Will Robert Rubin Haunt the Next Democratic White House?
That’s a reasonable question for voters to ask as they go to the polls in the Democratic primaries over the next month or two. The next president will almost certainly face a weak economy in 2009, if not an actual recession, which means that their economic agenda should be front and center in voters’ minds.
The candidates have been sufficiently vague on economic issues that it is not always easy to draw clear distinctions between the paths that they will likely pursue based on their public pronouncements. When you can’t determine policy from public statements, it is sometimes best to determine policy by public figures.
In the case of Senators Clinton and Obama, the prospect that former Treasury Secretary Robert Rubin would have substantial influence on their administrations should cause concern for serious progressives. This is an especially big problem with a recession looming on the horizon.
The reason that specter of Robert Rubin should especially frightening is the two policies that he is most closely associated with: deficit reduction and the strong dollar.
While deficits were higher than desirable in the Bush years, the fact is that the Bush budget deficits did not bankrupt the country. The biggest problem with the deficits was what they were used for -- tax cuts for the wealthy and a pointless war – not their size. If we had run similar deficits to educate our children or fix our health care system, it would have money will spent.
In the Clinton years, Rubin placed a top priority on first eliminating the budget deficit and later running surpluses. If a balanced budget, or even budget surpluses, are a target in a future Democratic administration, then it will be almost impossible to cover the costs of items like establishing universal health care, extending child care, and pushing green technologies. Rubin’s concern with a balanced budget would be especially dangerous when the economy is in a recession, when large deficits are actually desirably as a stimulus to the economy.
While many Democrats continue to view balancing the budget as a sacred cause, Senator Edwards has distinguished himself by explicitly saying that this will not be his top priority. He will place the accomplishment of his domestic agenda, within sound fiscal constraints, as a higher priority.
This brings up the other pet policy of the Rubin years, a high dollar. The dollar has fallen considerably over the last couple of years against the euro, the pound, and other major currencies. In order to bring our trade deficit down to a sustainable level, it has to fall considerably more, especially against China’s currency and that of other Asian countries.
An improving trade balance will provide an important boost to an economy struggling with a recession.
There also is an important class dimension to Rubin’s high dollar policy. Trade disproportionately affects manufacturing workers, since they are largely unprotected from international competition, unlike, doctors, lawyers and investment bankers. An over-valued dollar helps to put downward pressure on the wages of manufacturing workers and non-college educated workers more generally. In fact, the high dollar probably did more to hurt the wages of non-college educated workers than a hundred NAFTAs. This would be more apparent to the public if the media did a better job of reporting on the economy.
It is possible that fears of Robert Rubin may be overblown. After all, his commanding perch at Citigroup put him near ground zero at both the Enron scandal and the subprime crisis. He may prove to be too radioactive for a new Democratic president to have around. But, he has been an immensely important figure in top Democratic circles in recent years, so it is probably reasonable to assume that his views will guide the economic policy of the next Democratic president, unless he or she explicitly says otherwise.
Conditions are very different now compared to when Rubin was at Treasury.
Is there any evidence that Rubin believes we should duplicate the policies he began putting in place 15 years ago?
If he's a one-trick pony, I believe he will be ignored by a Clinton or Obama administration. On the other hand, if his views are based on an analysis of current conditions -- economic as well as political -- then there will be contact, whether or not he holds a Senate-confirmed title.
December 30, 2007 8:27 PM | Reply | Permalink
All bills for raising revenue shall originate in the House of Representatives . . . . Art. 1, Sec. 7, U.S. Constitution
Now, it is true that the Republicans controlled the House in 1999-2000; but was it not possible for the Democrats, viewing the large developing surplus, to demand, on behalf of the American people, that the Congress enact substantial middle class tax relief?
What, in God's name, prevented our party from doing the obvious? And don't tell me it was its well known death wish!
December 30, 2007 9:48 PM | Reply | Permalink
Why, as a general proposition, have the congressional Repugnants proved so much more effective as a minority than were the Dems at any time during their (tediously long) minority?
