Latest / The Capitalism and Freedom in the Twenty-First Century Podcast / Diana Furchtgott-Roth on Serving In Four U.S. Presidential Administrations, Environmental Regulation, and Infrastructure

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Diana Furchtgott-Roth on Serving In Four U.S. Presidential Administrations, Environmental Regulation, and Infrastructure · The Capitalism and Freedom in the Twenty-First Century Podcast

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>> Jon Hartley: This is the Capitalism and Freedom in the 21st Century podcast
0:45
where we talk about economics, markets, and public policy.
0:48
I'm John Hartley, your host.
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Today, I'm joined by Diana Furchtgott-Roth, who is an economist,
0:53
the director of the Center for Energy, Climate, and Environment at the Heritage
0:58
foundation, which just celebrated its 50th anniversary.
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And is an adjunct professor of economics at George Washington University.
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Diana also has extensive experience in Washington, DC, and has worked across four
1:10
different presidential administrations in various senior economic policy positions.
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She worked at the Reagan Council of Economic Advisors,
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the George H.W Bush Domestic Policy Council, and Office of Policy Planning.
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She worked at the George W Bush Council of Economic Advisors as chief of staff and
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Labor Department chief economist.
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And in the Trump administration, she worked as the deputy assistant secretary
1:33
for research and technology at the Department of Transportation and
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as the acting assistant secretary for
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economic policy at the US Department of Treasury.
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She's also married with six children, and has had an unbelievably successful career.
1:45
Welcome, Diana.
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>> Diana Furchtgott-Roth: Great to be with you, John.
1:47
Thanks so much for having me on today.
1:49
>> Jon Hartley: So Diana, I wanted to start off with where you grew up and
1:52
how you got interested in economics.
1:55
>> Diana Furchtgott-Roth: Well, I grew up in England and my father was an economist,
1:59
so we talked about economics over dinner.
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And I think everyone in my family is interested in economics, and
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that's certainly where I got my first introduction to economics.
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>> Jon Hartley: And, like, in what era was, like,
2:11
what was going on in the UK at this time at the national level?
2:16
Was there anything happening that was particularly interesting to you or
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that was particularly formative?
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>> Diana Furchtgott-Roth: Well, this was the 1960s going to the 1970s.
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There was a lot of industrial problems with coal strikes and
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the entire socialization of the economy that then Margaret Thatcher
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would then disrupt in the late 1970s, early 1980s.
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So it was a very interesting time, whether government was indeed a solution to
2:50
the problems that Britain had at the time or
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whether more private sector activity and involvement would be a better solution.
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So we had a lot of discussions about that.
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>> Jon Hartley: Right,
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in my understanding from the 1970s UK is there was a lot of tumult.
3:06
There was, I think, some issues with the UK debt, but
3:09
there were a lot of challenges at that time, the Thatcher era was sort of often
3:14
viewed as sort of a correction to that tumultuous time.
3:18
I wanna dig into your experience in government,
3:20
because I think there's just so many interesting things that I think our
3:24
listeners can learn from your career and your incredible government service.
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And I wanna start with your time at the Reagan Council of Economic Advisors.
3:32
The 1980s was certainly a really interesting time in economic history.
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The Reagan Council of Economic Advisors employed many famous economists,
3:42
including yourself.
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It employed folks like Martin Feldstein, Larry Summers, Paul Krugman, and
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John Cochrane.
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I think many folks may not be aware of this.
3:52
How many incredible economists today who we all know were there at one
3:56
point in the 1980s.
3:58
You were there when the Tax Reform act of 1986 was passed.
4:03
It cut the corporate tax rates from 70% to 35%.
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It cut personal tax rates below 30% and
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was really the cornerstone to the Reagan tax reform and
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one of the most consequential pieces of tax legislation in the past 50 years.
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How did that come together, and what was it like?
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>> Diana Furchtgott-Roth: Well, it's really funny that you asked, John,
4:21
because usually,
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staff at the Council of Economic Advisors are had on an academic year basis.
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There's a rotating group of academics that go through.
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But in May, I got a call saying someone had unexpectedly left.
4:34
And I was working on taxation and revenue estimates for
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a small company called the SEV economics, and
4:41
they wanted someone who had had experience in taxation to go over to CEA.
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So they said, would you come?
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Well, first I said, no, cuz it would have been a pay cut.
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And then a week later I called back and I said, yes, I would.
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And it was the most important decision I made career wise.
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It was such an exciting place to be.
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And you get a high every time you walk into the old executive office
5:05
building with its beautiful marble floors and its pillars.
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And we were working on different tax bills.
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There were a lot of tax bills that were going through Congress at the time.
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And in Washington, if you bet that something is not going to pass,
5:18
you're generally right.
5:20
So at the time in May,
5:21
I didn't know that the Tax Reform act of 1986 was going to pass.
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All I knew is we were working on different tax bills and looking at different
5:30
revenue estimates, talking to people about what a tax bill should look like.
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And then it turned out that the Tax Reform act of 1986 was signed into law,
5:41
and here what we had been working on suddenly materialized.
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So that was very exciting.
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Very exciting indeed.
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But the Reagan administration was overall a wonderful place to work
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because you could talk about anything.
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There weren't these communications people in the policy meetings, as long as
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it had to do with cutting taxes and cutting spending, you could talk about it.
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So CEA, the Council of Economic Advisors, could have meetings on privatizing
6:10
the post office, on selling the national parks, on charging for the national parks,
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all these things that would be in a different administration,
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perhaps politically very incorrect.
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But as long as it was about cutting taxes and cutting spending,
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we were allowed to talk about it.
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It was a very exciting environment.
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>> Jon Hartley: That's fascinating, and
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what an amazing time to be serving in government.
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I wanna flash forward to the George H.W Bush administration,
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where you served on the Domestic Policy Council and Office of Policy Planning.
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Can you explain what the Domestic Policy Council does,
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and what its function is, along with the Office of Policy Planning?
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These are two increasingly important departments within both the White House
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executive office, and I think a lot of people may not be quite as aware.
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>> Diana Furchtgott-Roth: So, first,
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I was a deputy executive secretary of the Domestic Policy Council.
