Rahm Emanuel’s Recipe for America is Getting ‘Back to Basics’

0:01Bloomberg Audio Studios Podcasts Radio News I believe the moment the American dream becomes unaffordable and inaccessible is exactly when our democracy becomes unstable.

0:23I'm Stephanie Flanders, head of government and economics at Bloomberg, and this is Trumponomics, the podcast that looks at the economic world of Donald Trump, how he's already shaped the global economy, and what on earth is going to happen next. And this week, it's a conversation with Rahm Emanuel, a longtime Washington operator. He's also been White House Chief of Staff, a congressman, mayor of Chicago and President Biden's ambassador to Japan. And now, by all accounts, he's thinking about running for president. We're recording this on Thursday, the 30th of October, and any one of those parts of his resume would give me plenty of reason to have Rahm Emanuel on the show.

1:02but I'm going to focus here on the alternative to Trumponomics that the Democrats need to offer to have a chance of retaking power in the next few years. The root cause of the fraught state of American politics, Rahm says, is that the American dream has become unaffordable, out of reach for the majority of families. Democrats need to confront that head on. But how in a country that no longer seems to be able to countenance tax increases, for example? He also thinks President Trump's China policies have been costly and wrong. The president is now back from his Asia tour. But how exactly would the former ambassador to Japan have done things differently, especially now that China seems, if anything, to have gained the upper hand?

1:45So that's plenty. But given his very close association with Chicago, I also can't help wondering what Rahm Emanuel thinks about the way that American cities have been thrust to the centre of President Trump's efforts to pummel Democrats, ordering troops to Portland, Los Angeles, Washington and Chicago, and threatening to withhold funding for New York, for example. Partly it's about stoking confusion and chaos in traditional democratic strongholds, but there's a sense in which the president is also trying to weaponise a divide between rural and urban parts of America that's been building for a while and has not necessarily been good for Democrats.

2:26Rahm Emanuel, I've talked far too much, but you can hear there's a lot I'd like to hear you talk about. Thank you for joining Trumponomics. Well, thanks for having me.

2:41We will get on to your vision for an anti-Trumponomics, you know, economic policies that can get Democrats elected. But first, that issue about cities, I mean, Democrats have to navigate what President Trump is doing and threatening right now to do in American cities. What's the smart way to respond to that? Well, let me push back on one thing in that introduction. It's not about an anti-Trump. Everything I'm trying to do is about being a pro-American. Fair enough. It's a very different flavor. It's not just a critique, but I think the American people, I'm not usually a glass half full kind of guy, actually know what we're doing right now is fundamentally wrong to the future.

3:20I think if you think about 2028 and the presidential, but also about what you want to do with it, this is about who can articulate about fighting for America and not just fighting against Trump. If you look at what I've talked about on education, housing, a national industrial policy, these are all about fighting for America and not fighting against Trump. That's a fair point. B, to the core question about cities. This is a political strategy as well as it is anything else. Now, look, there's both a good and a bad. 30 of the largest metropolitan areas in America are 75 % of all your GDP. I used to joke as mayor of the city of Chicago, the metropolitan Chicago area is the 21st largest economy in the world.

4:04We could join the G20. It's not that exciting. I've been to the meetings. I wouldn't go. But that's how big the Chicago economy is. Now, if you want to compete and win, you don't bash the economic engines of your country. The negative side of that is, well, there's a concentration of economic growth and possibility. It's also too concentrated. This is an attempt, which is all part of Donald Trump's strategy, is rather than dealing with our common challenges, divisions and drive-out. He said it. You're not looking for me to interpret, goes to a funeral for Charlie Kirk. I hate my enemies. Goes to Iowa.

4:39Says Democrats hate America. You and I are doing this interview the same day that they announced that they're going to create a unit within the deal with civil disobedience in cities. So to me, this is about division. This is about his politics. and it has nothing to do with helping strengthen America. On the cities, certainly the leaders don't feel that what they needed was troops. But when there is a sort of lack of trust there that the president is taking advantage of, that when the big cities cry foul and say, we need help with this, but we don't want help with that, there is a lack of sympathy out in the broader country.

