that tax rate but also making it easier for people to save in this country. Our nanny state, if you will, tells us how we can save. We've got, I'm told, some 20 different savings programs with special tax provisions from the federal government. Let's make it easier. Let's say that there's a number -- and I'll pick one out of the air -- let's say $5,000 for people filing jointly. People ought to be able to, let's say, get $5,000 of interest dividends and capital gains a year without paying any taxes on them at all. Let's let people save their money without all the rules and restrictions and then spend the money the way they want to.

MR. KUDLOW: Would you also lower corporate tax rates, sir? I mean, there's a lot of reform plans coming out of Germany and France. And it is an issue of American business competitiveness. How about the corporate tax?

MR. ROMNEY: Well, we're going to have to take a close look at that. That's something that my team and I are looking at. America has the second highest corporate tax rate in the world, right after Japan. And of course, Japan's economy has been suffering for some time. Ireland has a very low tax rate, and it's growing like gangbusters. You only want to do what's in the best interests of the American family, whether at the low-income level, the middle-income level. We want American families to have more job security, better wages, better incomes. And if we find that we need to adjust our corporate tax rates in order to make job growth even stronger, then that's something we'll have to take a look at. And I'm evaluating that.

MR. KUDLOW: Let me just get a quick take. You've been very generous with your time, and I appreciate it very much. As you probably know, today Iran just test fired some Russian missiles next to the Strait of Hormuz and also another American helicopter was shot down in Iraq. I think it's the fifth in last couple of weeks. Your brief thought on Iraq and Iran.

MR. ROMNEY: Well, with regards to Iraq, we are right to try and stabilize the country and to see if we can maintain a central government. Ultimately, there will certainly be a powerful regional states which have different ethnicities potentially. But a central government is important to the stability of the land, and I support the addition of troops there.

With regards to Iran, we're dealing with Ahmadinejad, a person who is in trouble with his electorate apparently, who would like to show that he has brought the United States of America in some ways to its knees. At this time, giving him the affirmation of our joining him at the negotiating table and having direct talks would send the wrong signal to the people of Iran. What we need to do instead is to pursue a policy of diplomatic isolation and tightening the economic screws on Iran for doing things that are very much harmful to the world, such as developing a nuclear weapon. Of course, we talk behind the scenes. Of course, there's discussion by the EU-3 with Iran. Of course, we let them know what our position is and vice-versa, and we'll continue doing that. But formal, direct talks would send exactly the wrong signal at a time when Ahmadinejad is doing some very, very damaging things.

MR. KUDLOW: And the last thought, sir, as a candidate for president, your vision, your future vision and motivation for running for this position and where you want to see the United States go in the future.

MR. ROMNEY: Well, I'm not a candidate yet, Larry, but I appreciate the compliment. I've formed an exploratory committee. I've had a number of people express their support. I have felt very heartened by that. My concern, of course, is what the country's going to be like for my kids and my grandkids. It's good for most of us. We're in a safe country. The economy is doing well. We've added a lot of jobs over the last several years. But I wonder about the future, and I want to make sure that our future is bright, that the American dream is alive and well. I want people to know that their kids have opportunities that will exceed even their own. And for that to happen, we're going to have to be serious about the challenges we face -- these jihadists, the emergence of Asia as a competitor and, of course, our own spending problems here at home and energy problems. So, I think we have to have leadership that will tell us the truth and leadership that has the skill to take on the tough issues we face and lead America to a place where once again we can have the kind of optimism that has always been part of the American spirit.

MR. KUDLOW: As part of this vision, I just want to touch briefly on some of the social issues. When you ran for office in '04 and 2002, you were for gay marriage and you were pro abortion. You have changed your view, as many have in public life. Not all conservatives are happy with it, but I think everybody's ears are open. Can you just tell us briefly why you've changed your views, what the thinking was behind it?

MR. ROMNEY: Well actually, when I ran for office in '94 against Ted Kennedy and when I ran for office for governor, I made it very clear in both races I oppose same-sex marriage -- gay marriage. There's no vacillation or change in that position at all. At the same time, I should tell you I think we should treat all people with respect and dignity. But I also believe marriage is a relationship between a man and a women. And a decision to favor gay marriage is, in my opinion, a bad decision and the wrong way for the country to go. That hasn't changed at all.

I did change my view with regards to announcing that I'm firmly pro life. In the past, I've said that we should preserve and protect a woman's right to choose. I think I was wrong in that regard. My experience over the last several years, particularly as it's related to research going on in this country relating to embryo and stem cell research, led me to believe that we have so cheapened the value of human life here that it was important to indicate that I am pro life. And I have made that clear for the last couple of years.

MR. KUDLOW: Governor Mitt Romney, we appreciate your candor and your time very much, sir. All the best on the campaign trail. Thank you for coming back to "Kudlow & Company."

MR. ROMNEY: Thanks, Larry, good to be with you.

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