The Moment Gary Cohn Realized His Entire Economic Policy Is A Disaster

Tyler Durden's picture

Ever since 2012 (see "How The Fed's Visible Hand Is Forcing Corporate Cash Mismanagement")  we have warned that as a result of the Fed's flawed monetary policy and record low rates, corporations have been incentivized not to invest in growth and allocate funds to capital spending (the result has been an unprecedented decline in capex), but to engage in the quickest, and most effective - if only in the short run - shareholder friendly actions possible, namely stock buybacks.

We got a vivid confirmation of that recently when Credit Suisse showed that the only buyer of stock since the financial crisis has been the corporate sector', i.e. companies repurchasing their own shares...

... with SocGen showing previously that virtually all the net debt issued this century has been used to fund stock buybacks.

While one can debate the implications, the above two charts show one thing clearly: corporate incentives have been perverted in the past decade, and instead of allocating capital to ensure long-term business growth, companies have rushed to cash out, with shareholders benefiting the most, while management teams got record bonuses as a result of their stock price-linked compensation bogeys.

The eagerness to shift incentives away from buybacks to capex is also the basis for much of Trump's economic policy as designed over the past year by his top economic advisor, former Goldman COO Gary Cohn who is the White House Economic Council director. In fact, the motive behind the administration's entire push for tax reform (cutting corporate tax rates) and offshore cash repatriation, is to the funds domestically, though not on buybacks and M&A (which also leads to "synergies" and other headcount reductions), but on reinvesting the funds in growing one's business and hiring.

Which is why we were amused to observe the following brief interchange yesterday between Gary Cohn and an audience made up of executives, where in the span of a few seconds Gary Cohn realized that his entire economic policy had been a disaster.

During an event for the Wall Street Journal's CEO Council, an editor at The Wall Street Journal asked the room: "If the tax reform bill goes through, do you plan to increase investment — your company's investment, capital investment?" He asked for a show of hands.

Alas, as the camera revealed, virtually nobody raised their hand.

Responding to this "unexpected" lack of enthusiasm to invest in growth, Cohn had one question: "Why aren't the other hands up?"

His confusion was understandable: this one simple experiment revealed that Cohn's entire economic policy was a disaster. And while the former Goldman president tried to cover up his disappointment with laughter, the cognitive dissonance between the stated intention behind tax reform, and what it would ultimately achieve, or rather not achieve, was painfully obvious to everyone.

Adding insult to injury, last month the White House released a paper arguing slashing the corporate tax rate would increase average household income.  Kevin Hassett, the chair of the Council of Economic Advisers (CEA) chairman, said on a call last month the main reason why cutting the corporate tax rate would boost wages is because doing so would make it less expensive for companies to invest in capital assets such as machines.

“More assets like machines let workers produce more, and when workers can produce more, businesses can afford to pay their workers more,” he said last month. Unfortunately, virtually no CEOs have any intention of using freed up funds to reinvest in themselves.

Ironically, Cohn's epiphany took place just as tax reform is approaching the final stretch in Congress and it increasingly appears that at least some form of corporate tax cut will be enacted. We say ironically, because the only thing Trump's reform will achieve is to dramatically accelerate recently slowing buybacks, which in turn will push stocks to new all time highs as price-indescriminate CFOs and Tresurers tells their favorite VWAP trading desk to just "wave it in." Which means that the White House paper suggesting corporate tax cuts will boost household income is correct... if it focuses only on the incomes of the richest 1% of households.

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44magnum's picture

For some, for others its very profitable.

Manthong's picture



The supposed smartest brains on the planet……

Have no clue about real economics………………………

NotApplicable's picture


Fuck, he's not even smart enough not to ask these types of questions.

hedgeless_horseman's picture


 "...virtually all the net debt issued this century has been used to fund stock buybacks..."

Masturflation: Or how CEOs learned to jerk the dog off to feed the cat.

Gaius Frakkin' Baltar's picture

And you wonder why millennials care more about blockchain tech than the stawk market?

At least one of these is forward-looking.

Which one is the bigger joke... really?

Joe Davola's picture

...the only buyer of stock since the financial crisis has been the corporate sector'...

The Fed and SNB don't count?

Killtruck's picture

The older I get, the more I realize that literally everyone is fucking incompetent. 


It's a miracle we even have a civilization. Every fucking person, ESPECIALLY those inside the beltway, are so close to being mentally retarded that it's not even worth measuring, and yet somehow they retain the wheels of power. 