5:18Well, I think I start from a different perspective. that the American people prefer order versus disorder. Under Joe Biden, the disorder was an uncontrolled border that looked way out of control, and the federal government looked like it didn't give a rat. Here, Donald Trump has moved the disorder from the border into himself. If you think for a moment the American people who don't live in Chicago or don't live in Portland like the fact that people are wearing chemical masks, shooting tear gas at fellow residents to the city of Chicago or Portland or LA, I disagree with your political assessment.

5:54Now, do I think over the last 20 years, the urban elite have rubbed people's face in that they are superior? I've been talking about that for the last 20 years. And you all have finally caught up that we were walking around. I can't say it on your podcast, but like that we were superior on a host of things economically and culturally. and we had a disdain for the way other people live their lives. That's a different issue than you have what's coming to you than we have every right to throw tear gas at you. And I would argue that's not, Stephanie, where the American people are. I'll back that up with data.

6:31And just on a practical level, if he, this is the last one on this, no one's going to listen to the economic prescriptions of the Democrats if the president has succeeded in fostering the idea that there is a crisis on American streets. Even if he has created that crisis, even if he's fermented that violence, if it's there, he could well be successful in sort of making people feel that there was a crisis that needed special measures, quote unquote. Let me get it this way to you, my view. Democrats hate what he's doing. Independent voters, swing voters, unaffiliated voters by either party, are uncomfortable with an untethered, unchecked Donald Trump.

7:10So the more that corporate America, the Supreme Court, and the Republicans in Congress play complicit to this, this is not going to work. And I have enough data to show that that's exactly what's happened in every election since 2024. All the skills and qualities that you think make Donald Trump appealing politically work against him in governing. Okay. So the economic diagnosis that you would have that you think would be a winning strategy and indeed good for America in the next few years. Yeah, that counts too. No, you're right. When I say anti-Trumponomics, I just mean it's just a neat phrase.

7:46I actually do mean what's a better economic strategy? What's your diagnosis? What's your cure? Definitely. I'm being a jerk. That's all right. Your reputation precedes you. Yeah, but the new thing is I'm aware now that I'm being a jerk. Okay, that's the first step. That's at least the first step. Well, one is I believe the moment the American dream becomes unaffordable and inaccessible is exactly when our democracy becomes unstable. It's not a coincidence that as housing gets out of reach, college education gets out of reach, people aren't saving for their retirement, they're one illness away from Chapter 11 bankruptcy, and only 10 % of the American people have access to it or their kids have access to the American Dream, what you associate with the American Dream, is when you have all the politics of resentment and instability in the political system.

8:31So to me, both good economics as well as good politics restore the confidence and the accessibility of the American Dream. It starts with home ownership. I would just say this up front. When Amy and I became empty nesters, the idea that we can get a mortgage for a retirement home is insane. You have young families trying to start off on the American dream. They can't get a down payment and or a mortgage for their first home. And I, in my position in life, get a mortgage deduction, which means other people are covering my butt. This is crazy. And there's things you can do along the way. I've worked on healthcare.

9:07I've worked on retirement security. As mayor of the city of Chicago, if you've got to be average, we make community college free. 75 % of the kids that took it were the first in their family not only to finish high school, but to go to college. To me, there's a series of things you could do where the building blocks of the American dream become affordable again. Over the last 30 years, it did not happen over Donald Trump. All of us accepted it. The latter got pulled up. Everything from home ownership to college education to retirement security to health care, the latter got pulled up. And we were comfortable as long as our kids were comfortable.

9:43And everybody has a right to be pissed off. And as I jokingly say, paranoid people have enemies, too. The system is rigged against your success. You're not paranoid. And I spent a good time in my career trying to unrig the system. I'm now for rigging it on behalf of the families that work hard, play by the rules. Number two, this is a passion of mine, but I happen to think it's also true. If you go back through the five great periods of economic growth in American history, there's one constant. Education reform and education accessibility. Land-grant colleges, GI Bill, universal high school education.

