CNBC's full interview with Carlyle Group co-founder David Rubenstein at Davos

[00:00:00] Speaker 1: Anyway, you saw what Larry Kudlow said. Is the state of the... I was kidding. We're going to interview you again, but it can be a free exchange. I'm happy to interview you. It can be a free exchange. Let's do it that way. So, he was very bullish. We've had, at the same time, Paul Tudor Jones and Ray Dalio with a plethora of issues that they see with the future, whether it's debt or whether it's income inequality. Where are we really, do you think, objectively? [00:00:25] Speaker 2: Well, as Dizzy Dean, the famous pitcher, said, it's not really bragging if you actually can deliver. And so, yes, there's some bragging about the economy, but the economy is in really good shape. So, people who aren't happy with the president, they may not agree that some of his policies work, but some of these policies seem to be working. So, I'm not saying I'm a supporter or a detractor of his. I'm just saying that the policies seem to be working. The U.S. economy is in reasonably good shape. Who would have predicted a year ago that we'd be where we are today? Nobody would have, probably. So, the economy is doing pretty well. It may never stay this strong for a long time. You never know. But, right now, I don't see any prospect of a recession in 2020. And I also think unemployment is going to stay low. Interest rates will stay low. So, the economy is pretty good. [00:01:09] Speaker 1: Becky, we, every once in a while, Druck will send something in. So, he watches. Stan Druck, last week. This is a fact. He said, when people start talking about capitalism not working, he said, tell them this. For every billionaire created, 250,000 people have been lifted out of poverty in the last 10, 20 years. So, for each billionaire, 250,000. Is that a fair trade? [00:01:32] Speaker 2: China has more billionaires than the United States, but also about a billion people have been lifted out of poverty. Maybe 800 million have been lifted out of poverty since China has really become part of the global economic scene. So, yes, there are a lot of billionaires in China, but China's economy, overall, for everybody, is much better. [00:01:48] Speaker 1: What's our biggest problem right now? Is it sustainability? Is it climate change? [00:01:52] Speaker 2: There are lots of problems. You always have problems. What would life be when you have problems, right? So, problems are, number one, I think we do have a lot of debt we have to pay off at some point, $23 trillion of debt. Can we do that? At some point, we have to pay off. I don't know if we pay it off. [00:02:03] Speaker 1: Can we manage it? Can we manage it? [00:02:05] Speaker 2: Right now, it's manageable, but at some point, it will have to be dealt with. If interest rates go up, that could be a problem. Number two is, I do think we have income inequality and lack of social mobility. So, the people at the top are doing well, but we have people at the bottom who are not really rising up. And one of the reasons is, we have a large problem with literacy. 14 percent of the people in this country cannot read above a fourth grade level. That's a problem. 14 percent of Americans? 14 percent cannot read above a fourth grade level. And right now, 80 percent of the people in juvenile delinquency system are functioning illiterate. Two-thirds of the people in our federal prison system are functioning illiterate. So, that's a problem. You have income inequality and social mobility problems. You have debt problems. And you also have the fact that, oh, eventually, in my lifetime and your lifetime, we're going to have to deal with the entitlements issue. We have large entitlements that we're obligating to pay people, and we probably can't pay them fully as much as we promised. We don't have to be dealt with. [00:02:58] Speaker 1: We heard from Paul Tudor Jones about profit margins in 1970, where they are now, and that the amount of sharing from corporations between shareholders and employees is at the lowest level ever. As if—it almost sounded as if corporate America got greedy, and I think it doesn't take into account the way we became a global player. And all the labor moved offshore at $3 an hour, and that hurt a lot of our middle class and low class people. And that's the—aren't we trying to do the things that would reverse that? And some of this American—America first mentality may be warranted, given what's happened. [00:03:40] Speaker 2: There's virtually no economy in the world that wouldn't like the U.S. economy. The economy is doing pretty well for a lot of the reasons we discussed. Secondly, when you think stock market does well, obviously, people at the top do well. But who owns these stocks? Largely, it's pension funds. [00:03:53] Speaker 1: They still argue that's not true, that only 50 percent of Americans own, even directly or indirectly, any stock. [00:04:00] Speaker 2: Well, but indirectly, I think almost everybody owns something. They have pensions. Pensions own so much of the stock market. Pensions are harder and harder. It comes from them. Yes, but there's a lot of existing pension funds. State employees have pension funds. 