I.O.U.S.A. (37 page)

Robert Rubin :
I left Treasury in July 1999. In 1998, the federal government of the United States had a fi scal surplus for the fi rst time in, roughly speaking, 30 years. And the projections forward based on the fi scal policies then in place were for continued c09.indd 129

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surpluses for long, long into the future. And I thought that what had happened — well actually, I ’ m not going to say what I thought.

What
had
happened was that a political coalescence had occurred or developed around maintaining fi scal discipline, which is a very diffi cult thing to do politically because it requires spending constraint and adequate revenues. And I thought we were on that track.

Unfortunately, what happened early in the next decade is that that coalescence fell apart and we got on a very different fi scal track so that we now have substantial defi cits, and very substantial defi cits are projected into the future. And I think it ’ s imperative that we reestablish that politically very diffi cult, but economically imperative coalescence around sound fi scal conditions.

Q:
I ’ d like to explore further something you just said, and maybe
this speaks to your experience at Treasury: How diffi cult is it to
balance the budget?

Robert Rubin :
The politics of sound fi scal conditions, which ultimately should result in a balanced budget, are very diffi cult because the natural inertia in the political system is toward federal programs, most of which are very useful. And therefore the inertia is toward spending on the one hand and tax cuts on the other hand. But if you ’ re going to have sound fi scal conditions, you have got to constrain your spending and you also have to provide for adequate revenues. And what ultimately is involved are very diffi cult trade - off decisions involving federal programs and what the American people want their government to do, and then providing the means to pay for it. I think what we ’ ve got to do right now is get back on a long - term path, taking into account entitlements and all else, which brings our defi cit down over time, to the point where we have a balanced budget. But at the same time, we need to provide the room for public investment in critical areas like education, health care, infrastructure, basic research, and so much else, which is a requisite if we ’ re going to have the kind of very successful economy I believe we can have if we meet these challenges.

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Q:
If we aren ’ t able to get fi scal issues a priority in the next
presidential campaign, what are the chances that the rising debt
and the rising defi cits would threaten the status of the reserve
currency? What would be the impact on the American family?

Robert Rubin :
At the present time, the United States has signifi cant fi scal defi cits, and they ’ ll fl uctuate depending on short - term circumstances, but in the long - term sense, we have signifi cant defi cits — they get substantially worse over time because of entitlements. And at the same time, we have very large trade defi cits. At some point, these become a deep threat to our economy and to the global economy. Our political system is going to have to address this predominantly through putting in place a sound, long - term fi scal regime.

One of the risks, and there are many risks in this combination of imbalances, is that at some point people can lose confi dence in the dollar. And if the global community lost confi dence in the dollar, it ’ s conceivable that we would no longer be a favored reserve currency. That ’ s a very technical matter, but it could have enormous signifi cance for our country. I don ’ t believe that will happen, for a whole host of reasons. I believe we ’ ll remain a reserve currency, and I believe at some point our political system is simply going to have to address these long - term fi scal issues. But it ’ s going to be very diffi cult to do it, and it ’ s enormously in the interest of the American people that our political system address these issues before they ’ re a substantial diffi culty, rather than in response to substantial diffi culty. But our political system has a tendency to respond more in response to diffi culty than in anticipation of diffi culty. The United States has many great strengths, which put us in the position to thrive over time economically, but in order to thrive we have to address these issues, and if we don ’ t, then I think we could have serious diffi culty.

Q:
What does life look like for your kids or grandkids if the
fi nancial road that we ’ re on is not changed or altered?

Robert Rubin :
If the fi nancial road that we ’ re on — which consists of substantial fi scal defi cits that get far worse as time goes on, in c09.indd 131

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large measure, but not totally because of entitlements and because of inadequate revenues and large trade defi cits and a very low savings rate — if we stay on that fi nancial road, that could very seriously threaten our economy, job creation, and standard of living in this country.

On the other hand, we have enormous strengths. The United States economy has enormous strengths and we could have very good economic conditions in this country for a long, long time to come. But we have got to change, dramatically change, the path we are on with respect to fi nancial conditions. This includes addressing our long - term fi scal defi cits, which is a question of government spending, including entitlements — plus having adequate revenues, and you ’ re going to have to act on both sides.

We ’ re going to have to have public investment, we ’ re going to have to address our large trade imbalances, and in some fair measure, I think you can do that through addressing your fi scal issues. We are also going to have to aim toward a higher savings rate which, once again, in part can be addressed through having the kinds of surpluses we should have had during a period of good growth, and having sound fi scal conditions over time instead of having large defi cits.

Q:
It seems very diffi cult for a politician, especially a presidential
candidate, to run on that ticket. Do you have any comments
about that?

Robert Rubin :
The politics of this are extremely diffi cult because basically, in order to accomplish sound fi scal conditions, you have to both constrain spending and also have adequate revenues.

And the whole thrust of the political system is to want to spend on federal programs — most of which may be very good on their own merits, you just have to be able to afford them — and to have tax cuts. One of the political problems is that it is very diffi cult to explain all this in ways that people can relate to and that has political resonance.

