‘In an Uncertain World’
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PAUL SOLMAN: Of all the members of President Clinton’s Cabinet, only one had a set of policies named after him, Treasury Secretary Robert Rubin, who came to Washington from Wall Street and presided over the largest peacetime economic expansion in U.S. history.
ROBERT RUBIN: We are today signing four agreements that will serve American economic interests.
PAUL SOLMAN: A long-time investment banker, he co-ran Goldman Sachs, Rubin is known for his handling of the financial crises of the ’90s, his controversial borrowing from government trust funds to keep the United States from default, and his constant efforts to lower government deficits and balance the budget — an economic philosophy that became known as “Rubinomics.”
Now back in the private sector as one of the top executives running the giant financial services firm Citigroup, Rubin has spent much of the past three years on a book with journalist Jacob Weisberg called “In an Uncertain World.”
The book documents Rubin’s years in Washington, as one might expect from a government memoir, but its major intellectual theme is rather unusual: His existential yet economics-based approach to decision-making that he calls “probabilistic” thinking.
ROBERT RUBIN: It is exactly what you said. It is always a question of the probabilities, and if it does happen, what are the benefits? If it doesn’t happen, what are the costs? And it’s also a question of trade-offs, because very often — although people don’t like to recognize this, particularly politicians — in order to gain one good you have to give up another good and then, of course, the risks.
It’s also recognition that there are no absolutes. There are no certainties. And I think, unfortunately, if you approach a very complicated issue — whether running a risk arbitrage department or in a financial crisis in Mexico or perhaps in today’s geopolitical issues — with the concept that there are certain answers, I think it leads you not to good places.
PAUL SOLMAN: So what’s an example of probabilistic thinking from your own career? You write about the Mexico crisis, for example.
ROBERT RUBIN: I was sworn in in the Oval Office and right after — it was in the evening — and right after I was sworn in, I said, “Mr. President, Larry Summers” — who was then my deputy, now president of Harvard — “Larry Summers and I need to speak to you about a subject that the two of us and Alan Greenspan have been spending a lot of time on. There is a crisis in Mexico. That crisis is likely to have very substantial adverse effects on the United States. We strongly believe that the sensible thing to do is to intervene and provide very substantial U.S. resources.”
PAUL SOLMAN: This was the famous so-called bailout. I know you don’t like the term.
ROBERT RUBIN: Yeah, bailout wouldn’t be my way of characterizing it. I think initially about $20 billion or thereabouts. And that’s where it wound up from the United States.
Well, the IMF put up more. And then we said, “But Mr. President, we cannot guarantee you it will work. And if it doesn’t work, there are a lot of reasons to think that the political consequences for you could be very serious.” And one of the political consultants said he thought it could cost the president his job.
Well, there’s real probabilistic decision-making because you — what are the odds on it working? What are the odds of terrible things happening if you don’t get involved? All decisions, in a sense, were bad and the question was which is the least bad decision? Interestingly, President Clinton very quickly said, “Look, the United States must do what makes the most sense for our economy.” And it went much beyond our economy, national security and much else —
PAUL SOLMAN: — the flood of immigrants from Mexico if Mexico collapses.
ROBERT RUBIN: Oh yeah, illegal immigration, drugs, corruption that could come with all of that and the possible other consequences and he made the decision to go ahead.
PAUL SOLMAN: How did probabilistic thinking get you from Wall Street to politics?
ROBERT RUBIN: Oh, well, I had wanted to be in politics about as far back as I can remember. It just fascinates me. And it seemed to me that….
PAUL SOLMAN: Power fascinates you?
ROBERT RUBIN: No, not power. No, no. I think it’s something different. And I didn’t express this this way in the book because I just thought it sounded too, oh, I don’t know, too heavy or something, but it’s basically a sense that if you think about the totality of time and space, we are very small, individually.
PAUL SOLMAN: Yeah, it’s a really … bummer, isn’t it?
ROBERT RUBIN: Well, it is and isn’t. I mean, it sort of … yes, it certainly has that aspect about it, but it also means that if you don’t do something, if something goes wrong or you go … you do the Mexican financial support program and it fails or you run into great trouble because you’re trying to do a debt-ceiling issue and that fails … yeah, on the one hand you take it very seriously, but on the other hand, you recognize that 100,000 years from now nobody is going to care.
Now, that train of thought has led a lot of people unfortunately into not being engaged with life. I feel that you can have that kind of perspective and also be enormously and intensely committed to what you’re doing. And I, somehow or another, combine the both.
PAUL SOLMAN: And that’s what the philosophers who have called themselves existentialists believed. There might not be any meaning out there but that just meant that you had to give life meaning.
ROBERT RUBIN: I think that is the fullness of existentialism. By the way, that same mind set was shared by, I think, quite a few other people at treasury.
PAUL SOLMAN: There was a cabal of existentialists?