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My boss, Richard Porter, as opposed to Roger Porter.
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There was Roger Porter and Richard Porter.
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He said that they were looking for new ideas in domestic policy
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because President H.W Bush was accused of not having enough domestic policy ideas.
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So our job was to get together a group of policy ideas that would be,
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be in preparation for the campaign and that would do well with voters.
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And so we had some really interesting ideas, some of which went somewhere and
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some of which didn't.
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One idea that didn't go anywhere was cutting capital
7:44
gains taxes by redefining capital gains as capital gains after inflation.
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So quite a lot of capital gains is inflation,
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you have these inflationary gains.
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So we thought that if you redefined it as capital gains exclusive of inflation,
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That would immediately lower capital gains taxes because of course at that time,
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one could not get a capital gains tax cut through Congress.
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That idea unfortunately was one that did not go anywhere because the high ups that
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the White House said that this was too adventurous, they didn't think that they
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would be able to support it in legal law, and you couldn't just redefine capitaine.
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But that was a great idea, and I highly recommend it to any future administration.
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Even in 2023, capital gains tax brackets are not indexed to inflation.
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They are not indexed to inflation.
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>> Jon Hartley: Whereas the 1986-.
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>> Diana Furchtgott-Roth: That's actually why capital gains has a lower tax rate.
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It has a lower tax rate because it includes inflationary gains,
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but it's not indexed to inflation.
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So what would be better would be to make it more precise and index it to inflation,
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which perhaps when it was first put in place would be difficult to do.
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But now with computer programs, it's very easy to do.
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It's very easy to do it now.
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>> Jon Hartley: Right, but the 1986 Tax act, the Reagan act,
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that did index ordinary income, so individual income,
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labor income tax brackets to inflation, because at the time,
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inflation was very high in the 1980s and there was this issue of bracket creep,
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and inflation would push people into higher tax brackets.
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Effectively, when you're adjusting for inflation,
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that still is not the case on capital gains even over 30 years later.
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>> Diana Furchtgott-Roth: Right, exactly yes.
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Yes and you find that when people for example, bought a house when they were
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just starting out and then they sold it when they retired,
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there was a huge run up in home prices during the end of the 20th century.
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A lot of this would be inflationary gains.
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So they were paying taxes on inflationary gains.
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They did not benefit property.
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>> Jon Hartley: Right.
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And so we have this office of policy plan in domestic which I believe
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was at some point renamed the domestic Policy Council, if I'm correct,
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and then the Bill Clinton administration in the 90s also created the NEC,
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or the National Economic Council as well, within the executive office.
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And that, I think, has become increasingly one of the sort of more
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powerful arms of economic policy planning within the White House.
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And part of this is, I think coordinating with economic policy
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with Congress and sort of organizing priorities.
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Another part of this is working on executive orders.
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When you were in the George HW Bush administration,
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working in the Office of Policy Planning and Domestic Policy Council, I think
10:50
Georgia HW Bush signed an executive order allowing private sector investment for
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federally funded infrastructure investments.
10:58
Can you talk a little bit more about that?
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I mean, it seems like today, obviously, that seems like an obvious thing, but
11:06
smart thing to allow private companies to help to work on things like airports and
11:11
things like that.
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But this wasn't the case prior to the late 1980s, early 1990s.
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>> Diana Furchtgott-Roth: No, in 1992 if a piece of infrastructure had federal
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funding, then it couldn't have private sector investment.
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And this was especially a problem for airports because municipality cities
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didn't have enough funds to maintain the airports, and air traffic was increasing.
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So we drafted an executive order which George HW Bush later signed,
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allowing private sector investment in those pieces
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of infrastructure that had received federal funding.
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And this became tremendously important because it allowed more funds,
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more private sector funds to flow into certain projects.
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And President HW Bush,
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he was very enthusiastic about this and
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he saw this as a way of increasing investment
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in certain infrastructure projects.
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After I left, under President Clinton, the National Economic Council and
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the domestic policy council were vastly expanded.
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They were set up as more coordination councils, and
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they coordinated the work in the different cabinet agencies.
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When I was there,
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the domestic policy council was a small group headed by Richard Porter.
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It just had about three or four people in it.
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The National Economic Council was headed by French Hill,
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who is now a congressman from Arkansas.
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And he and I both worked together when he was in the NEC,
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then in the George HW Bush administration, and I was in the domestic policy council.
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>> Jon Hartley: Wow, it's fascinating history.
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And to think about how these economic policy making bodies have evolved
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over time also, along with the Council of Economic Advisors,
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which was started in the 1940s with the Employment act, and
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how that has evolved over time as well.
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Of course, much economic policies also decided from treasury as well,
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increasingly so I think in the current era.
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So I wanna jump and flash forward to the George W Bush administration.
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So Bush 43 and what it was like working at the Council
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of Economic advisors then in the early 2000s,
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you were there when the Bush tax cuts were being passed,
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also this was in the sort of post 911 era.
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There was a recession following the tech boom and burst.
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What was it like at that time?
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And what was it like pushing the Bush tax cut program,
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certainly amid an administration that had came in sort
14:21
of on very strong domestic policy ideas, compassionate conservatism.
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We think about Social Security reform,
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we think about education reform, we think about tax cuts.
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That was a huge part of the Bush 2000 campaign platform.
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And of course, 911 was an event that really changed the course of the George W.
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Bush administration with the wars in Afghanistan and
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Iraq that would follow that.
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But I'm curious,
14:59
what was it like working on the Bush tax cuts in the early two thousands at CEA?
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>> Diana Furchtgott-Roth: Well, President Bush came in with a mandate to lower taxes
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and the Economic Growth and Tax Relief Reconciliation act
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of 2001 was passed in May, and that helped lower tax rates and
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remedy a number of inequities in the tax code,
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which thereby encouraged more investment.
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And there was a big push to complete this tax bill, and
15:36
it was signed into law in May before one of the senators actually
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switched parties and through the Senate to, as I recall.
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>> Jon Hartley: Jim Jeffords, I think.
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>> Diana Furchtgott-Roth: That was Jim Jeffords, yes.
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Yes, exactly.
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So it took a lot of negotiation on the president's path.
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Then after that, we switched the focus to Social Security.
