Companies are starting to spend, but, instead of hiring, they are stocking up on their own stock, companies already buying back a record $273 billion worth of their own shares this year. That is on top of the nearly $2 trillion in cash they are sitting on already.Glenn Hubbard says extend the Bush tax cut, and they will have incentive to hire, instead of hoard. Watch the interview on FoxNews.com
Glenn Hubbard was one of President George W. Bush's top economic advisers. He's also co-author of the book "Seeds of Destruction."
So, I understand that there is some $1.8 trillion in cash owned by big companies sitting on the sidelines, not being used. You think that, if we extend all of the tax cuts, that money will come into play in the economy, correct?
GLENN HUBBARD, FORMER CHAIRMAN, COUNCIL OF ECONOMIC ADVISERS: Well, I think we need two things, Stuart.
One is to extend the tax cuts until we are ready to have a serious national conversation about the size of government. The truth is, if we want a really big government, like we have in the present budget, we would have to raise taxes. I don't think that's what the American people want. I think the businesses are -- or large businesses are sitting on a lot of cash because there is so much policy uncertainty out there. That, we can fix.
VARNEY: The big companies are very unpopular for sitting -- I mean, a lot of people are saying, wait a minute, we bailed you out. We fixed the economy. And now you are sitting on all this money, and you won't help us out by hiring. They're very unpopular at the moment.
HUBBARD: Well, but let's remember what any company should be doing is try to earn profits for its shareholders.
I think many large companies are concerned about two things. One, there is enormous policy uncertainty. We don't know what tax rates are going to be next year. We don't know about regulatory mandates from financial regulation, from health care regulation. And, at the same time, they are concerned about aggregate demand next year. So their behavior is perfectly reasonable.
VARNEY: Now, there are some people who say, look, we could get a Republican sweep in November. And that could reverse the psychology, and we could therefore get an extension of all the Bush tax cuts. And they then go on to say, you will get really big growth in the economy if those two things happen.
Do you go along with that?
HUBBARD: Well, I think that is missing something. I go along with the spirit of it, but it is missing the need to bring down spending.
You know, we can't extend all the Bush tax cuts permanently if we can't bring down the size of government. We have had unbridled growth in government, and we have got to pull some of that back.
VARNEY: Supposing you...
HUBBARD: ... government. We have to pay.
VARNEY: Supposing you had a plan to cut back entitlements, rein in entitlements. OK, for the future, you rein in Social Security, rein in Medicare, you do something about Medicaid. If you had a plan for the future, would that fit the bill?
HUBBARD: It definitely would. That is one of the points made in the -- in the book "Seeds of Destruction." If we could have a credible long- term plan on entitlements, we would have a lot of room to move in the near term.
VARNEY: By the way, your book, I looked at it. Chapter four says -- your book says, you can't stimulate your way to prosperity, chapter four in your book.
However, didn't China continue to stimulate and become a bit more prosperous?
HUBBARD: Well, but China has also had a very long period of growth, as it opened up to the world markets. And I think that is really what is responsible for China's growth.
China's recent stimulus package was also just more effective than the package we had in the United States.
VARNEY: All right, so, Glenn Hubbard says extend those tax cuts, and you will have a nice solid growth for the economy. That is your bottom line.
Glenn Hubbard, a pleasure. Thanks very much for joining us, sir.
HUBBARD: Thank you.
VARNEY: Appreciate it.