As Treasury Secretary from 1995 to 1999, he was the main architect of the Clinton administration's economic policy. He was formerly co-chairman of Goldman Sachs. Interview conducted July, 2000 by Chris Bury How did you first meet Clinton and decide to work for him? A friend of mine, David Sawyer, and I, hosted a dinner for then-Governor Clinton. There were maybe 12 or 15 people there. We had a three or three-and-a-half hour discussion of economic and other issues, and I left, thinking to myself that this was a man who had a really good understanding of the issues we faced. In that context, he had internalized the need to deal with the deficit which, in my judgment, at least, at that time was the single most important threat we had to our economic well-being. What made you decide to work for him? I was very impressed by the dinner that we had. I felt that our economy was in morass. I felt that, if we didn't face the issues that were in front of us, that our economy could well remain in morass for a long, long time. I'd been an active Democrat anyway, so it all came together and, and I got quite involved. Did the president call you personally, or did someone make a pitch? What role were you offered early on? Having been involved in Democratic campaigns over quite some period of time, I knew most of the people around the campaign. What happened, as I recollect it, is that over time, a small group of people, perhaps half a dozen people or so, started to get called regularly by the campaign to talk about the economic issues as the campaign itself worked its way through these issues. Without anybody saying so, we became a group of about a half a dozen people that got identified, both internally and in the press, as the outside economic advisers to the governor. During the New York primary, Governor Clinton goes to Wall Street, and gets nothing but hisses and boos, and catcalls. Did that worry you a little bit? The New York primary period was an exceedingly difficult period for the governor. . . . But, as it turned out, things worked out as they had hoped. Were you somewhat of an emissary to Wall Street? No. I was involved with about a half a dozen other people in this role of outside economic adviser, and they never really tried to reach out to Wall Street in any formal kind of way. But there were a reasonable number of people in the street who got involved. I think the reason they got involved was that the view amongst many, in that time in Wall Street, was that we really had very serious problems in this country. If we didn't face the problems -- and the central problem was the deficit, in the eyes of those people -- then it was likely our economy was going to be very troubled for a long period of time. A lot of people on Wall Street basically felt that we had to have a dramatic change in economic policy, and that that dramatic change had to be in the direction of fiscal discipline, if we're going to work our way out of these problems. And that basically was what Governor Clinton was talking about in the campaign. Traditionally, that constituency is a Republican one. It had been, traditionally. On the other hand, the federal debt had quadrupled from 1980 to 1992 under a Republican administration. Governor Clinton, as a function of his own convictions about what our country needed to do economically, campaigned on a plank of serious deficit reduction, as well as investing in our people through education and the rest. But deficit reduction was very central in his approach to dealing with the economic issues during the campaign. At what point are you asked to come on board as a top economic adviser? Some time after the election, during either the late November or early December part of the transition, the governor invited me down to speak with him. It basically was an interview, although it wasn't labeled as such, and I spent about two hours with him. It was a very interesting experience, because we talked almost not at all about economic issues. Instead, it was a broad-ranging discussion about all kinds of things. And I realized afterwards that the president-elect was trying to figure out, not where I was on economic issues -- he probably knew that at that point -- but, rather, what I would be like to have in an administration and how effectively I would work with other people. He was enormously focused on the notion that, for his administration to be effective in the economic arena, people had to work together as a team, as opposed to having the kind of internal warfare that has so often characterized past administrations. What led you to take a $26 million pay cut to join this fledgling administration? During the transition, I was in Frankfurt, Germany, on business, and the phone rang about 2:30 in the morning. I woke up and it was Warren Christopher, who was leading the transition team. He said, "The president-elect would like you to be head of the new National Economic Council," and I said, "Chris, I would be delighted," and I went back to sleep, and I was on board. For a long, long time, I had thought it would be extraordinarily interesting to see what the world looked like from inside a White House, assuming that one had a reasonable job and an effective relationship with the president. And I also cared enormously about the issues. When this opportunity came along, it, it brought those two things together, and so, for me, there was never any question about doing it. What was it like working in those early days? From everyone we've talked to, it was basically kind of a 24/7 madhouse. It was relatively active, I would say. During the early days of the transition, in January 1993, and then the first couple of months in the White House, from the point of view of economic policy, it was one relatively continuous process. An understatement? It's probably a fair but understated characterization. When you think of the enormous amount that was accomplished during that period, it's really quite remarkable. The president, from a standing start, put together a government. We put together a budget. The budget, in effect, represented a broad-based economic strategy that represented really quite a dramatic change from where the country had been. And the president launched that economic strategy to the nation with his speech to the Congress in February. During this transition, there is a bit of a battle in the White House between those who favored deficit reduction, such as yourself, and others who really felt that Clinton's promises had emphasized investment in people first. The president, during the campaign, had basically said we need to do three things. We need to get the deficit down; we need to invest in people; and then, when he endorsed NAFTA, we need to open markets abroad and keep our own markets open at home. The Bush administration had put out their last budget estimates. They were much higher deficit estimates than we had expected, and it was clear that that presented a whole new challenge to the president, to the