Interview of the Vice President by Nina Easton, Fortune Magazine

West Wing

Q: Well, thank you for seeing us. We wanted to talk to you about economics -- things economic.

Q: But, you know, I've talked to a number of economists who have come in and provided advice to you, and say that you are somebody who is very interested in business cycles and sort of where the economy is. So I wanted to start by asking you, particularly in late 2000 you were on "Meet the Press," and you actually predicted correctly ahead of just about everybody, it seemed like, that a downturn was around the corner -- and that was Bill Clinton's economy.

Now it's your economy. And I know a couple weeks ago, you expressed -- you said it was resilient, there might be some slowing, but it's still resilient. But since then we've seen a lot of major write-downs by financial firms, gas -- oil prices nearing the $100 mark. Where do you see this -- what's your candid assessment of it, and what's the historical analogy? What does this remind you of?

THE VICE PRESIDENT: Well, first of all, my track record as a forecaster, I'd go slow on. I did express the view that we were headed for a recession -- this was right after we got elected. And part of that, frankly, was based on my -- at the time I was just finishing up my tours, a corporate CEO and serving on several boards. And I don't serve in those positions today and so I have a different perspective and also obviously different access to data than was true then. And I don't want to try to repeat that so-called success story. Once was enough.

Q: Okay.

THE VICE PRESIDENT: It's easy to get it wrong.

Q: Right.

THE VICE PRESIDENT: But my -- based on the advice we get and what we're hearing from the economists we've talked to -- both the private sector as well as government economists, the chairman of the Council of Economic Advisers and so forth -- I think the view I hear most frequently expressed is one of continued optimism. And we have had a remarkable run so far -- I think 50 months now of uninterrupted job creation -- that we have gone through a period of time with rising energy prices, historically that has, in fact, sometimes in the past precipitated slowdowns.

It hasn't happened this time. I think in part that's because we're far more efficient in terms of how we use energy than was true in the past. I think we're -- well, we're still dependent, obviously, on foreign sources, and affected by those prices, as we get more efficient and as we consume less energy per unit of output, the ability of those higher prices to adversely affect the economy has been diminished. But we're getting to levels now, obviously, that nobody has ever seen before -- we're starting to push $100 crude.

And so I don't want to make a hard and fast forecast. I don't see signs on the horizon of a significant economic slowdown, even though we do have, obviously, higher oil prices than we've had most of the time -- pretty close to the historic peak. And obviously people have been concerned about what's happened to the financial markets, the sub-prime slowdown and so forth.

Q: Right. The sub-prime -- speaking of the sub-prime slowdown, the -- as you know, in an attempt to sort of contain the sub-prime mortgage virus, the Treasury Department helped broker that Citigroup-led consortium, "super SIV" plan, as it was called. But that has since been -- run into quite a bit of criticism. One economist who advises you called it a "gratuitous bail-out." And Alan Greenspan has been quite critical of it. What's your view of that plan and where it's heading?

THE VICE PRESIDENT: I'm going to defer comment on that. That's -- Treasury Department has been dealing with that. And they don't need my help commenting on it.

Q: Okay. Do you think the administration or Congress should have a role in stemming this -- the sub-prime mortgage problem? And if so, what should that role be?

THE VICE PRESIDENT: Well, it's of concern, obviously. We've had meetings on it. There's concern that the impact is especially severe on some folks who've -- who hold those mortgages; who were persuaded to buy into the housing market with some of those mortgages. And I think everybody is concerned to make certain that people weren't taken unfair advantage of, or that the regulatory process was adequate, or that there was adequate transparency so that people weren't snookered, so to speak, in terms of what transpired there.

But there's also a feeling -- at least I have, too -- that we need to be very cautious about government intervening or somehow expanding the government role in this area. And the fact is, markets work and they are working. And people -- some of the big companies, obviously, have taken risks in the big financial institutions. And risk means risk. And there's an upside as well as a downside in some of the choices they've made -- and I think we have to be careful not to have this set of developments lead us to significantly expand the role of government in ways that may do damage long-term for the economy.