December 30, 2007 10:39 PM | Reply | Permalink
Because Repugnants have no inherent respect for the concept of democracy to start with? The Republican Party flourished in the decades before 'One man, one vote' ended up as the law of the land, and people like Prof Bryan Caplan (Myth of the Rational Voter) are proof that in their hearts they would have no problem reverting to rule by the 'Better People'.
Government by exclusion is what the modern Republican Party is about, both tactically and strategically. Everybody else just needs to 'Watch what they say, watch what they do'.
The Rethuglicans don't see their filibusters as being wrong. Unlike our filibusters which are just pernicious, theirs are just upholding the Greater Good. As defined by them. The Better People. Who kind of overlap with the Villagers.
December 31, 2007 9:43 AM | Reply | Permalink
Well middle class tax relief was neither possible nor obvious in 1999. While an obvious alternative was universal health care. The idea that the only choices were tax cuts for the wealthy vs tax cuts for the middle class is not so much obvious as oblivious. Maybe what prevented us from giving Ellen a tax cut was some desire to give everyone health care?
What do I know? I am just the 880 lb gorilla in the room.
December 31, 2007 9:45 AM | Reply | Permalink
Jeez! I guess I just must have missed the Democratic Party's millenium health care for everyone PR campaign. All I seem to remember was a shameless chorus of "don't touch my lockbox," "don't touch my lockbox" political opportunism.
December 31, 2007 10:04 AM | Reply | Permalink
Clinton never stopped trying to start the ball rolling:
1998 State of the Union:
I guess you can in a way blame it on Monica Lewinsky?
December 31, 2007 10:38 AM | Reply | Permalink
The Democratic Party today is a Washington-centric patronage-chain with the state-local bosses having bowed-out after 1968. It subsists on PAC money (a Democratic innovation) and 527 money (a GOP innovation) that "leadership" barons and patrons dole out for "targeted campaigns" after negotiating "safe" districts or Senate seats --like Joe Lieberman's -- with the other party.
This a no-compete regime based on the high-tone theory of a "bi-partisan coalition on defense and foreign policy". After 1917 that coalition was was built on the old Jim Crow coalition of 1876. After 1968, it morphed into two wings -- the cringing liberal (blue-high tax) and jingo conservative (red-high subsidy) state wings.
And, after 1994, the red states became the "Republican Majority". That "majority", always represented a minority of the population eligible to vote but a majority of the propertied interests, now including the agents of foreign creditors and property owners. It is reactionary "Whiggery".
But, with no actual party outside of the Beltway, the only way Democrats can compete is by raising and spending money. And, they do that not by having any explicit fiscal or tax policy at all but, rather through, negotiating earmarks and loopholes. These are small-time "deals" that go into "omnibus" bills that pass nearly unanimously. Democrats are just "radical" Whigs in their pretenses but reactionary in effect.
The unprincipled and increasingly undisciplined Democratic deal-culture of the radical or Clintonian Whigs is more complex and less efficient at servicing the propertied interests than the GOP "ideology", hence, the unpopularity of Democratic "leaders" -- just brokers actually -- and preference of the propertied interests for GOP adulation over Democratic "Hold Harmless" protection. Why settle for what Newt Gingrich correctly portrayed as "reactionary liberalism" when you can get Alan Greenspan and pseudo-capitalist adulation?
What Democrats do not do is use Art.1, Sec.7 to attack the heart of the GOP in the red states: That would be massive agro-military subsidies that allow GOP politicians to sing praises to the "private sector" and bash the "welfare state" from from "red" states and Congressional districts, in addition, to their hereditary wealth and financial concessions . That would be states and districts that get more in federal revenue than they pay in taxes or enteprises deemed "to big to fail" and, hence, indemnified for improvidence or even larceny.