Just a vast desert plain of fucking incompetent, good ole' boys and gals, coming in with no money, greasing the skids, and becoming millionaires while in office...just playing the game while the country rips itself to shreds. 


jcaz's picture

They found the ONE jew that doesn't know money.......

Manthong's picture


“The older I get"….

Moar shit happens ……     :  D


bobcatz's picture

The Awkward Moment When (((Cohn))) Realizes He's The Goy.

Occident Mortal's picture

Tax buybacks at 100%, tax robots workers at 50%, cut income tax to 0%.


Watch demand for everything SOAR.

Escrava Isaura's picture

Writer: This one simple experiment revealed that Cohn's entire economic policy was a disaster. 

The question had nothing to do with economic policy.

The question was: If the tax reform bill goes through….

And their answers were exactly what one should expect, because tax cuts don’t stimulate the economy.

Only new money can stimulate. The existing money cannot even sustain the current economy, because of the interest rate that the current private and public debts carry, meaning more money are being destroyed creating even more scarcity.

There are only three ways that this new money can be introduced to the economy:

1. Public spending
2. Private spending
3. Consumption

And, ideally, this new money ‘spendings’ would needed to be debt free money.

And, if it’s not, you’ll run into another problem. Here it is:

Margrit Kennedy: If Joseph the father of Jesus would have invested one penny at his birth at 5% interest, and Jesus would have returned to the same bank in 1990 - at the time of the German unification - he would have been able to buy, with the money accrued in the meantime, 134 billion balls of gold of the weight of the earth, based on the official price of gold at this time.

This shows mathematically that the continual payment of interest and compound interest over a longer period of time is practically impossible. And explains why we have economic and social breakdowns.


scraping_by's picture

Tax cuts to consumers (workers) stimulate the economy. But so does higher wages, broader and more surely.

The 'tax cuts for business will be invested in productive assets' wheeze was actually Reagan's slogan back in 1981. His program included lots of goodies like accelerated depreciation and shifting income to capital gains. And it didn't do a thing for the real economy. Corporate bureaucrats (management) just shifted more money to their own pockets. Those who forget history are usually falling for propaganda.

Escrava Isaura's picture

scraping_by: Tax cuts to workers stimulate the economy.


So give tax credits to workers, not tax cuts for corporations.

Tax cuts do not work. How can you tell?

Just look at its history:


Page 12: The corporation that repatriated the most foreign earnings, totaling $35.5 billion, for example, cut 11,748 jobs in the United States from 2004 through 2007. Another corporation brought back $9.5 billion, yet cut 12,830 jobs.

Overall, the top 15 repatriating corporations reduced their U.S. workforce despite repatriating large amounts that qualified for the lower tax rate. 



Multi's picture

"The question had nothing to do with economic policy... The question was: If the tax reform bill goes through…." So tax reforms have nothing to do with economic policy? nice.

"Only new money can stimulate... The existing money cannot even sustain the current economy" Depends on what you understand by -stimulate the economy-. For you stimulate the economy is an ever increasing NOMINAL capital base. So yes, given the existance of interest rates then only *new* money can *stimulate* the economy. 

But in a normal economy capital shouldn't be always increasing. You invested badly you should lose your capital (i.e. get transfered to other individuals). Not interests will be realized on your capital, not overall NOMINAL capital increase.

Get this through your head: the ONLY way to stimulate the economy is TO INCREASE PRODUCTIVITY. Yesterday, the "economy" was able to produce 10 cars, there were 10 people with cars.  Today, given the same amount of resources the "the economy" is able to produce 1,000,000 cars, there are 1,000,000 people with cars. 999,990 stimulated people.


Escrava Isaura's picture

You can’t make this stuff up. I think that takes an indoctrinated economist or a brainwashed naive to believe this nonsense.

Multi: in a normal economy capital shouldn't be always increasing……Get this through your head: the ONLY way to stimulate the economy is TO INCREASE PRODUCTIVITY.  

Multi, your statement cares two flaws:

1) Where will the money to buy the increased productivity come from? Capitalism cannot exist with new capital. It will die. Produce will be lying on the ground rotting, because there’s no money to pay the labor to harvest them. 

2) Increase productivity cannot be sustained in a finite planet. Nor does population growth.    



Multi's picture

1) They money will come from nowhere. All you need is the money that the economy already has. There is a thing called deflation, the new things will be cheaper. Ergo, not need for new money.