10:18it. The idea that we got a report card, two thirds of our kids cannot do reading and math at grade level. And not the president, not a governor has spoken up. It's a crisis. Our kids are failing and our adults are failing their kids. Three, which is the kind of goose that lays the golden egg, your research universities that are the envy of the world, you said declared war on cities, You're declaring war on the golden goose. Get back AI, semiconductors, biotech, etc. Take the quantum, take all the 12 major areas that China's declared war on America and fundamentally fund them to where we go back to 4 % of our GDP is in research dollars on the public sector side, not counting private, into the core technologies that are going to determine who owns the future.

11:11And we have a great resource, need to be reformed, a great resource that we've decided to declare war on, a la Harvard, a la MIT, a la Stanford, et cetera, rather than invest in it. Fourth, what can't be AI'd out or outsourced, et cetera, fundamentally invest in America's modernization of its infrastructure. Fifth, as it relates to illegal immigrants, there's no wall high enough that I'm not for, and there's no enforcement at the workplace that I'm not for, including the employers that hire people illegally. Now, let's reform our legal immigration so it reflects the 21st century. Barring people to want to come to this country, want to get a green card, want to become Americans, is self-inflicted wounds.

12:00You're illegal. You cross illegal. as a guy that created Operation Gatekeeper for President Clinton, forget about it. Illegal is illegal. The guiding principles for immigration reform are a nation of immigrants and a nation of laws, and we're going to respect both. I probably left a ton of stuff out. Those are the five things I would do to get America out of neutral moving. Your point about the universities, because it overlaps with something we said before, and my colleague Sean Donham wrote a great piece about this. We underestimate how much universities have been part of the economic revival of a lot of big cities that had been deindustrialized and other things.

12:39So it's also it's kind of hurting his President Trump's industrialization agenda. I mean, what he's doing to you. I don't mean to cut you off, but it would not be in a manual if I didn't. But take a look at the president did a conference in Western Pennsylvania, Pittsburgh area about AI and a data set. You know, you look 20 years ago, 15 years ago, you had talked about the deindustrialization of America. And because of energy production, Carnegie Mellon in Pittsburgh, University of Pittsburgh, and you look at what they've done in the investment, you can take an old steel plant and make it a data center or a producer of major kind of electricity.

13:18And now you have not only the reindustrialization, but the economic opportunity for that area that 20 years ago you would not be writing about. You'd be talking about the jobs in the factories that are losing. And you can't talk about the revitalization of Pittsburgh, where Carnegie Mellon is not mentioned, at least in the first three sentences, or the University of Pittsburgh, for that matter. So you could revive a lot of that research, that the core government funding research is not actually big money in the scheme of things. But education, reforming education and transforming infrastructure, that is big money.

13:51In the case of infrastructure, it was actually done. I mean, a generational, supposedly, certainly the biggest in a long time, infrastructure bill passed by President Biden didn't seem to move the needle. Two things. One is that I want to get back to this because it relates. I happen to think robotics is going to be essential to the future. Carnegie Mellon leads the country. My guest lecture at MIT just got canceled, but there's no doubt that Carnegie Mellon leads it. you could make Carnegie Mellon the core of your funding at the federal government for robotics. With University of Ohio, Michigan, and MIT, you could do a consortium and say, okay, here's going to be the guaranteed stream.

14:29Here's where we want to see you invest. You've got to bring public, private dollars in, and we want to see X, Y, and Z. Now, they did do stuff on infrastructure. You know, Donald Trump, I will say this in his first term, called it for infrastructure week every week. Now the new thing for his infrastructure is canceling projects rather than promoting them. And nobody's called it out. He's decided not to invest in America's competitiveness, but to literally cut it up. But there's things that have to be done, not just in rural, but in small town America, both on the infrastructure and the education.