No, the closest thing Democrats do to cutting anything is either shaving a category of outlay, repealing some old and creating some new tax loopholes, or appointing a bi-partisan commission to diffuse partisan responsibility for protecting propertied interests and betraying popular or national interests.
Gaming the now unilateral bi-partisanship of the Democratic leaders is the heart of the GOP Congressional discipline and exploits Democratic Congressional corruption and cowardice. The GOP hides their cunning behind "ideological" rhetoric and the Democrats behind their "Can't we all just get along?", "Jes' He'p Ever'body!", "Won't anybody think about the children?" hand-wringing. Note they are both competing for the favor of a propertied class, not for a popular majority.
This is not "responsible two-party government". It is just what is left of a Great, World, and Cold War coaltion that the GOP seceded from in 1994 and the Congressional Democrats keep trying to make work or restore.
What we really lack here is an alternative to our varieties of liberals, Whigs actually. We need progressive conservatives in the spirit of Disraeli who can challenge both the Clintonian and Newtonian Whigs neither of whom are prepared to represent a popular majority and deal with the problems of a national economy in a global world we cannot dominate with either a strong dollar or a Royal Navy.
::JRBehrman
December 31, 2007 10:02 AM | Reply | Permalink
I consider myself a progressive democrat but 15 years ago I did not consider these policies as especially harmful but then again I didn't think about them one or the other. I do not disagree with your analysis on the consequences of these policies but there really was no one out there warning us what might happen back then. So Robert Rubin made a mistake. Why does that mean he will repeat it?
December 30, 2007 10:32 PM | Reply | Permalink
Because he's never said anything to suggest that he himself believes he made a mistake?
December 30, 2007 11:33 PM | Reply | Permalink
Well I don't and didn't see deficit reduction and the strong dollar as being bad as means to an end, the path to single payer health care depends on the proper ratio between income and cost which initially anyway depends on general fund relative balance. Which doesn't mean we need to fetishize balanced budgets as such.
Given the practical choices Clinton was faced with in the 1994-1996 period the calculation of deficit reduction vs tax cuts for the wealthy was kind of a no-brainer, when you are face to face with the Gingrich Hell Bent on Stealing Christmas maybe you need Robert Rubin coaching the defense. But as only a bazillion football fans have noted profanely while shouting at the TV, when you are ahead the only thing the 'Prevent Defense' prevents is victory.
I don't know that Robert Rubin made a mistake. On balance I would say no. On the other hand he may not be the ideal hire for Defensive Coordinator for Coach Hillary or John. We need a different playbook.
December 31, 2007 9:27 AM | Reply | Permalink
Edwards is "teaching it", without doubt.
It remains to be seen if the electorate (who get the leadership they deserve...) will give him cover for being (per conventional wisdom) way out there on the class warrior fringe.
Thus far, judging from his need to go to public financing, the electorate appears to be falling down on the job.
It is a persistent conundrum that the triumphalist victors of a class war can muster public outrage against their victims by accusing anyone who dares address this reality of waging class war!
WTF???
December 30, 2007 10:35 PM | Reply | Permalink
That may be why the most recent {Group} for Edwards list set to be released by the Edwards campaign sometimes today (shockingly, somewhere in Iowa) is (drumroll please):
Economists for Edwards
James K Galbraith is reported to be on the list, from Barkely Rosser, who's blog about it is linked to above, another member of the list.
December 31, 2007 9:30 AM | Reply | Permalink
Re: An over-valued dollar helps to put downward pressure on the wages of manufacturing workers and non-college educated workers more generally.
Did this actually happen in the 90s? I recall a fairly strong economy where most people saw their wages increase. And on a personal level I recall bloe-collar friends were complaining not about losing their jobs but about having to work too much overtime.
December 31, 2007 3:17 AM | Reply | Permalink
The low unemployment of the late 90s was a great thing. This was the first time since the 60s that workers up and down the pay-scale enjoyed sustained real wage gains, in spite of the negative impact of the high dollar. Of course, the dollar's impact does take time. Imports and exports don't immediately adjust to currency values. Also, the dollar didn't hit its peak value until 2002.