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President Bush was a big advocate of taking three percentage points of your
16:03
Social Security contribution and
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putting that into a private account which you could then pass onto your heirs.
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And we did a lot of work on that.
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He was very enthusiastic about it, went around the country talking about it.
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And there was a surplus, a budget surplus in 2000.
16:19
And his idea was that he would use this budget surplus for
16:23
the transition to this new form of Social Security.
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But then 9/11 hit.
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And I was in the office of the National Economic Council director,
16:33
Larry Lindsey, at the time the plane hit the World Trade Center.
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The first plane hit, and someone came out of the meeting, came into our meeting,
16:42
said a plane just hit the World Trade Center.
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We were discussing whether it was a transportation issue,
16:47
who should take charge of it.
16:48
Then we left the meeting at 9:15.
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The second plane had hit.
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And then we knew it was not an economic issue, it was a defense issue.
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And we went back to our offices.
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And the director of the National Economic Council was hustled away
17:02
to a basement room.
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And the rest of us were told just to run, get out of the building, go north,
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because they thought that the plane that went down in Pennsylvania was aiming for
17:12
the White House, and they wanted us to get out of there.
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I moved to get my car out of the parking lot between the White House and
17:20
the old executive office building.
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The Secret Service said, no, there's no time for that.
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Just go, just run off.
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They obviously thought something was imminent.
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And I always thought, I still remember how brave they were,
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just standing there saying, something's gonna happen.
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We're staying here, but you need to get out of here.
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And so that was also a big memory of my time there,
17:40
being actually in the White House on 9/11.
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>> Jon Hartley: Interesting.
17:46
>> Diana Furchtgott-Roth: Then after that, well, the money for
17:49
the surplus went to the wars in Iraq and Afghanistan, and
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it went to fight terrorism, it went to fight the war on terror.
17:59
So then we could not go forward with the privatization of Social Security, or I
18:04
shouldn't even call it privatization, cuz that's what gets privatization a bad name.
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It was allowing three percentage points of your contribution to go to a private fund.
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And if you imagine what that would have been like in 2001,
18:18
the stock market has grown so much since then.
18:21
If we'd allowed everybody to do that, people would have been so much better off
18:25
now and Social Security would have been in a much, much better position.
18:30
Plus, there are major inequities in Social Security where low-income Americans
18:35
die earlier, minorities die earlier, so they lose out from Social Security.
18:40
They don't get the stream of funds that they would have,
18:43
if they lived to their nineties.
18:45
So this would have enabled them to have a pot of money that they could have passed
18:50
on to their heirs cuz they would have owned those 3% points.
18:54
So this was really a very foresightful idea by President Bush,
19:00
and it's really too bad that it was not implemented.
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>> Jon Hartley: Fascinating, and so
19:07
you also served in the Labor Department under Secretary Chao.
19:13
I'm curious, what were your main priorities there?
19:16
I know there is one push to bring more transparency to union expenditures.
19:23
Can you explain a little bit more about that?
19:25
>> Diana Furchtgott-Roth: Yes, a very important initiative of
19:28
Secretary Elaine Chao was to make it clear to union members how
19:32
their funds were being spent.
19:35
Because before she took over, unions could just put down
19:40
on their accounts $1 million expenses or 500,000 other.
19:46
They could literally say other.
19:47
They wouldn't have to reveal how they spent it.
19:49
But these dues going to the unions, they came out of union members paychecks.
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And secretary thought sharply, it was very important that there be transparency, that
19:59
these union members would know exactly how their dollars were being spent.
20:02
So she put in place what was called the LM-2 rule that required unions
20:07
to specify all expenditures over around $200.
20:11
You had to itemize them, say what they were.
20:13
And as a result of this, some of the expenditures were no longer so common.
20:18
So if there were expensive hotels or golf trips or expenditures on t-shirts,
20:24
the union bosses would have to reveal that, otherwise members would complain.
20:29
So I think this was one of the most important things that Secretary Chao did
20:33
when she was labor secretary, is that transparency.
20:36
So all these hardworking union members could see what was going on with
20:40
their dues.
20:42
>> Jon Hartley: Fascinating, an interesting time, I'd say the least,
20:48
for labor policy and economic policy as well,
20:52
in that early 2000s, pre-Great Recession era.
20:58
I wanna fast forward to the Trump administration, and
21:02
I wanna talk a bit about your time at the transportation department.
21:07
You served as the deputy assistant secretary for research and technology.
21:12
I'm curious, like, what does that involve, that particular role?
21:19
>> Diana Furchtgott-Roth: So the Office of Research and Technology has a vast
21:23
empire within the transportation department.
21:28
There's the Bureau of Transportation Statistics, says the entire
21:31
Volpe National Transportation Systems research group in Cambridge,
21:35
Massachusetts, that has 1000 people and does path-breaking research.
21:40
There's the Transportation Safety institute in Oklahoma City,
21:46
which has an entire plane graveyard,
21:49
a graveyard of broken bits of plane that come down so
21:53
that inspectors can learn why a particular crash happened.
21:58
Plus my group had $1 billion worth of research funds in the different modes.
22:05
That's the Federal Aviation Administration,
22:08
the Transit Administration, the Highway Administration, to oversee.
22:12
So there was a lot to do.
22:14
But most of my time was spent on this tiny little office,
22:18
the Office of Positioning, Management, and Timing and
22:23
Spectrum Management, which dealt with GPS and dealt with spectrum.
22:28
Spectrum are these airwaves that most people don't even know exist.
22:32
They make a phone call, they don't know it's because their telephone company
22:37
has bought a group of these airways which are known as spectrum.
22:41
And the transportation department was allocated spectrum for automotive safety.
22:47
It was allocated 75 megahertz in the 5.9 band, a band of spectrum.
22:52
And the Federal Communications Commission wanted to take it away for
22:57
unlicensed Wi-Fi.
22:58
That's the kind of Wi-Fi that you get if you sit down in the airport in
23:03
San Francisco and you get on your phone and it says, free Wi-Fi,
23:07
click here, or Dallas airport, free Wi-Fi, click here.
23:11
Now, there's really no reason that Wi-Fi should be free, but
23:15
there are a lot of big companies that wanted free Wi-Fi.