Capitalism, in spite of its name, is not define in terms of capital. It is NOT the accumulation of capital, or the ever increasing amount of capital, or what have you. Capitalism is: the private ownership of the means of production. So, as long as you have the the means of production in private hands you have Capitalism, no matter what happens to the capital.

2) The increase in productivity is only limited by your intelligence, ingenuity, creativity, knowledge, and so on. Not by the finite resources of the planet.

Population growth? WTF! keep mixing things, the more you convolute things the less you will understand what you are talking about.

Gorgeous's picture

The tax cuts..."wheeze"? Nice imagery.  Wage increases would be nice for sure.  If only there wasnt cheap labor in China, Pakistan, Sri Lanka, Malaysia, Thailand....  What's your solution?

fattail's picture

Control the labor supply.  Fine the people employing illegals.  Shut down H1B.  If you want to give businesses a break, give them an extra tax credit for their share of SSI when they add employees.  Reducing their marginal tax rate will do exactly nothing to increase employment.

The Wizard's picture

They have to make robot "persons".
This is one of Sean's best. He puts together a good number of dots in less than 10 minutes.
webmatex's picture

And maybe start to tax foundations like those of Gates and Soros etc.

Some like Ford, Rhodes and Rotterfella have been running for 100 years or since the nazi's -no tax - no accountability - nice salaries - one of the oldest scams in the book for the promotion of false science, vaccines, climate change, and beating the drums of war for the neocons.

Better yet seize their assets as humanities just compensation for the evils suffered and rid the world of these false benefactors.

Clinton Foundation will hopefully be the first of many - please God!

Occident Mortal's picture

Never in all of history has it been easier to start a company, enter a mature market, and roll over the incumbent players.

Look at Amazon, they are competing with totally incompetent careerists. Steam rollering their way to world domination.


Almost anyone can start a crappy business, get a cheap loan and recycle all of the money back into the business and grow to a national size. The companies you compete with are all pissing their money down the drain buying over inflated stock that does nothing but enrich some yazoo on a boat who will soon be dead.


The real shock is that so few people are starting companies and going after these cash cows.

klondack's picture

That's what I have been telling people. USSR had saying like "you pretend to pay us we pretend to work". We need some new saying for USA capitalism. Why spend 1 billion to start a brand new company when I can buy the same depreciated shit company for 3 billion?


AGuy's picture

"Look at Amazon, they are competing with totally incompetent careerists. Steam rollering their way to world domination."

Amazon was built on OPM (other people's money). Investors fought over each other for the privileged to give amazon their money.

TheReplacement's picture

Apparently it is easy to build a multibillion dollar company that makes the head honcho the richest person on earth.  Do tell us how he was able to grow said company all the while never turning a profit.  That seems like it really should be hard to do.

papa song's picture

Back into the trees we go!

"Professor Gerald Crabtree, who heads a genetics laboratory at Stanford University in California, has put forward the iconoclastic idea that rather than getting cleverer, human intelligence peaked several thousand years ago and from then on there has been a slow decline in our intellectual and emotional abilities."

Joe Davola's picture

We've progressed from cave drawings, to sophisticated verbal and written languages, back to a high tech way of exchanging the cave drawings known as emoji.

auricle's picture

Ever since mankind has been unlocking the elemental secrets underfoot flooding the environment with chemicals and elements that are toxic to life. 

Cloud9.5's picture

Who does the welfare state hire to reproduce?

Gead's picture

The article answered your queston Cloud9.5:  "....the main reason why cutting the corporate tax rate would boost wages is because doing so would make it less expensive for companies to invest in capital assets such as machines. More assets like machines let workers produce more, and when workers can produce more, businesses can afford to pay their workers more,...”.  See? That bullshit answer says it all. Companies with the tax rate cut would buy more machines to replace those inefficient human workers; thus, they will be fired and the welfare state will grow proportionately. Eventually 99.9% of the population of the planet will be on welfare and the machines will just keep on kicking out crap that then perfect equality will take place. NO ONE will be able to afford the stuff. Otherwise known as the end of the human species.

Yogizuna's picture

Will there be any trees left by that time?

auricle's picture

slashing the corporate tax rate would increase average household income

The biggest bullshit lie of all. Corporations will pay people the least amount to get the job done and that is especially true for the 'average household'. In order for that statement to be true, the IRS would need to cut a refund check to the 'average household' in the amount of the corporate tax deduction. 