Anyhow, other factors can certainly offset the negative effect of the high dollar on the wages of non-college educated workers, but we generally can't count on other factors. btw, Clinton's appointees to the Fed did not want the unemployment rate to fall to the low levels reached in the late 90s. They wanted to raise rates to keep the unemployment rate from falling much below 6.0 percent. Fortunately, Greenspan (who Clinton did reappoint) was able to get his way on this one and allowed the unemployment rate to fall to levels that most economists argued were not possible without triggering an inflationary spiral.
December 31, 2007 3:38 AM | Reply | Permalink
"Why, as a general proposition, have the congressional Repugnants proved so much more effective as a minority than were the Dems at any time during their (tediously long) minority?" Because their goal, as with the threat or use of fillibuster and veto now, wasn't to do anything; it was to bring government basically to a halt. (The Contract in America never happened, nor did the conviction of President Clinton, but they were useful to blocking a progressive agenda.) A fanatically ideological minority also has some tactical advantages, and one can't so easily blame the Democratic leadership on lack of that.
John
http://www.haberarts.com/
December 31, 2007 6:41 AM | Reply | Permalink
Or in other words, as LBJ liked to say, any jackass can kick down the barn door but it takes a good carpenter to build one.
December 31, 2007 12:08 PM | Reply | Permalink
First, I admit that I don't know much about this.
Second, I can't see how it is useful for us to continue to run deficits for the indefinite future. In the past couple of years, we have already seen foreign governments move away from the dollar. Let's talk about what deficits are: they are loans from foreign governments to finance spending here.
I just don't see why deficit spending is a good thing, and I don't see how it is sustainable. Especially since our economy seems to be built on the three pillars of home ownership, consumer spending, and the defense industry. I really worry that so long as we are no responsible for our debt, we are running towards a collapse.
December 31, 2007 8:45 AM | Reply | Permalink
Reece at one point I was sitting in a position where I would be debt free by retirement. I was sitting in a 5.0% 15 year mortgage and seventeen years from retirement. Hurray for me! Well due to some unanticipated changes I am now in a 6.87% 30 with no realistic possibilities of ever paying it off totally. Am I in despair? Not at all. The cost of financing my house is just built into my budget.
The federal deficit is no different than a mortgage. If you can finance the payment without it gobbling up an ever increasing percentage of your pay check then it is just part of the cost of keeping a roof over your head. Certainly runaway deficits could take us over the fiscal cliff, but just about everybody is carrying a certain amount of debt service on a daily basis.
Do you really 'need' that new car? Well maybe yes and maybe no, but few people are going to castigate you for not paying 100% cash up front. For almost everyone buying a car and certainly a house requires committing yourself to a debt service higher than the present value of what you are purchasing. Only when it comes to the federal deficit does this fundamental equation come into question.
Is deficit spending a "good thing". Well the answer is not one of black and white. Sometimes there is a legitimate trade off of current utility vs future liability. Our current general fund deficit is not out of whack with projected future productivity, saving up so as to be able to pay cash is not always the logical economic choice. Certainly there is a price to be paid for having that 44" LCD TV/monitor NOW as opposed to next June, on the other hand the Super Bowl is coming up and friends are coming over. Pay to Play is not inherently evil, sometimes it is just the cost you have to cough up to get what you want.
December 31, 2007 9:25 AM | Reply | Permalink
Ok, but there reaches a point where the bank will look at you and say, "you're 90 years old, have no income, and two mortgages on your house already. No way we're giving you another 30 year mortgage."
In that case, it'd be better if the house was paid off, wouldn't it?
debt isnt' a good thing. It helps the world work in some areas, but you don't want to be running in debt for no reason. In that way, i don't think buying a house is quite the same thing as national debt. again, I admit my ignorance, but stick with me for a second. Buying a house with a mortgage is an efficient way of allowing individuals to purchase land. Without a mortgage, there is no way for anyone to accumulate that sort of money. If you're making $40,000 a year, you'd have to save your entire income for 8 years to buy a $300,000 house. It works ultimately because you get value out of the house when you purchase it, i.e. equity.