23:18
Why? So you could surf the Internet, so
23:20
you could go shopping, so you could get ads.
23:22
And they came and lobbied the Federal Communications Commission every day,
23:26
saying, we need more free Wi-Fi, more free Wi-Fi.
23:29
So they wanted to take away our spectrum.
23:32
That would have been used for connected vehicles.
23:35
So cars would have access to spectrum.
23:38
And then when it looked like they were gonna bang into each other,
23:41
there would be some kind of warning, or
23:43
a car could be connected with a pedestrian via cell phone.
23:46
So if a pedestrian was gonna step off in the curb and there might be an accident,
23:51
then the car and the pedestrian would have a warning, and
23:55
these things could be on traffic lights.
23:58
So two cars were going towards each other.
24:01
And they didn't know they were gonna be hitting each other.
24:03
Again, it could give that kind of warning.
24:05
And this technology had been building and developing for
24:09
20 years when the Federal Communications Commission first
24:13
assigned these airwaves for this purpose.
24:16
And then the Federal Communications Commission just said they were gonna
24:20
take it away.
24:21
So there was a big battle.
24:23
The FCC ended up taking more than half of it away.
24:26
There's some left.
24:27
I don't know if it's enough for all the automated vehicles,
24:31
the intelligent transportation systems that wanna run it, the buses that would
24:36
be able to change the lights to green from red if they were behind schedule.
24:40
The ambulances that if they were rushing to an accident, again,
24:44
could change all the red lights to green lights so
24:47
that they wouldn't be breaking a red light going across the intersection.
24:52
So we thought it was very short-sighted of the Federal Communications Commission.
24:55
This was one of the many battles we were involved in.
24:58
Another involving a company putting itself right next to the global positioning
25:04
system band, and then a third one involving radar altimeters on airplanes,
25:10
these little devices that tell an airplane how far above ground it is.
25:15
And again, there was an auction of airwaves that put
25:20
in danger some of the radar altimeters.
25:23
And the Federal Aviation Administration had to threaten to close down
25:28
some airports in poor visibility if these telecom companies didn't
25:33
pull back on the big towers they're gonna put for 5G next to airports.
25:38
So it was a very exciting time, a very exciting time.
25:42
And some of the most important research, the most important research project I
25:46
think I did was a grant to the National Bureau of Economic Research to set
25:50
up a transportation economics program.
25:53
And normally, when people talk about allocating high-speed rail,
25:58
they don't say, well, how much is Diana going to pay for a high-speed rail
26:03
ticket between San Francisco and Los Angeles the way they say,
26:07
how much would Diana be willing to pay for an iPhone 14?
26:10
They just say, we're gonna have high-speed rail cuz China has a high-speed rail.
26:14
They don't do an economic analysis of it.
26:16
But economics should be as much a part of transportation as it is of any
26:21
other field.
26:22
And so the transportation department gave a grant to the National Bureau of
26:27
Economic Research to set up a transportation program.
26:31
And in April, I was at the first post-pandemic,
26:35
in-person conference at NBER.
26:38
And there were transportation economists discussing subjects such
26:43
as whether bus companies, a bus route does better in the presence of rail,
26:48
or how are minibuses in Cape Town, South Africa doing?
26:51
And it was just fascinating.
26:53
I think that that's one of the most important legacies of my time at
26:57
the transportation department.
26:59
And the current administration has continued the grants to NBER for
27:04
this project.
27:05
And it's great that there are so many exciting young minds focused on how to
27:10
make transportation more economical and how to align it more with economic
27:14
principles, cuz it's a subject that really deserves more research.
27:19
>> Jon Hartley: It's fascinating to think about all the R&D and
27:22
infrastructure in that domain.
27:25
And certainly, rail has been a big topic, and it's, I think,
27:29
a bit different for the US in the sense that the US is just a massive landmass,
27:35
and it's somewhat more difficult to build as efficiently.
27:40
And obviously, unions play a role in that, too.
27:44
And how expensive it is to build some small amount of subway
27:49
track in New York City, it's just enormously expensive.
27:54
But meanwhile, you look at Florida, for example, and
27:58
they built the Brightline, which is essentially a private sector project.
28:03
And they built it from Miami to Fort Lauderdale.
28:07
They built it to West Palm now, and they're extending it to Orlando.
28:13
It's interesting how successful that's been.
28:15
Whereas other infrastructure projects,
28:19
like updating the New York City subway or trying to get high-speed rail or
28:26
some sort of rail between Los Angeles and San Francisco is so difficult.
28:32
>> Diana Furchtgott-Roth: Right, well, Brightline is a private company.
28:34
They estimated the demand.
28:36
They looked at how much John or Diana would be willing to pay for
28:40
a ticket from Orlando to West Palm Beach or Miami, or, and
28:44
it's gonna be extended to Tampa, too, I believe.
28:47
And they saw that there are these tourists who fly into Orlando, and
28:50
they also wanna go to the coasts, or they're in Tampa and
28:53
they wanna go to Orlando, or they're in Miami, they wanna go to Orlando.
28:56
And they estimated the demand and they put up this private high-speed rail.
29:03
So they really went through all the economic mechanisms to see that it would
29:08
be worthwhile.
29:09
Another interesting economic area is road paving.
29:13
You might think road paving isn't interesting or it's not an economic area,
29:16
but really it is.
29:17
And when I was going to the transportation department,
29:20
my former chairman of the economics department at Swarthmore College said,
29:24
Diana, you've got to figure out why there are potholes in the roads.
29:27
Why do we still have potholes?
29:29
So, of course, I tried to figure out why there were still potholes.
29:33
And one answer is, because we were doing research into all these paving materials.
29:37
You don't have to have potholes.
29:38
But of course, the non-pothole materials are much more expensive than the others.
29:44
And states and
29:45
cities and municipalities are limited in the amount of funds they have.
29:50
So even though it might be more affordable over ten years to have better paving
29:54
materials and have more money upfront, they don't have more money upfront.
29:59
They just have a certain amount of money upfront, and
30:02
they can't afford the more expensive paving materials.
30:05
So it really makes you look twice at how these things are structured.