I'm a big believer in markets and the free enterprise system, and cautious about granting government ever more authority over our financial markets or our private sector. So I'm cautious, I guess, in terms of recommending some kind of fundamental change of policy.

Q: Would you be concerned, then, about so-called predatory lending legislation up on the Hill that some of the Democrats are pushing? Is that --

THE VICE PRESIDENT: Well, I think you have to look at it very carefully. Barney Frank has got legislation that he's interested in. The President has recommended reform in the FHA system, but also a system of counseling and so forth to try to facilitate refinancing for some people who need it, if it can be done legitimately. But again, with a caveat, that we don't want to get into the business where we are carving out a big, new role for the federal government in ways that interfere with the basic, fundamental working of the markets.

Q: What about letting Fannie Mae and Freddie Mac get into the jumbo loan market temporarily? Is that something that you --

THE VICE PRESIDENT: I'd be cautious about it. I think the GSEs, we've had some work done before. I remember when Alan Greenspan was Chairman of the Federal Reserve, he was very concerned about the GSEs, and thought that their size has gotten so significant; and of course an awful lot of people out there operating on the assumption that these are government-backed entities -- and of course they aren't. And so there's been concern over the years about the need for reform in GSEs, and to improve the oversight and regulatory process that they're subjected to see through OFHEO.

I'd be reluctant to see us go forward with a significant expansion in the role of GSEs and markets without making certain that we'd addressed those other issues that are of concern. And they're so big that if something significant were to happen there, they could have a systemic impact on the economy. That's something we've been concerned about.

Q: You know, some of the -- again, some of the economists who advise you are critical of the Fed in the early 2000s for loose money policies leading to this housing level. Would you agree with that?

THE VICE PRESIDENT: Well, we try to have a variety of economists come advise, when we bring them in. Periodically we'll have three or four of them come down. They are selected ordinarily because they do have different opinions. And so I wouldn't want to be categorized or pigeon-holed myself in terms of the views that they express. I, as a general proposition, think Alan Greenspan was a good Fed Chairman, and consider him a friend. I've known him for years, I've watched him operate, I've swore him in twice as Chairman of the Federal Reserve, and I have refrained over the years from commenting on any one particular moment, with respect to monetary policy or Fed policy and I think I'll do that today, too.

Q: So you don't have any concerns that loose money led to --

THE VICE PRESIDENT: I'm not going to get into it.

Q: Okay. How do you view yourself? Obviously there's a lot of principals within the administration whose primary job is the economy and economics and economic policy. But you have -- weigh in, and you also turn to advisors from the outside from time to time. How do you view your personal role?

THE VICE PRESIDENT: Well, I'm -- for starters, it's important to remind everybody I'm the Vice President; that I'm not in charge of anything; that the arrangement I have with the President and the way it's worked is that he wanted me to sign on to be an integral part of the team -- there were certain areas that he was interested in that he wanted me involved in, and -- especially in the national security area, and so forth, because of my background in defense and intelligence -- but that I get involved in a whole wide range of activities.

I sit in on virtually all the economic policy sessions. We have a regular Wednesday meeting among principals -- this doesn't include the President, but it's -- have lunch down in the Mess with Hank Paulson from Treasury and Eddie Lazear from the Council of Economic Advisers, Al Hubbard, Jim Nussle at OMB, the Director, and so forth; about eight or nine of us.

And it's a way to keep up with what's going on in the economic arena -- or ideas get kicked around. No decisions are made there, those all go up to the President. So I'm involved in that fashion, and I sit in with the President when he meets with his economic advisers. And we oftentime discuss whatever issue (inaudible.)

I get involved in the economic arena, as well, partly through my role on the Hill. I go up every Tuesday and participate in the Republican Senate policy lunch every Tuesday. Lots of times we have policy debates there. I was the -- it just happened, the way it worked out -- heavily involved in the '03 tax cuts, because we had a tie in the Senate, and I had to cast the tie-breaking vote.

