Here’s the transcript of my recent interview with George W. Bush. As I mentioned the other day, it was a very lively interview. In fact, the former president and I disagreed on a number of issues, and we let each other know it. In particular, we differed in opinion about the stock market’s scorecard of his two terms, the collapsing dollar, and too-big-to-fail Bailout Nation. Portions of the interview appeared on last night’s Kudlow Report, and additional segments will appear on tonight’s show (CNBC, 7 p.m. EST).
LARRY KUDLOW: President Bush, welcome back to The Kudlow Report, sir.
PRESIDENT GEORGE W. BUSH: Thank you, sir.
KUDLOW: You know, reading your book, and particularly the last chapter, the reference point on the financial crisis, you talk a lot about the stock market as a judge of the policies — TARP and so forth — and I wanted to start there, in the broader sense. When you took office, the Dow Jones was 10,600. As time passed and we hit the height of the Bush boom, you went to 14,160-something on the Dow Jones.
KUDLOW: By the end of your term, you were down to 8300 as we were still enmeshed in the financial crisis and the recession. Just let me ask you, is that a fair report card? Is the stock market a fair report card on the vagaries of the Bush presidency?
BUSH: No, I don’t think so. No, I don’t think so. I think that the fairest report card is for people to analyze the situations in which I found myself, the economic situations, and what my administration did about them. So, for example, a country was into recession right after I was sworn in, a dot-com bust had taken place. Then the attacks of September the 11th, and then of course the great financial meltdown in the — the fundamental question facing any presidency is how do you deal with the hand you’re dealt? And in my book I walk through the different decisions I made to put economic growth in place and/or to make sure the economy didn’t completely fail.
KUDLOW: Well, that 14,160-some was an all-time high, and that did occur on your watch. But now you’ve gone from 8300 when you left office, now we’re at 11,177 as of today. Now, what does that tell you?
BUSH: It tells me you pay a lot of attention to the stock market. I don’t.
KUDLOW: Stocks reflect the whole economic situation and many times the health of the country.
BUSH: Well, no, I understand. Understand. But when I was president, I didn’t sit around saying, “I hope the stock market goes up.” I was sitting around saying, “How do we create an environment in which people are willing to take risks and small businesses are willing to expand so people can work?” And the cornerstone of my economic policies, when I first got elected, was cutting taxes on everybody on who paid taxes. And what’s interesting, and I don’t think a lot of Americans understand this fact, is that, one, most new jobs are created by small businesses; two, most small businesses pay tax at the individual income tax, or many small businesses pay tax there.
BUSH: And therefore if you lower taxes, it gives small businesses more money to invest and I believe the tax cuts that Congress passed and I signed helped stimulate growth in the midst of a recession and after — right after the recession, right after an enemy attack, which hurt our economy.
KUDLOW: I want to get back to the tax cuts, of course, later, but let me just stay, if you will, with the stock market theme and narrow it down. We had this week the GM IPO, which is a gigantic front page story.
KUDLOW: OK, now, you had started that off, in terms of the government bailout, with $13 billion, I believe, for GM and Chrysler right at the end of your administration.
KUDLOW: The total bailout became $50 billion. Now, supposedly the new GM sends an IPO out, and it’s very well-subscribed. I want to ask you what your thought — what does this GM IPO say about bailout nation, about companies coming back from the abyss, and about government intervention?
BUSH: Well, as you mentioned, the last chapter in my book deals with a financial meltdown. One of the decisions I had to make was whether or not we had to let GM fail a — right at the end of my presidency, and obviously it’d be at the beginning of the — of my successor’s presidency. I — we put in place what resembled debtor and possession financing; in other words, they made kind of a bankruptcy plan. And, you know, I’ve — in my book, I say that the government ought to unwind its positions as quickly as possible, its positions in the private sector. And to the extent the government is unwinding its position I think that’s very positive. You know, I — look, the truth of the matter is, I didn’t want to have to make these decisions, and I have always – I was a free — I am a free market person. But I hope the reader understands that I really was convinced that had we not taken the measures we took that the economy was going to — was to fail.
KUDLOW: How do you think that looks to average people around the country, Main Street people? I mean, for example…
BUSH: I think it looks terrible, and…
KUDLOW: …GM bailed out, $50 billion.
KUDLOW: But, wait, it’s even more than that, sir. The five banks, the big Wall Street banks that did the underwriting of the GM IPO…
KUDLOW: …themselves were bailed out by the tune of 135 billion, and on the underwriting, they rake in reportedly 125 million.