401Ks. And 401Ks. So, the truth is, I think the U.S. economy can always be better, can always be fairer, but it's in reasonably good shape. And, for example, one year ago, when we were here, people were thinking the U.S. economy couldn't get better. It didn't get better. Now, I don't know exactly why, but it did. Now, President Trump said today it was his policies. Maybe there are other things that we're taking into account as well. Who thought we'd get a China deal as soon as we did? We weren't sure the U.S. MCA would go through. So, I don't want to be trumpeting his policies only. I think the Democrats have done a lot to make things better as well. I think the U.S. MCA is better because of some of the things they did. And I do think that they were pushing for a good, strong China deal as well. But in the end, right now, the U.S. economy is in pretty good shape. So, oh. [00:04:58] Speaker 3: Well, I was just going to say, Brian Moynihan was here earlier, Bank of America. They're now paying a minimum wage of $20 an hour for every employee that's there. They do a lot of profit sharing back, $1,000 bonuses for almost the entire employee base. [00:05:09] Speaker 2: Well, the financial system in our country has done pretty well. Who would have thought 10 years ago that the banks would be as strong as they are now? The banks are stronger than they've ever been in their history. J.P. Morgan just had record profits. Bank of America is doing very well. All the banks are doing pretty well. And I think that's filtering down into the global economy. But I don't want to make it sound like I'm Pollyannish. We do have some challenges. [00:05:28] Speaker 3: But is that what you think companies need to be doing to address the inequality? Look, in some cases, it's what the Fed's done with quantitative easing that has built up the inequality. But does it need to be resolved by companies taking steps like that? And would you invest in companies that were doing that? [00:05:43] Speaker 2: If I knew how to solve income inequality, I'd be in Iowa. Nobody really knows how to solve that problem. I do think, for example, solving literacy problems at the bottom would be helpful. I do think increasing the minimum wage is helpful. And I do think companies that worry about more than just shareholder return are probably the companies that are going to get more people buying their stocks in the end. And they're probably going to do better. [00:06:07] Speaker 1: We need to match skill sets with people that are coming up. Obviously, it's not a one-size-fits-all. Private sector needs to help with that. We probably need to spend money on education more effectively. Where do we get the money from that? You don't like wealth taxes. It's never worked. Do we need more revenue? Do we need to reallocate the revenue we have right now? [00:06:28] Speaker 2: How would you do it? Well, the tax revenues right now are probably a little bit lower than historically they've been. And I would say probably whoever is president next time will probably have to adjust taxes. Be my guest. Nobody will say that right now. But I suspect there will probably have to be some adjustment of taxes down the road because we don't have enough money to pay our expenses. The U.S. Treasury is running about a $1.3 trillion annual deficit now, and we have to deal with that. You can't keep running these deficits at infinitum. Unless you cut the spending. You can cut spending. Reallocate it. It's easier in some ways to increase taxes than cut spending. In other words, it sounds like it should be the opposite. But sometimes it's easier to increase taxes because people don't notice it quite as quickly. And you do it down the road. [00:07:09] Speaker 1: Can you get rid of some loopholes? Would you raise the top marginal rate? It's hard to get enough money from just rich people. I mean, do you want to raise rates across the board? [00:07:20] Speaker 2: There aren't enough rich people. I mean, if you took the money away from all the Forbes 400 people, that's not going to solve all your problem. The problem is the middle class, and the problem is taxing the middle class is very politically difficult to do. Right now, the average family of four in the United States, what do you think they make? $300,000, $400,000? How about $65,000 to $70,000? Right. That's the average family of four. That's the middle class. You want to tax those people? It's hard to do. If you tax people only above $250,000, you're taxing about 2% of the population. Just not enough of them. [00:07:46] Speaker 3: So what do you think of the Democrats' plans, or some of the Democratic candidates, I should say, who have plans to spend much more on health insurance, on health care, on education, and other issues? [00:07:56] Speaker 2: Well, when you run for president, I've been in presidential campaigns, it's easy to say you're going to do this and that. Getting these things through the Ways and Means Committee and through the Senate Finance Committee is not that easy. It's not easy coming up with plans that are actually going to make a big difference. At the moment, I think the economy is in reasonably good shape, and I don't see anything on the horizon that's going to