Q: Let me -- I'm sorry, since our time is short, I wanted to turn to trade. I understand that you oppose or have strong concerns about Russia's involvement in the -- or joining the WTO. Can you talk to me about -- tell me about that. What are your concerns?

THE VICE PRESIDENT: Well, I would state it slightly differently -- not that I oppose Russia's involvement in the WTO. But there are standards and conditions that traditionally have been met by members, more in order to obtain membership in the WTO. And I think the Russians ought to be held to the same standards.

Q: And that raises kind of an interesting issue, which is a nexus for you, which is, in this age of globalization, business interests aren't necessarily national security interests. For example, you opposed unilateral sanctions when you were -- on Iran when you were CEO of Haliburton.

THE VICE PRESIDENT: I did.

Q: Now, of course, you have a different perspective. And issues are consistently not only on sanctions, but foreign investment issues come up from time to time. China, right now -- the question of whether a major Chinese technology firm can buy into 3Com, for example, the firm that has some military ties, the Chinese firm. How do you personally draw that line? I know it's a broad question, but how do you, you know, when you're -- let me ask it this way: Do you see corporate interests colliding increasingly with national security interests as we move forward?

THE VICE PRESIDENT: There are clearly times when there's a conflict. And I think back -- you mentioned my time at Halliburton -- and I did have a problem with unilateral sanctions, in effect because what they do is penalize American companies. If it's not broad based, you end up creating significant competitive disadvantages for American companies, vis- -vis other companies who aren't affected by the sanctions, don't pay any price for them. And that's a view that I did -- I even spoke about it, made some speeches about it.

We're in a position now, clearly, especially when we look at Iran, where it's very, very important we succeed in our efforts, our national security efforts, to discourage the Iranians from enriching uranium and producing nuclear weapons. And so you sort of reach for any tool that's available, because you'd like to be able to resolve that diplomatically, peacefully, by economic means if necessary. And the last option you want to have to consider is the possible use of military force.

That's a whole set of considerations there that a CEO doesn't have to worry about, that a private company doesn't have to worry about. But the President of the United States does. So there are -- clearly, there are trade-offs there. But when the President sits down to make those kinds of judgments, he needs to have broad authority to act, including, if necessary, unilateral economic sanctions, even though that may be painful and frustrating for somebody in the private sector who has to live with it.

Q: And will the movement of capital in the global economy create more of these conflicts? For example, are you worried that China, for example, owns so much of our debt, a concern that's been expressed in the political world? Is that going to change the sort of geopolitical dynamics, looking down the road?

THE VICE PRESIDENT: There's a lot underway, obviously, by way of change, when you think about the degree of integration now of our economy with the Chinese economy. And not just China; I mean, it's global. It's one of the great developments of the 20th century, and obviously is going to accelerate even in the 21st century the extent to which we're a part of a world economy.

And it does raise complicated questions. National boundaries don't mean as much as they once did. The ability -- our ability, for example, if we restrict our military to say you can only buy American, we're going to miss out on a lot of important technology or important developments going forward, or greater efficiencies in terms of how we build our military forces vis- -vis the way we used to do it 50 or 60 years ago. It's a different set of concerns and considerations than we've ever had before.

Q: What about the China question?

THE VICE PRESIDENT: You're going to cut yourself off from China?

Q: No, I meant China owning our debt, so much of it.

THE VICE PRESIDENT: I'm not that worried about China owning our debt. I think they've got a big stake in the U.S. economy and how well we do. I think they understand that. And I think the notion that somehow they've got major investment in the U.S. Treasuries, that doesn't bother me.

Q: Taxes. Let me go back, a historical question. You were there when the Laffer Curve -- this is not a tax question, it's more about your economic philosophy, I'm sorry -- you were there when the Laffer Curve was drawn on a napkin, is that correct?

THE VICE PRESIDENT: That's correct.

Q: And according to your biographer, Stephen Hayes, you had some reservations about supply-side economics in the '80s;

what is your view? Would you call yourself a supply-sider?