I blame Trump for allowing such a weezle to be his economic counsel. 

Creative_Destruct's picture

Instead, corps will take the tax cuts and primarily put it into one or all of three things : 1) MOAR stock buy-backs, 2) MOAR exec bonuses, 3) MOAR acquisitions. 

IF they do SOME capital investment for automation :

“More assets like machines let workers produce more, and when workers can produce more, businesses can afford to pay their workers more,” ...

The seat-of-the pants hypothetical mathematics for this automation are roughly:  One 10% raise for ONE employee, minus FIVE employees laid off = BIG productivity gains and BIG TOTAL wage expense decrease for corporations = BIG drop in standard of living for FIVE employees, and a SMALL increase to same for ONE.

"Helluva deal" for the beleaguered Middle Class.

Radical Marijuana's picture


What looks like short to medium term incompetence is actually the longer term result of the maximization of maliciousness.

TeethVillage88s's picture

Domestic Propaganda must go back to the US Banana Wars, but was recently 'Legalized under Presidente Barack Obama'

- How to get Trump to look at Outing a Tell-All on Domestic Propaganda... perhaps Judge from Alabama will do it, Rand Paul, Ron Paul, Kuchinich, Grayson, retired Chaffitz, Flynn, Mad-Dog, Warren, Colin Powell, Stormin' Norman Schwartzkopf, Porter Goss,

And what is this below, but more secret Trade & Banking Moves:

Jekyll Island Treaty (1910)
The London Treaty (1920)
The Second Plan of the Experts (1929)
The Hague Agreement (1930)
The Far East Combined Depositories Agreement (1932 1945)
The Bretton Woods Agreement (1944)
The B.I.S. / Allies Agreement (1948)
The Green Hilton Agreement (1963)
The Schweitzer Conventions (1968)
The Election / Appointment of Sole Arbiter Agreements (1995)
The Washington Panel (1998)
The Treaty for Respecting the Rights (2003)

scaleindependent's picture


Cohn knows this too. He was just hoping his cohort of thieving executives would raise their hand just for show.

BandGap's picture

The retarded nature of our society isn't confined to Washington, however, for the rest of the country not giving a fuck doesn't mean stealing.

The real retards are the people who still believe this shit while working their asses off to make America great again. Rah.


Captain Nemo de Erehwon's picture

What I learnt while getting my graduate degrees really made me start to wonder whether Joe Firmage was right and all the technology that we see around us came from crashed alien spacecraft. High-falutin' star professors whose models are used by some of the largest companies in the world ...had differentiated equations wrong ... and somehow the "predictions" always matched the test results.

auricle's picture

Taking away the QE bazooka and replacing it with the tax cut BB gun and expecting the 'growth' army to march into battle. The audience was not amused.

PT's picture

What's the point in Capital Expenditure when your customers have no money?

"Oh, but there's the Capitalists classes and there's the workers classes, you see.  And Capitalists need all the munny becoz only they spend munny on Capital.  The workers will just waste the munny buying goods and services and stuff.  And no ways does the two ever cross over!  People is either born Workers on born Capitalists.  It's genetic!  Workers people never ever change to become Capitalists people and vice versa so don't even think about giving Workers people moar munny becoz then they will becum lazy not industrious Capitalists.  It is impossible.  Only Capitalists work hard producing stuff for the customers - who are in no way ever related at all to any workers whatsoever.  The magic free-markits provide customers out of the aether and there is always an infinite supply of them and they all have infinite munny all the time.  And the Capitalists never run out of ideas on how to spend munny on moar Capital.  They were born that way." - Economics Textbook.

PT's picture

And "Trickle Down" was always a sick joke.  What we really need is "Flood Up".  The fact that a suggestion of a possibility of a "Trickle" was enough to quiet the masses tells you all you need to know.

PT's picture

Flood up.  Give it to the poor and the rich will have it by dinner time.

(Or otherwise you get rampant inflation.  Production matters.)

Production matters.  But that doesn't seem to be too much of a problem at the moment.  ZH often publishes stories about excess inventories.  We can afford to build stuff but we can't afford to buy the stuff we built.  How did that happen?

BattleBorn's picture

Well, said....this about sums things up...

Maybe something is happening?



Manthong's picture


HH… right on

And there is a Troll  out there that I think we share.

BattleBorn's picture

Well, said....this about sums things up...

Maybe something is happening?