14:59You look at it in a small town in America, a community college, a hospital, unfortunately, a prison. Those are the economic opportunities. And we need to make the investments both in the infrastructure and the workforce that make that an attractive place to put a data center, a new production of alternative energy or old energy. But you're going to need money. I mean, on that, you might be able to get some private funding. But on the education, I mean, you are talking about some costly interventions in the economy to make the American dream more affordable. How are you going to do it? Well, yes and no.

15:37I'm going to be going down in a couple months to Mississippi. They have what's called the Mississippi Miracle. They went from 49th on reading to ninth. Now, either they did really well or basically everybody else did really bad. They did it over a decade. so you can basically redirect it and get better results and not continue to spend money on failure. Now, as it relates to spending other types of infrastructure, there's a trillion dollars there. Spend it, make it, and force it out. Democrats got so preoccupied with the rulemaking, they never got the results.

16:27The criticism of Democrats is they didn't get stuff done. And we know one of the things that's been a sort of distinguishing feature of President Trump ever since he kind of came more onto the scene in New York in the 90s was this sort of sense of, you know, I'm going to get stuff done. I'm going to get this ice rink open that had been closed for a long time because the city was stupid. And you sound like you're just constantly wanting to go back to that, that you're channeling and reminding people of all the times that you've got things done. One of the things that you helped to get done was actually quite a kind of historic deficit reduction plan in the first Clinton administration, which seems almost inconceivable now.

17:04How would you do that just practically? Because we certainly haven't seen that for a long time, including under Biden. Three things. One, the budget gets balanced and he doesn't get enough of an applause because George Herbert Walker Bush, 41, showed leadership and broke his promise and raised taxes. Got elected saying, read my lips. And he got unelected in 1992 because he broke in 91. Bill Clinton comes in in 1993, building on that progress. That's fair. And in 93, there's no Republican support, passes the deficit reduction and raises revenue. And raises taxes on higher earners. And you could argue that that piece, because it wasn't felt economically like it did in the second term or in the back end of the first term, et cetera, starts the deficit on a massive reduction.

17:53Interest rates get also massively cut. Third, underappreciated, totally separate, is the Internet boom and productivity is just taking off. So you had a kind of a cocktail of 91, 93 and Internet all together lead to this. Now, the dirty little secret, and I can tell you an anecdote from it. The dirty little secret was in by 1997, the budget was going to be balanced whether you had a balanced budget agreement or not. I stood in the back of Erskine Bowles, chief of staff's office with Bob Rubin. And Bob was against this. He was against a balanced budget agreement because I see no reason to do this.

18:32whether it's going to be balanced. I said, Bob, there's an old rule in Chicago from Richard J. Daley. When you see a parade, get your baton and get in front of it. And I said, we're going to get political credit in the same way that the Berlin Wall was going to come down, whether George Bush did anything. So that happened. That's a buildup. The answer to your question, I passed immediately a rule in Congress and Congress will pass it. Never can interest on the debt exceed defense budget. Oh, is that the Neil Ferguson rule? He's credited with saying that's when you stop being a great power. I read the article, very persuasive.

19:05So here's what, Republicans like defense spending. I'm all for it because I actually think it's important as a deterrent to China. So here's the rule. Never can interest on the debt exceed your defense budget. And once you create that discipline like Graham Rudman Hollings did in the past, you will start to see deficit reduction. Or you'll start to see a president that's trying very hard to increase defense spending faster than the debt bills going up and also push down interest rates by taking control of the Federal Reserve. I mean, that's what it also incentivizes. Also, it could be the way to force the Congress to deal with, unlike some people that talked about deficit reduction but never did the Bowles-Simpson, actually deal with revenue.

19:45Anyone sensible looking at the budget, looking at a 6 % of GDP budget deficit in a booming economy, it's booming in terms of the level of unemployment and other things. Right. Anyone looking at that would say there has to be a tax increase in America's future. But anyone looking at Congress for the last, well, for a long time, would say there was no chance of that. And looking at any presidential candidate, frankly. That's why I think Republicans haven't done anything on tariffs. Donald Trump has raised taxes on everybody. He just calls it tariffs. OK, well, that gets us very quickly. We're going to run out of time, but I do want to ask you about the China policy.