30:09
And maybe there should be a better way of allocating more funds to begin with,
30:14
thereby lowering the overall cost and reducing the number of potholes.
30:19
And a lot of municipalities have not managed to do that.
30:22
>> Jon Hartley: Wow, it is fascinating.
30:24
All these infrastructure issues are so
30:29
interesting, and- >> Diana Furchtgott-Roth: And then,
30:33
of course, the pandemic hit when I was a DoT.
30:35
So we had the economic rebuilding task force.
30:37
We were asked to do so much more data collection because all the transportation
30:43
networks were about to close down because no one was riding them.
30:48
And then the federal government was subsidizing them to stay open.
30:54
And we had to generate data on a daily basis showing what travel was
30:58
as a percentage of pre-pandemic travel for all different modes.
31:03
And we didn't have that right away, so we had to get new data sources to do that,
31:06
because that's what the leadership of the transportation department wanted.
31:10
And we had an economic rebuilding task force to deal with different problems that
31:14
were arising in all the different modes of transportation during the pandemic.
31:18
So the last year was very much dominated by pandemic transportation.
31:22
>> Jon Hartley: Interesting, and you were also nominated for
31:26
an assistant secretary role at transportation each year,
31:31
but your nomination was stalled for certain procedural reasons.
31:37
Can you sorta walk through our listeners what that process of Senate confirmation
31:43
is like and what was going on at the time in terms of Senate confirmations,
31:48
and then Senate Majority Leader Mitchell McConnell and
31:52
how he was prioritizing reshaping the judiciary?
31:56
And could you explain a little bit what going through that
32:01
whole process is Is like.
32:03
>> Diana Furchtgott-Roth: Yes, well, in March 2017, shortly after the election,
32:07
Secretary Elaine Chao asked if I would be the nominee for
32:11
assistant secretary for research and
32:13
technology because I had been her chief economist over at the Labour department.
32:19
And I was nominated on in September 2017, I had a hearing in October.
32:26
And the next step after you're out of committee,
32:29
after the committee has voted you out, is to get a vote on the floor.
32:33
But Senator Schumer was holding up candidates, not just me everybody
32:39
required 30 hours of floor time for a vote, those were the Senate rules.
32:44
So it was very difficult to get that vote on the floor and thereby get position.
32:51
So to begin with, I was sent to the Treasury Department as acting assistant
32:57
secretary for economic policy because the Office of Personal Management said.
33:03
If you go to transportation before you've been confirmed, this is not gonna make
33:08
the Senate happy, they're not ever gonna vote to confirm you.
33:11
So why don't you go to the Treasury Department?
33:14
Because that nominee for assistant secretary of economic policy,
33:17
Mike Falken, is in the same situation you are,
33:20
he hasn't been able to get his vote on the floor either.
33:22
So I went to the Treasury Department for about just under a year and
33:29
worked on economic forecasts, went to the OECD in Paris
33:34
to explain how US growth was influenced by our lower tax rates.
33:40
Which, of course, they didn't wanna hear.
33:42
Meanwhile, I was waiting for this vote on the floor,
33:45
and I had to be re-nominated every year.
33:47
Well, in February 2019, I think presidential personnel got tired of this,
33:52
they said, Diana, we need you over at DOT, just go as deputy assistant secretary and
33:57
we'll still try and get you confirmed as assistant secretary.
34:01
And so I went and I oversaw the research, I was waiting for
34:06
the vote on the floor, but it didn't happen, and
34:10
I was actually the longest waiting Trump nominee not to get confirmed.
34:16
But I was in the situation with many, many other people.
34:20
There were many other positions for which the nominee was not confirmed
34:26
just because of the polarization on Capitol Hill and the difficulties and
34:31
the climate is so divisive that it's difficult to get people through.
34:37
Senator McConnell quite rightly focused on judges cuz they had lifetime appointments,
34:42
whereas assistant secretary has just come and go.
34:45
And so as a result, there are many, many talented judges who have their jobs.
34:52
And I still believe that I contributed a great deal to the transportation
34:56
department with the deputy assistant secretary title rather than
35:00
the assistant secretary title.
35:02
>> Jon Hartley: That's fascinating, I'm curious,
35:05
what are these OECD meetings in Paris like in the what?
35:09
It's an interesting organization, and we hear about it a fair amount,
35:15
they put out a lot of great data that economists like to use that typically,
35:21
like, normalize data across countries.
35:25
But it also is sort of like a meeting or a gathering place,
35:28
we actually have an ambassador to the OECD.
35:30
I know, I think three of their key sort of, deputy positions at the OECD
35:35
are typically controlled, like, by three different, regions or countries.
35:41
There's like one representing the US, one from Europe, and one from Japan.
35:44
What are those meetings like when you go to Paris, and
35:47
what was it like at the time?
35:49
>> Diana Furchtgott-Roth: They're very formal, people are assigned seats, and
35:52
they're very, very scripted, so people knew what I was gonna say in advance, and
35:56
I had a time slot.
35:57
I was actually with a Hoover Institution fellow, Tyler Goodspeed,
36:01
because he was assigned from the Council of Economic Advisors also to go to these
36:06
same meetings, and I was.
36:07
>> Jon Hartley: Right, he was acting chair at the time.
36:11
>> Diana Furchtgott-Roth: Well, even before he was acting chair,
36:13
he was the member who went.
36:14
>> Jon Hartley: Okay, got it.
36:17
>> Diana Furchtgott-Roth: Yeah, so he went as a member, and
36:18
then I went as acting assistant secretary for economic policy, so
36:22
as a treasury representative and a CEA representative.
36:25
So we went together and, yeah, we made speeches,
36:28
we met with the different people there, and it's a very, very formal atmosphere.
36:34
You get a chance to meet people more informally during the coffee breaks,
36:40
but it's a very interesting organization.
36:43
>> Jon Hartley: Fascinating, and then the assistant secretary for
36:48
economic policy role is an interesting one at treasury,
36:52
typically that involves, I think, briefing the secretary on
36:58
things like jobs reports and walking through economic data releases.
37:04
What does that role involve?
37:05
And I'm sure it changes from administration to administration as well,
37:10
but from your experience, what does that rule involve?