KUDLOW: Now, that sounds like a rigged game of crony capitalism.
BUSH: Yeah, well, first…
KUDLOW: How do you think the average tea party mainstream voter thinks about that?
BUSH: I probably — listen, I’m sure they were perplexed as to why a free market person would use their money to, you know, to give to these Wall Street firms to prevent the collapse. If I had to do it over again under the same circumstances, I would have. Secondly, just one fact, as you rattled off those facts, Lawrence, and that is that the TARP money, the first tranche of TARP was paid back to the Treasury with a — with a decent rate of return. In other words, we structured it, the TARP, which admittedly is now a four-letter word in American society in more ways than one…
BUSH: …in such a way that the taxpayers would receive a pretty good return, and that’s what did take place. I can’t prove to you a depression was going to happen, but I can tell you one didn’t happen, and I believe it’s because of the government intervention. I’m not going to second guess what my successor has done, the policies that took place after I left office. That’ll be up for historians and for the pundits such as yourself to analyze. And I’ve made it clear, and I want to make it clear on this show that I do not want to second guess and/or criticize the person who replaced me, President Obama.
KUDLOW: I understand. I’m going to respect that boundary, but I do…
BUSH: Well, you’re trying to soap — rope me into — hook lining about the current moment…
KUDLOW: No, absolutely…
BUSH: …which implicitly would lead to either praise or criticism.
KUDLOW: Well, I don’t know. Implicitly, I’m trying to figure out how this TARP story is going to play out, short, long term. You make it very clear in the book that you believe that TARP saved us…
BUSH: I do.
KUDLOW: …saved us from depression.
BUSH: I do.
KUDLOW: And that’s your point of view.
KUDLOW: I want to ask you, in the inner councils of your administration, was there anybody who was saying, “Hang on, Mr. President, maybe we should go through a preplanned bankruptcy of some of these large banks,” or, “Hang on, Mr. President, we’re setting precedents of government involvement and intervention that we’ve never had in this country before”?
BUSH: Yeah, of course there was that discussion, and I — and sometimes I led it. On the other hand, when you’re the president of the United States or the secretary of the Treasury or members of the White House staff and it looks as if this economy is going to crater, because the crater markets were frozen, you don’t have — there’s not a lot of time for theoretical debate.
BUSH: And I was deeply concerned about the very people you mentioned, how would they, you know, how they — aren’t they going to be confused about the decisions made? My judgment was, at the time, had we not moved, those very people that were questioning the decision would be harmed by, you know, the economic disaster. And, you know, that’s the nature of the presidency, and that’s what I try to describe in the book. I want to put you in my place. And I’m confident there are Americans say, “I wouldn’t have done it, what George W. Bush did,” and that’s to be fully expected.
KUDLOW: Well, you say — it’s interesting, in that chapter, the last chapter, six, seven times, you basically say, you know, “I didn’t want to do this. I’m a free market guy.” One of the quotes is, “I had to abandon free market principles in order to save the free market system.”
BUSH: That’s right.
KUDLOW: And you also…
BUSH: And I also said that publicly in a speech in the Rose Garden.
KUDLOW: All right. What message are you sending here? Because a lot of people believe the genie is out of the bottle…
KUDLOW: …that this kind of government bailout during emergencies will become commonplace, that the United States looks more like Italy and France…
KUDLOW: …and Western Europe. We’re losing our competitive edge. We may not be number one anymore around the world…
KUDLOW: …that something very major has changed. How do you react to that?
BUSH: I hope the lesson is, during a major crisis that the government’s capable of acting to prevent a depression. But I hope it’s not a precedent. I mean, obviously I don’t want government to be controlling industry and government to be involved in the — totally immersed in our capitalist system, and that’s why I put in the book it’s important for government to unwind its positions. It — my hope, of course, is that this is a, you know, a one-time major occurrence. There’s going to be recessions…
BUSH: …and there’s going to be up and downs, I just hope we don’t have this same confluence of event…
KUDLOW: But in the next recession…
BUSH: Let me finish — confluence of events that created this enormous house of cards that caught a lot of people by surprise, and I suspect even you, otherwise you’d been on the phone to your old buddy saying, “Here comes the biggest crisis we’ve had since the Depression.”