THE VICE PRESIDENT: I would. The first time I ever heard the argument really advocated was with Art Laffer and Jude Wanniski, in the bar -- at the Two Continents bar over at Hotel Washington, across the street from the Treasury building. This must have been -- it was in the Ford administration, probably '74, '75. And Art did whip out sort of a Sharpie, a Magic Marker, and a white linen napkin, and draw the Laffer Curve. First time I'd ever seen it. He may have drawn it before someplace else, but that's that first time I saw it.

Q: And was he trying to convince you, so that you would convince the President? Was that --

THE VICE PRESIDENT: I think he thought I might have some influence. But we were -- this was, as I recall, early in the Ford administration. Art was advocating tax cuts for economic reasons. And the point he was trying to make was basic supply-side theory; that by cutting taxes you change people's behavior, and they would work harder and produce more, and not only would the economy grow but the government would collect more revenue. It was a novel idea 30 years ago.

Q: And your reaction at the time?

THE VICE PRESIDENT: My reaction at the time was, well, that's interesting -- but I didn't run out and say, Mr. President, Mr. President, you've got to cut taxes. I -- over the years, especially during the Reagan years, I think a lot of us became supply-side advocates. I certainly reached that point where I believe that it is extraordinarily important to keep taxes as low as possible, and that that does produce significant benefits, not only for the economy, in terms of job creation and wealth and economic expansion, but I also believe it does produce more revenue for the federal government.

And I think one of the great things we've done in this administration is to cut the cap gains rate to 15 percent, the rate on dividends, to accelerate the rate reductions in the '03 tax package. I think that was a remarkable success story, and it's produced more revenue for the federal government, smaller deficits, and obviously kept our economy growing. And it's one of the big debates for the Democrats going forward, will be they -- they obviously are advocates of raising taxes, and we're not.

Q: If the tax cuts are allowed to expire, what will be the impact on the economy?

THE VICE PRESIDENT: Well, it's identical with a big tax increase. And the -- when you raise the top rate, you see the 15 percent rate on cap gains and dividends and so forth go away, there's no question it would be exactly the same as if Congress sat there and passed a law to raise taxes. And it will slow down the economy. It'll have a big impact, especially when you raise the top rate. About 75 percent of those filers are, in fact, small businesses. And small businesses generate most of the job growth in the economy.

So it's -- politically, you say it's different, they don't have to vote to raise taxes, but because those cuts are set to expire, if they take no action at all, there will be a big tax increase, and it will have negative consequences for the economy.

Q: They do, however, raise the equity question, that there's a gap between -- a growing gap between the rich and the poor, especially the super rich. And there's, of course, an effort to raise taxes on the so-called super rich. And even the President has raised concerns about CEO salaries: A) Do you think there's any legitimacy to this income gap question and using the tax code to address it? Secondly, are you concerned that CEO salaries have gotten out of whack?

THE VICE PRESIDENT: Well, with respect to the question of fairness and equity, we're -- already have a tax system that is very, very progressive. And people always ignore, or choose not to bring up the fact that the bottom 50 percent of wage-earners, I think, pay a little over 3 percent of the federal income tax in the country. It's less than 4 percent. The top -- I just had the chart here a little bit ago, I don't know what I did with it -- but the top -- that's it. The top 1 percent pay 36 percent of all the income taxes in the country.

So we're already at a point where we have excluded from income tax roughly that half of the population that's at the lower end of the income scale. That's a very progressive tax system. It means that the richest among us and the wealthiest are, in fact, paying the bulk of the taxes. And that's a decision we've made over time. To suggest that we ought to make it even more progressive than it already is, or raise taxes even further, or exclude even more people from the tax code, I think it would be a mistake. I wouldn't agree with that.

Q: The CEO salaries?

THE VICE PRESIDENT: CEO salaries -- I think that those are decisions that need to be made by those individual companies and their boards of directors. I don't think you want the federal government in the business of dictating the salaries of CEOs. I'm sure there's some out there that I think are making too much money, but that's not my judgment to make; that's a judgment that their board made. That's what they felt either the individual was entitled to or had earned, or some measure of their contribution to the worth of the company. And those judgments do need to be made by the private sector.