37:14
>> Diana Furchtgott-Roth: Well, the most interesting part is you get to see
37:16
the economic data the night before, so I would see the economic data the night
37:20
before, and I would get to explain it to Secretary Mnuchin.
37:23
>> Jon Hartley: Right, so you were like one of the, l four or five people in
37:26
Washington that get these economic data releases, like non-farm payroll.
37:30
>> Diana Furchtgott-Roth: [INAUDIBLE] council of economic advisors.
37:32
As the treasury secretary, the president gets it,
37:35
the chairman of the Federal Reserve, it's just a few people who get it anyway, so
37:39
it's really exciting to get it.
37:41
And then when he was away, when he was out of town, then I would have to go to
37:45
a secure room and give a memo that would get to him through some encrypted way.
37:50
I couldn't just call him up and say, secretary Mnuchin here, the data, so,
37:55
anyway, the most fun part of the job is getting the data the night before.
38:00
And then when there's for some treasury secretaries,
38:04
you would brief them as to what to say at press conferences, but
38:08
Secretary Mnuchin never needed any of that.
38:12
I mean, he was very familiar with all of the economic issues, and
38:14
he didn't need a lot of briefing.
38:16
>> Jon Hartley: Right, former Goldman Sachs partner and
38:20
a longtime Wall Street and finance veteran.
38:25
Fascinating.
38:26
So I wanna fast forward now to the work that you're doing at the Heritage
38:31
foundation.
38:31
You're doing a lot of very interesting work on environmental regulatory
38:36
policy and transportation regulatory policy.
38:39
We've had some interesting discussions on self driving cars and what that's like,
38:44
I'm curious, what are the big things that are interesting to you right now?
38:49
>> Diana Furchtgott-Roth: What's interesting to me is how the government is
38:52
trying to reshape the economy through regulation.
38:55
So last year, about 6% of new vehicle sales were electric vehicles,
38:59
and the Environmental Protection Agency is putting forward a proposed
39:04
tailpipe emissions rule.
39:06
Which would result in 60% of vehicle sales being battery powered electric by 2030 and
39:14
about two thirds being battery powered electric by 2032.
39:19
And this is just a dramatic change in the way Americans drive, cuz first of all,
39:24
they would have to recharge these vehicles rather than going to a gas station.
39:28
And not all Americans have charging stations in their homes.
39:33
And these vehicles are much more expensive, so
39:36
the best selling car in America is the Ford F150 pickup truck.
39:40
And the electric version is about 10 or 12,000
39:45
more than the base internal combustion engine version.
39:50
And plus the Ford lightning,
39:51
the electric version of the F150 doesn't tow anything because
39:55
it would need a lot more strength for the battery to actually be able to do tow.
40:00
So it's quite a different vehicle, and
40:02
the vehicles don't work very well in cold weather.
40:06
So that's why Wyoming just has 510 battery powered electric vehicles,
40:10
because all of us have woken up and
40:13
found that our battery in our regular car is dead cuz of the cold.
40:16
I mean, if you're driving an electric vehicle,
40:19
it loses 20% to 40% of its charge in cold weather.
40:23
So that's a major disadvantage.
40:25
So Minnesota, North Dakota, South Dakota, Alaska,
40:28
there are very few electric vehicles.
40:30
So this would really reshape the way Americans drive, and it would just take
40:35
away the freedom just to get in your car and drive wherever you want.
40:39
You could drive wherever you wanted as long as they had a charging station.
40:42
And not too many people were waiting to charge up their vehicles at
40:46
the charging station.
40:48
>> Jon Hartley: Fascinating.
40:49
>> Diana Furchtgott-Roth: So I've been doing,
40:50
I've been doing a lot of work on that, the disadvantages and trying to explain,
40:55
playing the myth of net zero 2050.
40:57
I have a talk I give on campuses called Santa Claus, the Tooth Fairy, and
41:02
net zero 2050 and I ask how many believe in Santa Claus,
41:05
how many believe in the tooth fairy and how many believe in net zero 2050.
41:10
Cuz we've even had executives from oil companies come and
41:13
visit us at heritage and talk about their transition to net zero.
41:17
And I asked one of them, I said, Ed,
41:18
you really believe that we're going to net zero in 2050?
41:22
He said, well, within these four walls I can tell you that I don't.
41:26
But outside, I can't say that because people would call for
41:30
divestment of our stock.
41:32
So this thing, I mean, it's not gonna happen, net zero 2050.
41:36
Even if we could paper over all of America with solar panels and
41:41
have wind turbines everywhere.
41:44
And even if we could generate all America's electricity from solar panels,
41:49
hydropower and
41:50
wind turbines, you still need fossil fuels to make the wind turbines.
41:55
You need fossil fuels to make the solar panels.
41:58
You need fossil fuels to have a backup for
42:00
the wind turbines when the wind doesn't blow.
42:02
So it's just all a myth.
42:03
It's never gonna happen.
42:04
But people talk about it.
42:05
It's part of this environment, social and governance movement.
42:09
>> Jon Hartley: Fascinating.
42:10
>> Diana Furchtgott-Roth: Yeah.
42:12
>> Jon Hartley: There's been a lot of talk recently over the Inflation Reduction Act
42:17
passed last year, and that is certainly, I think,
42:21
introduced a lot of new spending in the area of electric vehicles.
42:26
Can you explain a little bit about what the so-called
42:29
Inflation Reduction Act is doing in that space?
42:32
>> Diana Furchtgott-Roth: Well, it would give substantial grants for
42:37
different types of green energy, and
42:40
it would also give grants for certain cars.
42:45
If supposedly, if they're made in the United States with American components,
42:50
they would get a seven and a half, $1,000 credit to buy that EV.
42:54
But the treasury has decided that commercial vehicles
42:59
are all allowed to have the tax credit.
43:02
And if you lease a vehicle, that counts as a commercial vehicle, so anyone can lease
43:06
an EV and get the tax credit, which is really going around what Congress wanted.
43:11
Congress also gave tax credits for battery plants in the United States
43:17
to try to bring the battery manufacturing back from China.
43:22
Right now, 80% of the world's batteries are produced in China.
43:25
And one big concern that people have with electric vehicles is it would make us
43:30
more dependent on China.