20:17And one of the difficult things about pivoting away from Donald Trump's China policy is actually, and Jason Furman pointed this out on the podcast a few weeks ago, that you will have those tax revenues coming in, better or worse, from Donald Trump's tariffs. that are non-negligible and quite hard to just say goodbye to. True. So what are you going to do? What is the China strategy under your plan? First of all, the idea that it's down to tariffs is not, no disrespect, it's more complicated. I don't mean to say that, but since we're on a podcast, it's slightly more than 30 seconds. Answer. There's a couple of things.

20:51I think 40 % of our imports into the country are products that go into our own manufacturing capacity. Take the tariffs off of those. You're actually killing manufacturing jobs, not enhancing them. There's nothing you've done to enhance America's competitiveness on the industrial base by taxing or putting a tariff on a product that goes into our own ultimate assembly and manufacturing. Two, you have to be more strategic as it relates to China. It's not just about tariffs. I happen to think what the president just did is a failed effort. Dealing with China is both a military, geostrategic, political, and economic.

21:35Understand fundamentally which America's been late to the game. The Chinese party leadership and President Xi specifically decided in 2012 that America was not a strategic competitor, but a strategic adversary. They actually do mean to do harm to us. I think President Trump has been naive to think that he can get along with Putin and Xi. They actually are trying to put our head under. And he doesn't appreciate that, understand that, or is responding to the threat level. Third, both from the universities of science and technology to the training of a workforce that has to actually have an education to compete and win at any level.

22:13Fourth, investing in the capabilities of America, 21st century infrastructure to move 21st century economy from data to trucks and everything in between. And then fifth, on the tariffs, all they do for you as it relates to China, as we kind of figure out how to move away, is you have to decide where your choke points are and fundamentally invest in them. That's what the whole critical minerals and magnet production is about. That there is take a deep research look at the supply chain, every choke point that exists, understand we're behind and then invest in it over the next five years. Now, Xi is upfront about this.

22:54Don't be naive. And you have to be understand. He wants a dominant China where everybody's dependent on China and China's independent of everybody else. And we have to move with a strategy where America is integrated with everybody else and everybody else is dependent on us. We have, I mean, as a nation, actually, since the second Clinton administration, I mean, that same year that we had a budget surplus, 2000, was also the time that we were negotiating to have China enter the WTO. We have leaned into being deeply dependent on China, much more dependent than we perhaps needed to be. When you talk about extricating it, I think it's Donald Trump's learning.

23:33It's pretty hard to say, oh, we'll get divorced in 10 years' time, and I'm really firm about that, but we've got to live together in the meantime. Yeah, well, I mean, I don't know you, Steph. I know a lot of divorced people that live in the same house, just separate rooms. You're also saying, as you just said, that they're our sworn enemy, that they're determined to destroy us. But by the way, can we have another bit of mineral earth, sir? One of the things I learned being ambassador to Japan, what they say is not what they mean. You've got to find it. But Xi tells you the world is to be dependent on China and China is to be free of the world.

24:07Independent. He's very upfront. Now, either you can say, oh, that's just for domestic consumption or act as that threat intends. Now, I believe the big mistake of the last 20 to 25 years was allowing business interests to control our national securities related to China. They were not a voice at the table. They were the voice at the table. And they should have been slapped and put in their place. And that was a huge mistake. And when Xi said and the Chinese leadership said, we're going to replace America and we're going to do X, Y, and Z as it relates to the world's dependence on China, that's a big opportunity.

24:50And when China decides to crush your fuel industry, your aluminum industry, your auto industry, that's an opportunity for America coming to the rescue of South Africa, Brazil, Mexico. They are doing things in their industrial manufacturing because the president Xi is leaning so hard on the dominance of manufacturing for its economy because other parts of it are failing. That's our opportunity. And that kind of suspicion of globalization, or at least the globalization that was dominated by the sort of business interests of America as opposed to other things, that's going to outlive President Trump.