But it's not true of everything. I'm running a significant amount of debt from student loans, and that's just bogging me down. It's going to be sucking money out of my pocket for a long time with basically no value returned to me. I already have the degree.
In any case, the US isn't in the same position as you or me. The US has access to large amounts of money which it can use to make large purchases. there's not as much reason to go into debt when everything you want to buy is less expensive than your income. If, for example, you were Angelina Jolie and made $20 mil a picture, you wouldn't get a mortgage on your house, would you?
December 31, 2007 10:29 AM | Reply | Permalink
Bruce Webb said:
But if you run a deficit on your paycheck it doesn't add to your mortgage payments, as running a federal deficit adds to the interest paid on the National Debt. Correct?
January 1, 2008 6:41 AM | Reply | Permalink
The interesting question is whether Democrats feel politically more able to indulge the liberal id than they felt in the early to mid 1990s.
Rubin no doubt believed strongly in the economic policies he pushed, but ultimately it was Bill Clinton who green-lighted them. And I believe he did so primarily for political reasons (it goes without saying that everything Bill Clinton does happens for political reasons - not that there's anything wrong with that!). In the early 1990s, the public by and large saw the Republicans as more responsible stewards of the economy. Yes, the deficits of the Reagan/Bush I years were bad, but the public still believed the argument that Republicans made that Democrats were all unreformed liberals who were out to tax and spend you to death. Clinton also had the experience in the first few months of his administration of losing badly on a large "stimulus package" that was basically a sop to all the local politicoes who had supported his candidacy.
Clinton wanted to break the stranglehold that the Republicans had on the claim to being the better stewards of the economy. And he was wildly successful. The boom of the 1990s combined with the Bush incompetence has firmly established the Democrats as the party better able to manage the economy in the public's mind.
The question is - how different are things now? If Democrats try to raise taxes to pay for a bunch of ambitious social programs, will they pay a political price in terms of their economic reputation, especially after the inevitable Republican attacks? My sense is that all the major Democratic candidates realize that they will need to strike a balance between taking advantage of the changed political atmosphere and not destroying their hard-won reputation for economic competence. I predict many many bitter fights along these lines, regardless of who wins. Obama, Clinton and Edwards have different rhetorical styles and place varying amounts of emphasis on their commitment to liberal ambitions. But none is likely to deviate too strongly from economic orthodoxy, especially if the economy takes a turn for the worse.
December 31, 2007 8:56 AM | Reply | Permalink
Oh yeah it really scares me that a talented
economic adviser might work closely with a president to attempt to micromanage the world economy, assorted crises, and fight Republican calls for tax cuts that the public wasn't asking for. The peace and prosperity was like horrifying, everything they did scared me back then, they just didn't get the need for laissez-faire, always changing things. And I am sure Mr. Gore would have continued the same with what Clinton/Rubin left behind, tinkering, tinkering, tinkering. Thank god for the Supreme Court and Bush.
December 31, 2007 10:35 AM | Reply | Permalink
Clinton has given one clue, albeit indirectly, in her statements that question the growth of sovereign wealth funds (SWF):
Abu Dhabi Investment Authority, a sovereign wealth fund, invested 7.5b in Rubin's Citigroup this past November. As Canada, Germany and South Korea have also raised questions regarding the possible political goals of the SWFs, there is a possibility that Clinton and Rubin could be on opposite sides of a 'protectionist' table.
...the delusional is no longer marginal. It has come in from the fringe, to sit in the seat of power in the Oval Office and in Congress. Bill Moyers
December 31, 2007 10:47 AM | Reply | Permalink
The dollar has fallen considerably over the last couple of years against the euro, the pound, and other major currencies. In order to bring our trade deficit down to a sustainable level, it has to fall considerably more...