43:32
Right now, we're independent in terms of oil and natural gas.
43:35
We are a net oil and natural gas exporter.
43:38
But if we can't rely on these fuels to power our transportation system, then
43:44
we would be dependent on China for the batteries, because the cost differentials
43:50
are just too great to have all the batteries made in the United States.
43:55
China subsidizes the capital because they give artificially low interest rates to
44:00
favored companies.
44:01
Labor is lower not just because wages are lower, but
44:05
because China uses forced labor from Xinjiang, slave laborers,
44:10
the weaker population that's put in concentration camps and energy.
44:16
China is still building more coal fired power plants, and
44:19
its carbon emissions are increasing every year.
44:22
It has pledged that it will reduce carbon emissions from around by 2027,
44:28
but it's not doing so yet.
44:30
So basically, on labor, capital, and energy, they have an advantage over us.
44:36
We're never going to be able to produce batteries at the same cost
44:40
that they come from China.
44:42
So we're giving political power.
44:45
We're giving up our dependence,
44:46
our energy independence to China with these electric vehicles.
44:50
The components also are manufactured in China.
44:53
So it's a very big problem that people should be more focused on.
44:56
And there's a bipartisan concern about China powers,
45:00
not Republicans or Democrats.
45:02
Everyone's concerned about chinese aggression, chinese power.
45:06
So this is a very serious subject to be looking at.
45:09
>> Jon Hartley: Fascinating, and
45:10
I wanna talk a little bit just about self-driving cars.
45:14
So I remember seven or eight years ago when I was in business school in 2015.
45:20
One of the biggest things then was self-driving cars.
45:25
And there was this sort of prediction that in ten years,
45:28
we would all have self-driving cars.
45:30
What exactly is going on in the self-driving space?
45:34
And I'm curious, around San Francisco, you'll sometimes see these
45:40
self-driving cars go around, but they largely still have human drivers in them.
45:46
But I'm curious,
45:47
where do you think this has the potential to disrupt things like trucking?
45:52
And how soon do you think that that is going to take place?
45:59
>> Diana Furchtgott-Roth: The first thing we have to be able to do before having
46:02
self-driving cars is have a car that stops before it hits something.
46:07
If we can just get our current vehicles or new internal combustion engine,
46:12
new vehicles with drivers to be able to stop before they hit something.
46:17
We will have a real achievement, and we will really reduce the number of people
46:22
killed on the roads, the 40,000 plus people killed on the roads every year.
46:26
So until you can get a vehicle, until you have the technology to get a vehicle to
46:30
break before it hits something, we're never gonna have self-driving cars cuz
46:34
that's criteria number one, and we can't do that.
46:36
But self-driving trucks, I think those are another story.
46:41
There's a company called Locomation, which has what's called convoying trucks.
46:46
And truck number two is behind truck number one.
46:49
And it has sensors that keep it the right distance apart.
46:53
And the driver in truck number two can go to sleep on
46:57
the highway while driver number one drives.
47:01
And this is important in trucking because there are new
47:04
hours of service rules that say you can't drive more than 11 hours at a time.
47:09
That means that for 13 hours, your truck, this immense,
47:14
expensive piece of capital, is basically still and not usable.
47:20
So if you can just have a truck number two follow truck number one,
47:25
and then when truck number one has,
47:27
the driver has exhausted his hours of service, he goes to sleep.
47:32
Truck number two pulls ahead, and they continue down the road.
47:35
That's an immense achievement.
47:37
So I can see a big potential for these convoying trucks.
47:40
They follow a certain distance behind.
47:42
The way they're set up right now, when the trucks are in the city,
47:46
both drivers are awake.
47:47
Once they're on the highway, driver number two can go to sleep, and
47:51
then they switch positions.
47:52
So I think that driverless trucks are gonna come before driverless
47:57
automobiles unless the automobile is on a fixed route.
48:01
When you go to an airport now,
48:03
you generally get on a driverless train that takes you in between terminals.
48:08
You can see that driverless shuttles can take you on a fixed route
48:12
between terminals, or maybe between a senior citizen's home and
48:17
a hospital, something like that.
48:19
But to have them fully around everywhere, we're not gonna get that until we can get
48:24
these cars to brake before they hit something.
48:27
And they have to be able to distinguish, by the way,
48:29
between a child running in front of the car and a paper bag or
48:32
a plastic bag blowing in the wind in front of the car, it's not as simple then.
48:36
>> Jon Hartley: Wow, it's fascinating just to think the degree to which it
48:41
could really disrupt such a big industry like trucking, and
48:45
all the important regulatory considerations that go in hand with that.
48:51
I also wanna talk, just on this whole conversation of energy,
48:56
I wanna talk a little bit about nuclear energy.
48:59
And why is it the case that nuclear energy has basically
49:05
been at a standstill in the US for many many decades,
49:10
and why new nuclear power plants can't be built?
49:15
And I think there's a number of reasons why this is the case, but
49:20
I'm curious to hear your thoughts.
49:23
>> Diana Furchtgott-Roth: There are a lot of regulatory obstacles to nuclear power,
49:27
and I'm not an expert in this, but it certainly produces dense,
49:31
emissions-free energy.
49:33
And I have a colleague, Jack Spencer, who's writing a book on it,
49:37
who's looking at the different obstacles to nuclear power.
49:41
And we're not at Heritage at all suggesting any subsidies,
49:44
or any government funding for nuclear power.
49:47
But we need to have a serious look at these regulatory obstacles, and
49:51
encourage more nuclear power plants to be built.
49:55
There's one being built in Georgia right now that's about to go in line with
49:59
Southern Company.
50:00
There's also these small modular reactors that can be brought into certain areas,
50:08
provide energy, and then be taken out once their fuel is spent.
50:13
These may be very good for emerging economies in Africa, Latin America,
50:18
that need more dense energy.
50:20
Because, as you might know, John, the World Bank is prohibited from
50:25
lending money for nuclear or for coal-fired power plants.
50:29
And these countries cannot get to the level of the West,
50:33
unless they have some dense energy sources.
50:36
They need to have electricity, they need to have running water,
50:39
they need to have sanitation systems, they need to have electricity so
50:42
they can have manufacturing plants.