interrupt, unless we have a war of some type that we don't anticipate. The president's speech here was reasonably well-received. This is not his crowd, by and large, but I think it was reasonably well-received. He read from the speech that was prepared, in part by Larry Kudlow and his lot of advisors, and he obviously had input in it. And I think it was reasonably accurate, from his point of view, about what he's done. Other people would disagree, but I think he gave a statement here that was probably better received than the statement he gave two years ago. [00:08:43] Speaker 1: All right, we've got problems, but we've got a lot to be thankful for and a lot to be optimistic about. And Trump is, you know, when Andrew Ross Sorkin writes a piece that he's being well-received in Davos, it has to be true. And he wrote that this morning. So it's a better reception this time than two years ago. [00:08:57] Speaker 2: I was just in a reception with him, with lots of business people, global business people. And, honestly, they all wanted their picture taken with him. Nobody was shunning him. So whether that was true a couple years ago, I don't know. But everybody seems to be happy with him. Now, obviously, this is the elite of the elite. So I'm not saying the average person on the street is as happy as maybe the elites are. But the elites are pretty happy. [00:09:15] Speaker 1: Those are the deplorables that are happy. There are 63 million of them. You're the ones that he's trying to win over, not the normal people. Well, they're not enough of me. [00:09:23] Speaker 2: He's got to win over the average person. [00:09:25] Speaker 3: Can I ask you one more question just about China? You know, you're so tightly, so closely sourced in Washington. You have a really good idea of what's happening. When we talked to you in August, you said that you thought a phase one trade deal would be signed within four months. That's about the time that we got it done. That was something that happened. Is there going to be a phase two before the election? [00:09:43] Speaker 2: No, there will not be. And the president himself has pretty much said that. I think phase two is much more complicated than phase one. And I think phase two, whoever is president of the United States, could not probably get a phase two done in the next six months. It's too complicated. But I think a phase two can be done in the next two years or so. But it's a complicated thing because you've got to change the way the economy is running in China. It's not that easy to do. [00:10:04] Speaker 3: Better that we have a phase one and that tensions have died down? [00:10:08] Speaker 2: The best thing about phase one is it will have some impact that will be positive. But the best thing is it reduces the global tension between China and the United States. And I was just in a meeting with the vice premier of China. And the global tensions are so much lower than they were before. So I think that's the best thing that happened because of phase one. [00:10:24] Speaker 3: And we're on a path. We're on a path towards phase one. [00:10:26] Speaker 2: I think we're not fighting with each other as much. And whether we get phase two done in a year or two, I don't know. But we're not going to have the tensions that we had before on economic matters. [00:10:34] Speaker 1: When you interview people on your show, you ask tough questions. You try to do that. You feel like you need to, right? So we asked Schwartzman, Trump or Bloomberg? Who would you pick, Trump or Bloomberg? [00:10:44] Speaker 2: You know, as you get older, your hearing goes down. [00:10:47] Speaker 1: What do you do when guests don't? What do you, what's your tact when guests don't answer questions that you ask? What do you try to do? I go on to the next question. Okay. How about Trump versus Biden? Who do you pick? [00:10:58] Speaker 2: I'm quick for who's going to win or who's... Who would you vote for? Well, I generally don't like to say who I'm going to vote for because I think it's important for people to maintain some privacy. I haven't seen all the facts yet. But there's no doubt that Joe Biden would be a very strong candidate. And Mike Bloomberg. And remember, I do some things on Bloomberg TV. I'm very partial to Mike. I think he'd be a strong candidate. So would Biden. You know, I think there's... Unfortunately, there's no private equity person running for president right now. And that's a big problem that people in Iowa are commenting on. [00:11:28] Speaker 1: And that person will make sure your carried interest doesn't go away. Got it, David. Okay. [00:11:32] Speaker 2: All right. Excellent. Thanks a lot. I don't actually... One issue voter. I don't collect any carried interest anymore, but okay, I understand. I don't get it. All right. Thank you. Thank you very much. It's great to see you. Can I come on your show sometime? Absolutely. [00:11:43] Speaker 1: Liar. Tomorrow. [00:11:44] Speaker 3: He has a live audience. I can take it today. [00:11:46] Speaker 1: I'm going to get... I'll send you my email. [00:11:48] Speaker 2: All right. I can do it today. I've got a camera here. [00:11:52] Speaker 1: Can't afford me. [00:11:52] Speaker 3: Think of some...