If the dollar falls 'considerably more' that means all commodities priced in dollars will rise 'considerably more', oil, copper, corn, = inflation, and possible staglflation. It would seem to assure a decrease in the standard of living of the average American. If we want to assure a continuing fall of the dollar, perhaps Robert Mugabe is the man we need at Treasury.
December 31, 2007 3:55 PM | Reply | Permalink
Sometimes deficits are necessary, but when the Federal Government is in deficit doesn't it add to the total National Debt and the interest that must be paid for carrying same? It seems like I remember interest on the Deficit and the National Debt costing about $1 Billion per day around 1990, the third largest expense behind Medicare and Defense.
How much of the interest on the National Debt is responsible for the deficit?
January 1, 2008 8:50 AM | Reply | Permalink
The United States can run deficits forever, just as most big successful companies continue to borrow year after year. The issue is the size of the debt relative to the country's income. As long as we keep this ratio from getting too high, we are fine. (Ideally it will stay constant or fall gradually through time.)
As far as the high dollar, this is an issue of unsustainable deficits: unsustainable trade deficits. Yes, the high dollar makes imports cheap, but that is precisely why we buy so much of them. (It also makes our exports expensive to foreigners, which is why they don't buy them.) Our trade deficit has been much larger than our budget deficit. The only real way to get the trade deficit down to a sustainable level is to have the dollar fall. It may not be fun (no more cheap imports), but that is the result of Robert Rubin's short-term high dollar policy.
January 2, 2008 2:45 AM | Reply | Permalink
My respect for you has gone down a couple of notches. The beginning presumption one has to believe at the outset is that you would be a better Treasury Sec than Rubin. He was an extremely effective person at the time. Why do you presume he would not be extremely effective at this time. Could it also be possible that he might have a better grasp of how to manage things than you present? It occurs to me that, POSSIBLY, attention to the deficits is warranted.
If the falling dollar is not supported, it WILL bring on inflation, assuming the economy is still alive. What is YOUR plan for this?
ahhh
dc
January 2, 2008 5:04 AM | Reply | Permalink
The beginning presumption one has to believe at the outset is that you would be a better Treasury Sec than Rubin.
"You may abuse a tragedy, though you cannot write one. You may scold a carpenter who has made you a bad table, though you cannot make a table. It is not your trade to make tables." Samuel Johnson quoted in Boswell: Life of Samuel Johnson
January 2, 2008 5:27 AM | Reply | Permalink
davcbr,
I didn't know that I was in the running to be Treasury Secretary, but in response to your question about the falling dollar, the problem was letting the dollar get over-valued, as Mr. Rubin did. This was short-termism in the extreme. It meant cheap imports and lower inflation at the time, but it also led to unsustainable trade deficit. I should point out that our trade deficit is more than three times the size of the budget deficit.
There is no easy way to deal with the problems created by the falling dollar. It is the only way to correct the trade deficit and we will have to eat some inflation as the price. Send your thanks to Mr. Rubin.
January 2, 2008 5:47 AM | Reply | Permalink
Exactly how did Robert Rubin cause the nation's trade deficit, and now the falling US dollar? Does he bear more responsibility than Lloyd Bentsen, Larry Summers, Paul O'Neill, John Snow or Henry Paulson, all at Treasury since the early 90's? How about Alan Greenspan, our former Fed Chief, who opened the $credit and debt spigot whenever needed to bail out one financial 'bubble' while starting another one to replace it?
January 2, 2008 3:41 PM | Reply | Permalink
The high dollar was a Robert Rubin policy. Bentsen supported a falling dollar. The over-valuation of the dollar caused it to fall -- that is pretty straightforward.
January 2, 2008 8:34 PM | Reply | Permalink
How did Rubin accomplish that policy all by his lonesome?
January 3, 2008 3:16 PM | Reply | Permalink