50:44
And one of the reasons that we see by the vast migrations that we do,
50:49
people from Latin America trying to come to the United States, people from Africa
50:54
trying to come to Europe, is because of the differential levels of energy.
51:00
The West has benefited tremendously from fossil fuel energy.
51:05
We can recharge our cell phones at night, we don't generally have blackouts,
51:10
unless we're in California.
51:12
We can drive where we want, we have running water, we have sewage systems,
51:17
and other countries need to get that same kind of energy so
51:20
they can come up to our living standards.
51:23
And it's immoral for us to say that we have reached this place, but we're
51:29
only going to allow emerging economies to generate electricity through hydropower,
51:35
wind, and solar from now on, because that damages the environment.
51:40
>> Jon Hartley: Well, I wanna talk a little bit about natural gas for a second,
51:45
because even though nuclear energy has been sort of stalled and it's declined,
51:51
I think, quite unfortunately in largely all parts of the world.
51:56
In Europe, it's been a huge issue,
52:00
certainly amidst the Russian invasion of Ukraine,
52:05
where countries like Germany and France could be in a much
52:11
better place if they had better nuclear infrastructure.
52:16
And if they weren't closing down nuclear plants,
52:21
they wouldn't be so reliant on Russian gas.
52:25
Similarly, I think what's interesting about the whole natural gas story is,
52:29
there's still a lot of regulatory barriers to it.
52:31
But in the US it's been enormously an increasing source of energy,
52:38
and it is less carbon intensive than things like coal.
52:44
I'm curious, what do you think the barriers are to natural gas and
52:50
its further expansion?
52:52
>> Diana Furchtgott-Roth: We have vast amounts of natural gas here in
52:55
the United States, and the barriers to expansion are, first of all,
53:01
there's barriers to leasing on certain federal lands,
53:05
offshore development, and also pipelines.
53:09
We have a number of different agencies that are slowing down pipeline approval.
53:13
There's the Federal Energy Regulatory Commission that has to approve these
53:18
pipelines.
53:19
There's the Interior Department, there's the Securities and
53:23
Exchange Commission, which is looking at climate risk of companies` projects.
53:28
There's The Office of the Comptroller of the Currency, which has
53:31
a climate risk officer looking at banks` lending for climate-related projects.
53:35
Guess what?
53:36
Pipelines count as climate-related projects, so
53:40
do developments in terms of natural gas planes.
53:43
So there's big pressure from different parts of the federal
53:47
government not to produce the gas.
53:50
And once, and even if we have it not to have the terminals and
53:55
the pipelines that allow it to go out to consumers, or
53:59
to terminals where it can be exported abroad to offset the cuts from Russia.
54:06
So this is in the United States, the United States is particularly advantageous
54:11
in terms of the property rights situation, where if someone discovers natural
54:16
gas under their land, they're allowed to give permission for fracking.
54:20
This isn't true in other countries, so in many other countries, such as Britain,
54:26
my home country, everything under the ground belongs to the crown,
54:31
King Charles, in fact, or the government.
54:34
So if you find natural gas on your property, you don't have permission to use
54:38
it, you don't have a financial incentive, it's not yours.
54:41
And it's like that in many other parts of the world,
54:43
people don't own what's under their property.
54:45
And that's why natural gas, even though it could be fracked in
54:50
other countries, the financial incentives are not there often,
54:56
plus there's environmental concerns.
54:59
But emissions in the United States have gone down by
55:02
about 1,000 million metric tons over the past 15 years.
55:06
In China, they've gone up by about 5,000 million metric tons,
55:12
our use of natural gas is really driving our carbon emissions.
55:16
>> Jon Hartley: Absolutely, to me it seems quite crazy that you would want
55:22
to halt the construction of LNG pipelines, LNG terminals,
55:27
that would allow the export of further natural gas around the world.
55:33
It seems to me like it's a hugely carbon-reducing agent,
55:39
the introduction of natural gas and horizontal
55:44
drilling and fracking over the past decade, or
55:49
the popularization of it over the past decade or so.
55:55
And it seems wild to me that, why someone would want to halt something that,
56:02
on net, would be a hugely carbon-reducing activity,
56:08
that is further exporting natural gas and
56:12
further reliance on it, so it`s.
56:16
>> Diana Furchtgott-Roth: You can just look at New York State, John,
56:18
which has the Marcellus Shale, so
56:20
the Marcellus Shale is equally in New York State and Pennsylvania.
56:23
Pennsylvania has developed its share of the Marcellus Shale, but New York hasn't.
56:28
So there's a lot lower incomes in parts of rural
56:33
New York State compared with rural Pennsylvania.
56:37
Plus, New York State won't let the pipelines through, so
56:41
that means you can't get natural gas up to New England.
56:44
And it has to be heated by oil, there's frequent oil that,
56:50
there's a lot of oil heating in homes.
56:54
And until the war with Russia, Russian tankers could
56:59
be found refueling oil in New England ports.
57:04
So there's real need for more energy in New England, and yet
57:07
you can't even get a pipeline through New York State.
57:10
>> Jon Hartley: Wow, fascinating, well, Diana,
57:12
this has been an amazing conversation.
57:15
Just hearing about your experience in government across four different
57:20
presidential administrations, hearing about some of the most
57:25
consequential economic policy decisions over the past few decades.
57:30
And hearing about your very interesting and fascinating thoughts on,
57:35
where we're going with environmental regulatory policy,
57:39
infrastructure, and research and development,
57:43
in areas of things like electric vehicles, self-driving cars.
57:48
It's been a really fantastic conversation, and I really wanna thank you for
57:52
joining us, it's been really fantastic.
57:54
>> Diana Furchtgott-Roth: Well, thank you so much, John, thanks so much,
57:56
it's really been great talking to you today, thank you.
57:59
>> Jon Hartley: Today, our guest was Diana Furchtgott-Roth, who's the Director of
58:03
the Center for Energy, Climate, and Environment at the Heritage Foundation.
58:08
This is the Capitalism and Freedom of the 21st Century podcast,
58:10
where we talk about economics, markets, and public policy.
58:14
I'm Jon Hartley, your host, thanks so much for joining us.
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