administration. So we met on January 7, 1993, during the transition, in Little Rock. It was a newly named economic team -- with all the principal political advisers, with the president, the vice president, Hillary -- and it was about a six-and-a-half hour meeting. And I remember before going into the meeting, one of his principal political advisers said to me, "You all are going to recommend very strong deficit reduction. But that means the president is going to have to defer doing a lot of other things that he thinks are extremely important. You can't possibly expect him to make that decision at this meeting." So we got to the meeting, we sat down, and I would say about a half an hour or so into the meeting, when we had made our basic recommendation, and we're beginning the discussion, he stopped. And he said, "Look. There are a lot of things that I think we need to do, but the threshold issue is the deficit. Until we deal with that, nothing else is going to work, and we're not going to do the rest of what we want to do. So let's take that as our threshold issue and then, within that context, let's do as much else as we can." That set the tone for the rest of the development of that budget, and the economic strategy. . . . ... And it was that basic decision that framed the rest of the development of the budget and the carrying forward of the economic strategy from that point forward. Did you feel, at that time, that the economic team had won that debate? It never framed itself to me as a debate. It framed itself to me as a question of, what should we do economically? The thing that most struck me, at the time, was that the president-elect obviously had internalized what needed to be done in this economy, at least from the perspective of most of us on the economic team. A lot of people who worked at the White House in that time said that there were passionate arguments about this. A lot of people thought that the emphasis on deficit reduction was, in fact, abandoning promises that had been made during the campaign. The president's view was not that he was abandoning anything. The president's view was that the circumstances were substantially worse than he or any of us thought they were. Even though it was a very tough path to take, politically, if he didn't do the politically tough thing -- which is deal with the deficit -- then the thing that he was elected to do, which is get the economy back on track, wouldn't happen. And only way he could get the other things he wanted to do done would be to get the economy back on track. . . . There were certainly disagreements. But the disagreements were predominantly around taking on this very difficult political decision. But the president said, "This is what we have to do, this is what I was elected to do, and this is what I'm going to do." But were there, in fact, passionate arguments about this? There were differences of view. At times, they became more heated, and, at times, less heated. But all the reports notwithstanding, we basically were on the track, once the president made the decision. Was there some kind of tacit agreement with Chairman Alan Greenspan of the Federal Reserve at this time, that he would agree to certain interest rates if he saw a commitment from this White House on deficit reduction? There was no tacit agreement, some of the written reports to the contrary, notwithstanding, and I was there for the entire process. When we met with the president-elect on January 7, what we said was that if we have fiscal discipline, and we bring the deficit down, that is obviously contractionary. That'll reduce the rate of growth. On the other hand, if interest rates go down as a result, then that will stimulate growth, and we thought that the beneficial effect of lower interest rates would outweigh the contractionary impact of the deficit reduction. We also said to the president-elect, that there were two critical reactions in all of this. One would be the bond market. This program would not work unless it was credible with the bond market, and therefore it had to be real and had to be seen as real. And, secondly, it was obviously very important what the Fed would do. But there was absolutely no explicit or implicit agreement. . . . We talked about how the Fed would react. But there was neither an explicit nor an implicit agreement with the chairman. Beginning in January, there was a series of budget meetings. Some people have described them as going on forever. I think Lloyd Bentsen called President Clinton "the meetingest person I'd ever met in my life." There was a series of meetings that began almost from the first day that we actually in the White House. They were held in the Roosevelt Room of the West Wing, and they were long. But I think they were a remarkable testament to the process the president set up -- this National Economic Council process, and to the president and the vice president in terms of their seriousness of purpose. We went through that budget, and for most of us, including the president, this was the first time we'd been through a federal budget. We went through it major item by major item, all it to determine what should be reduced and, and what, in some cases, should be increased, and how to get to our spending reduction targets. And at the same time, this was being done in the context of knowing that there were certain targets that we had to reach. I think that, intellectually, substantively, and, ultimately, politically, it was a remarkable process. Did you feel the president was too involved in the details? No, I don't think so. I think it actually served him exceedingly well. For one thing, I think a lot of those decisions could only have been made by a president, because we were cutting a lot of things that had constituencies. There was a reason why the federal debt had quadrupled in the 12 years from 1980 to 1992, and the reason is that every program has a lot of political friends and it is very tough, politically, to cut any program. And here we were cutting many of them, and I think it took the president's involvement and the willingness to make tough political decisions to get where we had to get. Secondly, it gave us all a grounding in the budget that then served us, and served him exceedingly well each successive year in dealing with budget issues, because we'd been through it once in such detail. Some people have said your role was that of a traffic cop. You were there to prod the president and keep things moving along. I think my role was to do what the president had envisioned the NEC doing -- get everybody to the same table, draw up the agenda each day so that we could keep on track, and try to keep the process moving along. That was really my most fundamental role. I also had points of view, and I felt perfectly entitled to express my point of view. But, at the same time, everybody else was expressing theirs, so that we all had our views in front of him at the same time. He could sort out the pros and cons of each decision he had to make.