And, you know, if people have got a problem with a particular company, well, don't buy their stock. But I'm absolutely convinced, based on past experience, we don't want to get government in the business where they're dictating the salaries of CEOs. What about baseball players or movie actors?

Q: Right, right. Another economic philosophy question: Do deficits matter, Mr. Vice President?

THE VICE PRESIDENT: They do. I've been oftentimes alleged to have made a statement that deficits don't matter. The conversation, as I recall, was in a political context. And then Ronald Reagan had pointed out -- had, in the early stages of his administration, expanded the deficit. He did it through a combination, short-term, of major increases in defense spending at the same time that he was cutting taxes, and the deficit did increase initially. But that was in a political context, not in an economic context.

But deficits, if you're going to look at deficits, and you should, you've got to evaluate them relative to other priorities. Another priority, for example, would be defending the nation in wartime. And you need to look at deficits relative to the total size of the economy, which oftentimes we don't do.

The deficit I'm really worried about, I think the biggest problem out there on the horizon, isn't the one that we spend most of our time debating, the discretionary spending on an annual basis, what's appropriated by Congress -- that's got to be managed, obviously. But the big one is what's going to happen to our entitlement programs long-term.

And that's Social Security and Medicare. We've tried very hard in this administration -- the President and I spent a full year of 2005 going all across the country trying to get a debate started on Social Security, pushing hard for what we thought made sense, for private accounts. And we couldn't move the ball very far down the field. But the problem is still there. It's not going to go away, and it is going to have to be addressed, certainly by our successors.

Q: Going back to taxes, are we going to see you play a more vocal role in -- as the 2008 election heats up? Are you going to be out there talking about tax issues, economic issues? What kind of a role, political role, will you be playing in the coming season?

THE VICE PRESIDENT: Well, that will depend a lot on, obviously, on who the nominees are and so forth. I will -- I'm active now and would expect to continue to be active in the congressional races on behalf of the House and Senate candidates; and things for the Party -- I'm going to do fundraisers, that sort of thing.

And one of the subjects I usually talk about when I'm out -- in addition to the national security issues, global war on terror and so forth -- is to also talk about tax policy.

Q: What about our financial system and the prospect of another terrorist attack? I mean, certainly our financial systems weathered 9/11, some better than others. Have there been protective measures put in place that in your mind would make the system able to cope with another even larger -- the possibility of a larger attack?

THE VICE PRESIDENT: Well, I think -- I think we have made progress in -- certainly in defending against another attack. And we've spent a lot of time and effort over the last six years now since 9/11 to do that. I would expect that we're -- if there were to be another attack -- and hopefully there won't be, but nobody can promise that, obviously -- that we're better positioned to deal with the consequences of it than was true previously.

But I still think, as we look back on it, that it was remarkable how well the economy and the society responded to 9/11. We had a few rocky moments there in the immediate aftermath. The transportation system shut down, about a million jobs lost in the immediate aftermath of the attack and so forth. But on balance, the economy sprung back, the people adjusted rapidly to those things they needed to adjust to, and we got on with it.

If anything -- if I worry about anything, it's that we've got too many people out there now who think that was a one-off affair, and who aren't really worried about the next attack; tend to assume there won't be one. And I think that's a very dangerous assumption. We have to be prepared for it.

Q: Speaking of worries, what worries you most about the global economy?

THE VICE PRESIDENT: Well, I suppose it would be the kind of -- some kind of terrorist incident that would strike a major blow at the functioning of the global economy. And there you can conceive of something -- if the terrorists were ever able to get their hands on deadlier weapons than they've used today -- acquire a nuclear weapon, for example, which we know they'd like to do, or come up with a biological agent of some kind that would kill hundreds of thousands of people, that kind of thing could clearly have devastating economic consequences, as well; things they might try to do to interfere with the world's energy system and the supply of energy flowing to the world --

Q: Such as doing what?

THE VICE PRESIDENT: Well, I don't want to give them any hints of what they ought to be doing. But clearly the world depends on the global supply of oil, those markets. And that will continue to be true for some considerable period of time. So efforts to shut down the flow of oil from the -- to the world's economy could conceivably have a significant impact.