KUDLOW: Listen, I think every — I won’t say everybody, but most people were caught with their pants down on this. It’s the reaction and the response. I mean, look at — what I’ve never understood, and I’m not disagreeing that you did the right thing. I probably not — history will judge all of this…
BUSH: That’s right.
KUDLOW: …as you wrote eloquently in your book. But look it, capitalism without failure is like religion without sin.
BUSH: I agree.
KUDLOW: I mean, you cannot have capitalism without failure. So when you say the next recession…
BUSH: I agree.
KUDLOW: …are we going to knee jerk go back to too big to fail government bailouts?
BUSH: I would certainly hope not, but this was not a normal recession. That’s what I’m trying to explain to you. If I thought this was going to be a normal recession, like the one that happened in the beginning of my presidency, I, you know, firms would have failed. And as a matter of fact, a firm did fail, Lehman Brothers, and there’s been a lot of critics saying we should not have let Lehman Brothers fail, and I explain the book why that happened. I — this is an extraordinary event, and it’s one that required extraordinary measures. And now it’s important for the government to unwind its positions.
KUDLOW: But do you believe going — looking ahead down the road — and I’m not asking about this current administration, I’m asking about the next 50 years of American economic policy…
KUDLOW: …do we have to have room for failure if our system is to work to maximize its efficiency?
BUSH: No question. No, that’s what I just said. No question about it. Had this been a normal recession in which the lives of our ordinary citizens were not going to be jeopardized, the economic lives, in a major way, firms should have failed. And I still believe the market is the best way to delegate goods and resources. I have just described, in this book, an extraordinary set of circumstances that created a cataclysmic moment for the U.S. economic scene.
KUDLOW: All right, couple of other points, and I appreciate your patience very much. Down through the years, you and I have talked about the U.S. dollar. It’s not one of your favorite subjects. On your watch, the dollar fell by about 35 percent.
KUDLOW: Gold price soared. The Federal Reserve had very easy monetary policy. Now, a lot of people think that’s what caused the bubble in housing, the bubble in gold, the $150 oil which was so damaging to the economy. Why did you let the dollar devalue so much? Really, no president in the war except for you and Richard Nixon were in that dollar decline mode.
KUDLOW: Why did you let that happen?
BUSH: You might remember during my administration I constantly articulated a strong dollar policy. Secondly, I believe that the best way to enable currency to move up or down is to have a strong economy, was it – the currency reflects the relative strength of — relative to other economies. And we had a position that, where the government wasn’t going to decide the value of the currency, but the government could decide policies that would strengthen the economy. And my big concern about, going forward, is whether the world becomes protectionist…
BUSH: …which will affect currencies, and I would hope Congress passes the free trade agreements with Colombia, South Korea and Panama.
KUDLOW: But is your man…
BUSH: Beyond that, I’m not really going to spend time talking about monetary policy because monetary policy ought to be independent from politics.
KUDLOW: Yeah, but dollar policy is a constitutional prerogative of the Congress, and you have the play, as the Treasury Department is in the executive branch. The World Bank appointment, World Bank president, Bob Zoellick, says we should think about a better system, a steadier system, maybe using gold as a reference point.
BUSH: Could be.
KUDLOW: The whole Republican party right now is up in arms against Ben Bernanke’s $600 billion pump rising.
BUSH: Yeah, well…
KUDLOW: The whole Republican party, from Sarah Palin on down.
BUSH: You’re right. You’re trying to get me to con — you’re trying to get me to comment on something I just told you I wasn’t going to comment about, one, current affairs, and two, the Fed. The Fed is independent. I – in my book, I make it clear that I respected the judgment of Ben Bernanke. I think he’s a very deliberate, thoughtful man, and appreciated his service during my time in the White House, as well as his service as the chairman of the Fed.
KUDLOW: You don’t want to comment on this GOP revolt against Bernanke?
BUSH: No, you’re — you see, Larry, I can’t make it more clear to people that I am out of politics. I have had my time in the arena. I’m in the process of convincing people to buy my book just so they have a better understanding of the nature of my presidency. Your questions about my decisions during the financial crisis at the end of my presidency are very legitimate questions, and I would direct people to the last chapter of my book to have a more full understanding as to why I think the crisis happened in the first place. But beyond that, I really don’t feel comfortable commenting about the issue of the day. And there’s others who could come on this show and be much more articulate about what’s taking place.
KUDLOW: They’re not as expert as you are, not as expert as you are.
BUSH: Well, I don’t know about that, but thank you.
KUDLOW: Let me ask you about the other charges, the spending charge.