In 1992, during the presidential campaign, one reason I believe that the restoration of the fi scal discipline became such an c09.indd 132

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important and powerful political issue was because by that time we ’ d had, roughly speaking, 3 years of political diffi culty; we ’ d had 12 years of unsound fi scal conditions, and the American people associated the economic diffi culties of those roughly 3 years with the unsound fi scal conditions, with the defi cits, and I think rightly associated the two. In a very real political way, I think the defi cit became the symbol for all of their concerns about our economy at that time, and so the major candidates were all focused in varying degrees. Particularly President Clinton was very much focused, but as you may remember, Paul Tsongas had run at that point in the primaries, Perot had run at that point as an independent, and they had all talked a great deal about restoring fi scal discipline.

Q:
Do you see that the economic environment now or the fi scal
condition is similar now to 1992? Do you see similarities
between 1993 and possibly ’ 09, or ’ 92 and ’ 08?

Robert Rubin :
With respect to reestablishing fi scal discipline and putting in place sound fi scal policy, you have a very different environment today than President Clinton faced — or then Governor Clinton faced in the 1992 presidential election because we ’ ve had strong GDP growth. That ’ s on the one hand. On the other hand, we ’ ve had, roughly speaking, stagnant median real wages; we ’ ve had large increases in inequality; and we ’ ve had a seeming increase in economic dislocation. Most Americans do not feel comfortable or are very concerned, economically. But it is not a similar kind of economic circumstance to those we had in the three years leading into the
’
92 election. And as a consequence, I think fi scal issues will not play a large role in the
’
08 campaign.

I think they should, if the judgments were made with respect to the importance of the issue, but I think the politics probably will tend not to create the imperative and same kind of environment around fi scal issues that we had in 1992.

However, I think that there will be a manifest imperative that the political system and whoever is president at that time will face these issues at some point, because I think if we don ’ t face c09.indd 133

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these issues at some point, they will begin to create the kinds of diffi culties that are going to force the political system to address them. Now, when that might be in time is impossible to predict.

Q:
What is it that you enjoy about the career that you ’ ve had and
your role? What is it about economics for you that made it not
the “ dismal science ” ?

Robert Rubin :
I remember a few years ago, I was speaking at a venture capital conference and I started talking about fi scal policy.

And I began to express my views about the absolute imperative that we address our fi scal issues, that we address our trade imbalances and all the rest. Afterwards, somebody said to me that I was the only person they ’ d ever met who could get passionate about the federal budget. But I think it is an imperatively important issue, and every once in a while, in the course of our economic history, the importance of that issue has imposed itself on us because of the adverse effects that can occur from unsound macroeconomic policy.

More generally, I ’ ve been lucky or fortunate in my life in having the opportunity, even though I was involved in a business career, to be engaged pretty much throughout that career in another dimension of life, at least for me, which was political and policy activity and the intersection between the two. And I think it is both enormously important and also endlessly fascinating. Not only is the economic policy itself endlessly fascinating, at least for me, but I think the intersection between economic policy and politics, how to deal with very complicated economic issues of enormous consequence in the political environment, to me is an endlessly fascinating subject.

Q:
What would you say to somebody who said, “ I ’ ll never
understand that stuff — it ’ s too complicated ” ?

Robert Rubin :
It ’ s actually not that complicated. I think you can bring it down to some pretty understandable terms. You know, there ’ s this old saying, there ’ s no free lunch, and I think that almost captures the whole thing. Just as for an individual, in the fi nal analysis there is no free lunch, there ’ s no free lunch for a c09.indd 134

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national economy. I heard someone say not long ago, and I think this is right, that what we ’ ve got to do is to pay our way now, we ’ ve got to be on a road to paying our way for the years and decades ahead, and we ’ ve got to invest in our future. And at the present time, we ’ re not doing any one of those three. If we do them, we can have an enormously successful economy over time, and if we don ’ t, then I think we run the risk of having very serious diffi culty.

Q:
Can you talk a little about foreign ownership of debt and its
impact on interest rates in this country?

Robert Rubin :
If you look at where we are today, debt as a percentage of GDP is not at unreasonable levels, although it should have been much lower because we should have had surpluses during this period of growth, given that we started this decade with surpluses . . . and we ’ ve had some very good fortune with respect to revenues being much higher for all kinds of reasons. I think relatively temporary revenue ’ s been much higher than had been expected. And had we had the surplus, we could have had a much lower level of debt relative to our total economy.

But the problem is that if we stay on our current fi scal path, the ratio of debt to our total economy will grow and grow and grow over time, and as time goes on, the rate of growth is going to increase because we have these very large, unfunded liabilities.

A lot of people, and I think the markets, for that matter, don ’ t tend to worry about this too much because they think that at some point the political system will fi x this before it becomes a serious problem. Somebody described that to me the other day as believing in “ just - in - time politics ” — that we won ’ t deal with it until we come up right against the serious diffi culty that this could lead to, and then on a just - in - time basis, we ’ ll fi x it. I think that ’ s a relatively unrealistic view of how our political system works.

And I think that if we don ’ t address this in some reasonable fashion, then the likelihood that we will do it before we have trouble is probably not as great as we would like to believe, and the likelihood that we ’ ll only do it in response to trouble is higher than we ’ d like to believe.

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So I think that this belief in just - in - time politics is a comforting thought, but I suspect it may be a relatively unrealistic thought. I think there is a tremendous opportunity for whoever is the next president to really make a very big and important difference for this country by providing serious leadership on this very diffi cult set of issues.