ROBERT RUBIN: God help us, no, there was not a cabal of existentialists, although I’m sure there were some people in Congress who thought maybe that was the case. But, I think what it was, was a group of people who created some sense at least of a recognition of … that none of us, in the final analysis, had any reason to be caught up with ourselves and even a little bit of a sense of irony about life at the same time that we were enormously committed to what we were doing.
PAUL SOLMAN: I remember I interviewed you right after you became secretary of treasury and I came away thinking that, among other things, you were kind of thrilled by being secretary of treasury. I remember that you gave a number of us dollar bills…
ROBERT RUBIN: Signed dollars?
PAUL SOLMAN: Yeah, signed dollars, because your name was now on the dollar bill. You know.
ROBERT RUBIN: Yeah, I gave away a lot of sign dollars over the years but I never … it’s funny, Paul. Every once in a while I would think to myself I’m secretary of the treasury, but that was a fleeting feeling.
The basic feeling was that the pressures of the … a, what we need to do and, b, just all the problems of getting it done and, with all due respect, the media and everything else that surrounded this to an extent. So I never felt the feeling or rarely felt the feeling of, sort of, headiness that could come with those jobs.
PAUL SOLMAN: You write that you thought the term “voodoo economics” used by current President Bush’s father when he was campaigning against Ronald Reagan in 1980 was an apt phrase.
ROBERT RUBIN: Correct. I don’t think there is any serious evidence that tax cuts have a significant impact on choices between work and leisure and the like and therefore have that supply side effect that sometimes is claimed for it.
PAUL SOLMAN: In other words, if my taxes get cut, I’m going to work harder, therefore I’ll produce more. Therefore, I’ll pay more in taxes, and therefore, there won’t be a deficit.
ROBERT RUBIN: We went through the whole 1980s on that theory and the federal debt, roughly speaking, quadrupled from 1980 to 1992.
PAUL SOLMAN: So when you talk about the ’90s, when you were in the administration, as a period of a virtuous circle, where lower deficits led to more confidence, lower interest rates and so forth, you were concerned about this famous vicious circle, I take it, of higher interest rates, lower confidence and so forth?
ROBERT RUBIN: Yes, I’m very concerned about it, Paul. I think the probability that the course that we are now on, the fiscal course that we are now on is going to lead to serious trouble is exceedingly high.
PAUL SOLMAN: Seventy percent? Eighty percent?
ROBERT RUBIN: No, I think it’s probably materially higher than that unless it’s repaired, but the trouble is the repair of it is going to be very difficult. Alan Greenspan said about a week or two ago that our future depended on fixing it.
The best evidence on any of this that’s around is what happened in 1993, because we put in place a powerful deficit reduction program. It had income tax increases on top the top 1.2 percent of Americans, a small gas tax and the supply side critics said that this would lead to high unemployment, recession even worse.
And instead what we had was the longest expansion, economic expansion in American history, the creation of over 20 million new private sector jobs, high growth, low inflation, low interest rates, incomes increase at all levels. It was a remarkable period of economic conditions.
PAUL SOLMAN: Were you, do you think, as an administration, fairly lucky, as well? I mean, there was a moment in history, high tech, people enthusiastic, consumer confidence building on itself.
ROBERT RUBIN: Paul, I don’t think that’s right. When you say that people got enthusiastic and the rest, they weren’t enthusiastic in the end of 1992. If you look at consumer confidence, it was not high.
There was a general feeling in the business community we were in a morass. And I think that that came about, in some fair measure, because the deficit had come to become a symbol of something much larger than itself, an inability to manage our economic affairs. And when there was a realization that the political system was finally going to put in place fiscal discipline and reestablish fiscal discipline I think that had a very substantial effect on business confidence and on consumer confidence.
PAUL SOLMAN: What would you do differently now as treasury secretary if you could go back in time? Anything?
ROBERT RUBIN: At one point Madeleine Albright came to me and she said — this is the beginning of the second term — she said, “You and I, the secretary of the state and the secretary of treasury, should go around the country and try to explain to the American people how much our self-interest is affected by what happens abroad and how important it is that we support trade and foreign assistance and crisis response, this whole range of issues.” I thought it was a terrific idea. I never followed up on it. We never did it.
How much difference it would have made, I don’t know, but I wish we would have done it. A personal regret I have is that the six-and-a-half years I spent there — two White House, four-and-a-half treasury — were a remarkable experience in just a whole multitude of ways — to be with a group of extraordinarily talented people and the president of the United States working through these very complicated issues that affect not only our country but the rest of the world, there should be a feeling of satisfaction — there should be a feeling of fulfillment.
There should be a feeling of really engaging with all of your powers, such as they may be, on issues that matter. And because I was so caught up in what I was doing, and so consumed, in a sense, with trying to meet the challenge of what I was doing, I don’t think I had that very often. I think it’s too bad.
PAUL SOLMAN: You didn’t savor it enough.
ROBERT RUBIN: I didn’t savor it enough — precisely. That’s exactly the point.
PAUL SOLMAN: Robert Rubin, thanks very much.
ROBERT RUBIN: Well, thank you. It’s been very good to be with you.