Q: And is that something that you spend much time on?

THE VICE PRESIDENT: Yes. Not just that one issue, but the general problem of -- we spend a lot of time thinking about and working to prevent that next attack.

Q: Another historical question. You were involved in developing Nixon's wage and price controls. (Laughter.)

THE VICE PRESIDENT: It's not on my resume.

Q: Funny little piece of history.

THE VICE PRESIDENT: It's not on my resume.

Q: It's not on your resume. What impact did that have on -- how did regulating the cost of hamburger meat affect your political philosophy?

THE VICE PRESIDENT: Well, it enforced my conservative tendencies. We -- I think it was a bad call, to impose wage price controls on the economy. At the time, I was working as part of the program, once it was set up. I was the assistant director of the Cost of Living Council and oversaw 3,000 IRS agents trying to enforce wage price controls. And it was a terrible idea. I mean, it basically said that from that point forward, the federal government was going to be responsible for the price of hamburger or bread or gasoline or whatever might be out there. And I always felt it was one of Nixon's most serious mistakes.

We got out of it eventually. And one of the reasons I have great respect and admiration for George Schultz was because when Schultz became Treasury Secretary, he also automatically became head of the wage price control program. And the first, very first morning he was in, he called a bunch of us to his office and closed the door, and the first thing he said was that, gentlemen, how do we get out of these damn controls? It was on my shoulders to do that, so he earned my undying gratitude when he had the wisdom to recognize that it had to be the first order of business.

But it was a -- it seriously distorted the economy in many ways, as well as transferred in the minds of the public, all of a sudden, Uncle Sam is responsible for all those decisions out there -- wages and prices and profits -- that affect their lives every single day. And so if you were angry about the price of beef, you weren't mad at the local supermarket, you were mad at the Nixon administration. Those are the guys that are taking control over the price of beef.

Q: Any economic books you've read lately? Have you read any -- business economic --

THE VICE PRESIDENT: Well, I read Greenspan's.

Q: Oh, what did you think of the (inaudible)?

THE VICE PRESIDENT: I liked it.

Q: You liked it?

THE VICE PRESIDENT: Yes. He was probably the most eminently (inaudible).

Q: And what did you think of his criticism of your spending habits?

VICE PRESIDENT CHENEY: Well, he was especially critical with respect to entitlements.

Q: Right.

VICE PRESIDENT CHENEY: And I thought his criticism of the government generally -- and he focused especially on the Congress -- it's hard to argue with.

Q: Were what -- I'm sorry?

VICE PRESIDENT CHENEY: It was hard to argue with.

Q: Yes.

VICE PRESIDENT CHENEY: I mean, I think our administration worked harder on that than any administration ever has. And in terms of the whole (inaudible) situation, (inaudible.) I think that -- I liked his book.

Q: You liked his book? What did you like about it?

VICE PRESIDENT CHENEY: I thought it was well-done. Interesting guy and as I say, I've known him a long time; I first met him, well (inaudible) wage price controls. He was then a private economist, and we had to bring him in to advise us on what was going on in the economy. That was about 1971. And then -- of course he became chairman of the council, the last (inaudible) of the Nixon administration. We kept him on in the Ford administration. That's when I really got to know him. (Inaudible.)

Q: When you get together socially, what do you do? I mean, are you --

VICE PRESIDENT CHENEY: Eat dinner.

Q: Eat dinner? (Laughter.) (Inaudible) theater, anything -- I don't know, anything --

VICE PRESIDENT CHENEY: He's not a hunter and I'm not a golfer. (Laughter.)

Q: Have you seen him since the book?

VICE PRESIDENT CHENEY: (Inaudible) Secretary Rumsfeld (inaudible.)

Q: And you said?

VICE PRESIDENT CHENEY: I told him I'd read the book and I enjoyed it. And he sent me a copy (inaudible).

Q: What did he say in the copy of the book?

VICE PRESIDENT CHENEY: That's private. He's still got a few secrets left.

END 10:45 A.M. EST