KUDLOW: Now, it’s interesting, I believe the only graphic, the only table in the entire 500-page book, which, by the way, I read very carefully, sir, is about spending.
KUDLOW: And you’re basically arguing that the conservative critics are wrong and you are not a big spender. Would you comment on that?
BUSH: I’m arguing that both conservative critics and the liberal critics were wrong. And if one were to look at the facts, in spite of a recession, in spite of an attack, and in spite of making sure that our homeland was defended and that we were — prevented attack from — by taking aggressive military action and/or holding nations to account who harbor terrorists, like Afghanistan, our spending-to-GDP was lower than my three predecessors. The taxes-to-GDP were lower than three predecessors.
BUSH: The debt-to-GDP was lower than only one other — was lower than every president except for President Reagan. And the deficit-to-GDP was lower than every president except for Bill Clinton. And the reason I put that chart in there is to clarify the facts. And my fiscal record was a strong record. I was not about to put our troops into harm’s way and not make sure that they were fully trained and equipped, and I was not about to let those who came back from combat have a veterans system that wasn’t fully funded. I wasn’t about to let the Homeland Security measures lapse because of funding. On the other hand, we did ratchet nondefense discretionary spending.
KUDLOW: You do say, though, towards the end of that chapter, that we’re not out of the woods yet, and you do say that we’ve got spending problems, entitlement problems, debt problems.
KUDLOW: You’ve got this Erskine Bowles commission on — heaven forbid, I don’t want to raise a current event — but there is a…
BUSH: You just did.
KUDLOW: There is a national discussion going on about across the board reforms.
BUSH: Yeah, and in my book I make it clear how difficult it is to reform Social Security, for example, because the Congress tends to be very reactive. The legislative bodies react when the crisis is upon us. I tried to make it clear the crisis was upon us in 2005, and members of both parties were not interested in reforming Social Security. And I would hope that out of this commission comes a kind of unified desire by the legislative body to reform the system now and — because the — as time goes on, the crisis gets more and more acute.
KUDLOW: Should the Bush tax cuts be extended in this lame duck?
BUSH: Well, here’s the way I describe it. If one is interested in job creation in the private sector, it is important to recognize that lower taxes enable the job creators, i.e., small businesses, to have more money with which to expand their work force. And I — it — I would — yeah, I think they ought to be extended.
KUDLOW: Does the incentive model work if it — if it pays more after tax, to work, save, invest and take…(unintelligible)?
BUSH: Well, of course it does, and my record shows that.
KUDLOW: Do you subscribe to that?
BUSH: We had over 40-something months of consecutive job growth, and I believe a lot of that had to do with the tax cuts.
KUDLOW: All right, finally — we appreciate your time very much.
BUSH: Thank you, sir.
KUDLOW: Are you an optimist about this?
BUSH: Yes, I am an optimist about America.
KUDLOW: You look around, and I want to ask you specifically, global competition is getting tougher with China and India and Brazil. We have Irish debt problems going on in Europe that people are quite worried about. The USA, lot of people think we’re already bankrupt. I mean, is there some sort of economic cold war going on, and are we in position to win that cold war?
BUSH: If — the definition of a cold war, as far as I am concerned, is protectionism, and we’ve been through periods in our history where we’ve been isolationist and protectionist, and my judgment is that those “isms” will make it more difficult for anybody to succeed. And you asked if I’m an optimist, yeah, I’m an optimist about America. We’re entrepreneurial, we’re smart, we’re capable, we’re innovative. And no question we’ve been going through a tough time, but in the long run I’m convinced that America can compete. And we shouldn’t lose confidence in ourselves. We shouldn’t say, well, you know, we’re no longer the great economic power or the great, you know, force for good.
KUDLOW: Can we take on China? Can we take on India.
BUSH: Of course we can. Well, taking on is a different — I wouldn’t call it that. I’d say can we compete with and find common ground where we both can succeed? Absolutely.
KUDLOW: Can we keep the American way of life going, or should we be fearful that our kids and our grandkids will not have as good as it — as we have?
BUSH: I’m confident — I mean, we’ve been through these kind of spasms of lack of confidence before in our history, and I believe the world for our grandkids, our kids and grandkids, is going to be better than the one in which we live in.
KUDLOW: President Bush, we appreciate your time. Best of luck on the book tour and God bless you.
BUSH: Thank you, sir.
KUDLOW: Thank you.
BUSH: Enjoyed it.