Trump’s Latest Economics Pick: The Author of One of the Wrongest Books Ever on Investing

Ever the optimist.

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Kevin Hassett of the American Enterprise Institute is President Trump’s pick to lead the Council of Economic Advisers, Politico is reporting. Which makes perfect sense.

In many ways, Hassett is exactly the sort of person you would imagine filling this post in a Republican administration. He’s got a Ph.D. in economics from an Ivy League university (insert your own Penn joke, snobs); taught at another (Columbia); advised the McCain, Bush, and Romney campaigns; has a long record as a pundit (Bloomberg, National Review, Fox Business); and has published more than his fair share of wonky policy papers. (Here’s his CV, and here is his list of media hits and op-eds.)

And in some ways, Hassett would be a welcome departure from many of Trump’s appointees. He’s not a jerk. He’s genial and pleasant. He’s a supply-sider but not angry about it. He respects norms. He’s a decent guy—who just happens to be wrong about a lot of things in the way supply-siders who work at the American Enterprise Institute typically are. Here he is in 2013, saying Obamacare would lead people not to work. Here he is in August 2014, saying the end of quantitative easing would be bad news for U.S. stock markets. I could go on.

Hassett’s celebrity rests on being the less flamboyant half of the duo that penned Dow 36,000, one of the most wrong books ever published on investing and the markets. In the book, published in 1999, Hassett and co-author James K. Glassman argued that the stock market, which had essentially tripled in the previous years, was remarkably undervalued. Investors didn’t fully comprehend the declining risk associated with stocks, they argued. As a result, they argued, the Dow could triple again, to 36,000. Not in 10 years, not in 20 years, but in three to five years. (As bad as the book read, it tasted worse when I ate a chapter of it after losing a bet in 2006.)

But that kind of prognosticator is actually what Trump needs: someone who is unafraid to make bold, highly optimistic projections of growth based on flimsy evidence and shoddy reasoning—and then to stick by them or explain them away when they fail to come true.

There are a couple ways to resolve the contradictions of Trump’s proposed and promised policies: leaving Social Security and Medicare untouched, ramping up spending on defense, deportations, and infrastructure, and cutting taxes massively while keeping the deficit in check. The first is to assume a rate of growth that is significantly higher than we’ve had in the last couple decades. Treasury Secretary Steven Mnuchin, in his highly unconvincing media forays earlier this week, argued that the U.S. could easily get back to 3 percent annual growth. President Trump himself last fall promised the U.S. could easily grow at a rate above 4 percent annually. The second, related way is to engage in dynamic scoring—to assume that changes in tax and social policy will magically produce higher growth and tax revenues, and lower deficits.

On each of the above measures, Hassett fits the bill. Here he is reaffirming his belief in Dow 36,000 after the stock market crashed in 2001. Here he is testifying in 2015 on the wonders of dynamic scoring. As for 4 percent growth, Hassett was a contributor to the 2012 book The 4% Solution: Unleashing the Economic Growth America Needs, which was published by the George W. Bush Institute. The notion that tax cuts, a changed mindset, and regulatory reform could push growth to 4 percent annually was always a bit fanciful—especially at a time when the baby boomers were beginning to enter their retirement years. And it was especially fanciful coming from an institution and authors associated with George W. Bush. His presidency’s record on GDP growth (1.6 percent per year) was literally the worst in the past 50 years. Four percent growth will be even harder to achieve if we start deporting all the people who do the work of building homes and harvesting crops.

But Hassett will gamely make the case, and will likely find receptive ears. He has a long history of playing well with others. In 2013, when Jason Furman was named to head Obama’s CEA, Hassett co-signed a letter with a bunch of other Bush administration veterans supporting the move. While the signers didn’t agree with policies, they said, “We are confident, however, that Jason Furman, if confirmed as CEA chair, will provide President Obama with advice that presents both the advantages and disadvantages of the policy proposals under consideration.”

We should hope that Kevin Hassett will be an honest broker and present arguments for and against policy proposals that promise rosy results. But given President Trump’s inability to tolerate dissent and lack of knowledge about economic policy, I’m skeptical the ever-rosy Hassett will do so.

Then again, Hassett’s famous optimism might actually be par for the course: In both Democratic and Republican administrations, White House official forecasts have generally erred on the side of growth. Appointing a CEA head who thinks the economy should be doing better than the reported results is one of the few conventional moves Trump has made.