Rubin's Rx

Clinton's economic guru, former Treasury secretary Robert Rubin, wrote a piece in Tuesday's Wall Street Journal on what's up with the economy. "Rubinomics," you will remember, was widely credited with turning things around under Clinton. It concentrated on a return to fiscal fundamentals, deficit reduction, targeted tax breaks, open markets, and social spending on education and against poverty. His piece today continued on the same line. (Why not?)

Rubin says (in my translation, see below):

We are in deep do-do, and the Supply Side nonsense that things are going to turn around is bull.

Big deficits cannot be tolerated, since we are facing big payouts in entitlements, exorbitant health care costs, and years of underfunding education. Medicare is several times as great a problem as Social Security.

Our fiscal problems are made worse because the U.S., alone among the developed nations, has combined them with very low personal savings rates, high personal debt, and enormous trade deficits -- currently over 6% of GDP -- stemming partly from our budget deficits. [It is fair to note here that trade deficits were not much better under Clinton/Rubin.]

We can close more than three-quarters of the deficit by rescinding the tax breaks for the rich. There is no other practical means.

The current illusion of strength in the economy comes from the housing boom, which was generated by low interest rates. Low interest rates have come from (1) Greenspan rolling over for W like he never did for Bill and me, (2) foreign central banks propping up the dollar for their own trade purposes, and (3) lack of demand for capital from business (not a good thing). Interest rates will go up soon, largely because federal deficits are going to bid them up.

We need significant new public investment, both to turn around the decline in people's incomes and to equip our citizens to participate in economic growth.

Global integration, including all nations, must continue. Essential to its success is reducing global poverty. Further integration will be politically possible only if everybody is "participating" here at home, as above. It is problemmatic that who want global integration do not support the significant domestic investment needed to get people participating on a broad scale, and those who want the domestic investment on people are not so sure about globalization.

End of translation, you saved 745 words.

Rubin has experience turning bad situation around, although he and Clinton did have a couple of breaks not available today. For example, when they cut the deficit and interest rates fell, a huge re-fi boom followed. This will not happen again; interest rates are already low and all the re-fi-ing has been done. And oil prices fell for Clinton and Rubin, then stayed low, and fell some more before rising a bit at the end. Low oil prices are no longer on the horizon. Also, the technology boom was probably not entirely invented by the Clinton or his vice president.

I was impressed particularly by Rubin's call for broad public investment to first develop human and physical capital, but also to get people's incomes going up again. The likelihood of such a program is dim at best, even under a Democrat. The return to fundamentals in the first year of the Clinton administration was far from painless. The modest tax increase it required cost Democrats control of Congress. (Recall that Maria Cantwell's yes vote cost her a second term in the House, when she was defeated by anti-tax demagoguery.)

But it would work.

Translator's technical notes:

One thing I didn't know about Rubin is he has a very abstruse style of writing. While he is not purposefully ambiguous as is Alan Greenspan, it is very thick. The following examples depict how the original text has been transposed into blogish.

The title "We Must Change Policy Direction," to "Change Policy!"

A sample paragraph: "Re-establishing seriousness of purpose regarding economic policy and acting to meet the challenges of our era will require our political system to do what it is not doing today: making choices that are very difficult politically, compromising among divergent views in order to reach common ground, and putting aside ideology in favor of facts and analysis."

This paragraph was omitted as superfluous. Had it been included, it would have read, "We need to get together, face facts and show some backbone before it is too late."

Mine is simply an aggressive rendition of Rubin's opinions. They are not my own, even if there are some similarities.