Episode summary
Can AI Outrun America’s Deficit Problem?
Wall Street Week
· · 10 min · Guests: Kevin Hassett
Summary
Kevin Hassett argues that the Trump economic plan is supported by strong underlying momentum, pointing to federal workforce reductions, projected budget savings, and the belief that private-sector reemployment raises productivity and tax revenue. He says cutting about 300,000 federal jobs could save about $500 billion over 10 years, with another roughly $100 billion in tax benefit if those workers move into higher-paying private jobs.
A major part of his case is that AI’s economic impact may be undercounted, much like the early internet was. He says current statistics may miss the true productivity boost because AI is getting cheaper in effective terms even if subscription prices have not changed, and he argues that firms adopting AI are seeing higher sales, higher employment, and higher wages. He does not think labor-market stress is showing up broadly yet, citing strong jobs data and low initial claims.
On the deficit, Hassett remains optimistic but more cautious. He says reducing the federal deficit to 3% of GDP will require attention, especially over the next two years and if interest rates stay higher, but he still points to rising household net worth and says much of the debt is owed internally. The core message is that growth and productivity gains, especially from AI and a smaller government payroll, can help offset the fiscal burden.
Key takeaways
- Kevin Hassett says reducing federal employment by 300,000 workers could save about $500 billion over 10 years, plus roughly $100 billion in tax benefit.
- He argues AI’s growth impact is likely understated in official data, similar to how the internet was initially mismeasured.
- Hassett says firms using AI are seeing sales, employment, and wages rise, while the firms that do not use AI are the ones at risk.
- He says the deficit target of 3% of GDP is still possible, but it will require close attention, especially over the next two years.
- Higher interest rates make deficit reduction harder, but Hassett says U.S. household net worth has risen sharply and remains a fiscal offset.
Notable quotes
“-We're really really bullish on the momentum that we have going forward”
“we reduced federal employment by 300-something thousand workers. That's a budget saving, if we keep it there, of about $500 billion over 10 years”
“the growth benefit of it is way bigger than you might think”
“firms that start using AI see their sales go up a lot, their employment go up a lot, and wages go up a lot”
“it's going to be something that we have to pay close attention to”
How the episode opens
We start with the state of the U.S. economy. Not just today, but in the coming years.
As President Trump's Director of National Economic Council, Kevin Hassett is the steward of the Trump economic plan. We talked with him this week at the Economic Club of New York. -We're really really bullish on the momentum that we have going forward and, you know, I'm not going to break news on what the President's plans are for this or that.
That's not public, but if you go back and look at everything that we've done, even to, so we reduced federal employment by 300-something thousand workers. That's a budget saving, if we keep it there, of about $500 billion over 10 years. Those workers, if they go to the private sector and get private sector jobs, make on average about $30,000 more than they did at government work, in part because they don't get the benefits and so on.
So there's about another $100 billion tax benefit from that. So if you look at all the things we've been doing, then you can imagine the things that we're going to continue, the things that we're going to expand. And I think that the AI policy, as an example, is something that we made it basically so that it's voluntary.
So if you don't want a data center in your town, nobody's going to make you have a data center in your town. And if a firm wants to build a data center, then they've got to make their own power. And so we've got all these things in this big, ever-changing world that are building an enormous amount of momentum, and we're going to continue them.
Westin: If increased productivity from AI is important to the plan going for the economy, are you at all worried about downside risk?
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- ai economic impact
- federal workforce cuts
- federal deficit
- gdp target deficit
- debt burden and growth outlook
Watch the episode
Watch “Can AI Outrun America’s Deficit Problem?” on YouTube
Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
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