In the spring of 1994, interest rates start to rise, and people haven't
quite anticipated by how much. . . . Can you characterize the president's
concern about interest rates at this time, and, and what you told him? . .
There was a concern that when interest rates started to go back up it might
choke off the recovery. Laura Tyson and I went to the Oval Office, to have a
specific discussion with the president on a very narrow technical question -
"What is the full employment rate of growth of the economy?" We said to the
president that the economy was getting back on track, but at the same time, if
we're going to have an extended recovery, then you couldn't let the recovery
get out of hand on the upside either. You needed to have a certain discipline.
And that the increase in interest rates might very well, in the long run,
benefit the economy, even though it would reduce short-run growth below what it
otherwise would have been.
What was the president's mood after the 1994 elections in which the majority
was lost in the Congress?
There was a period -- not just with the president but with people in the White
House -- of general concern, a sense of having lost our footing, and of a need
to regroup and try to think our way through it. . . . But what was most
interesting to me was that this was one of those kinds of events in life that
just shakes at your footing, and you have to rethink your footing and where you
are. And then the president led the way back, because he thought his way
through to where he wanted to position himself. He got himself back on his
feet, and figured out where he wanted to go from there. And you think about
it, the administration did very well from that point forward.
Was there a concern that not having a majority to work with was really going
to affect the economic plan?
I think the concern was a much more general one of how to deal with what was
really a seismic change in the political environment. Subsequently, in 1995,
in the summer, the question honed in more on what the president's proposed
budget should look like. He made the decision -- rightly, I think, although it
was a very controversial decision internally in the White House at the time --
he made the decision to put forth a budget that not only continued fiscal
discipline, which was our strategy, but actually went to balance. And he said
that was the next logical step in the strategy track he was on. He felt that
that was the way to best carry forward what he was trying to do, and also to
regain the initiative, politically.
At this time, Dick Morris comes onboard as a secret adviser with the code
name "Charlie." Could you tell there was something going on here in the White
House? Speech drafts were being changed; the president's focus was
. . . Because I went to the senior staff meetings every single day, in the
White House, I was less attuned to what was happening than some other people.
But then I began to hear from some of the people who were there, that something
going on that seemed a little bit curious.
You said that before the president proposed his balanced budget, there was a
lot of debate in the White House.
There was an immensely strong commitment to continuing with fiscal discipline.
That debate no longer existed. But the question was, what is the best way to
go forward? There were those who felt that we should continue on the fiscal
discipline track that we were on, which would get us to balance, but over some
longer period of time. And there were others who felt that it would make more
sense, if we were going to continue on that track, to put out a balanced budget
proposal right now.
The president was of the latter view. He said -- and I can very specifically
remember this happening in a meeting we had in the Oval Office with him -- that
we needed to put out a balanced budget proposal, both to best carry forward
this whole strategy of fiscal discipline, and also, more generally to regain
the initiative, politically.
And did you needed to do that especially because there was now a Republican
He was on a strategy of fiscal discipline right from the beginning, in 1993.
The only dynamic that changed was how to protect that strategy against very
large tax cuts, which could have undermined our fiscal strategy, and how to put
in place a budget that basically continued to force the issue on deficit
reduction, as opposed to moving back into a fiscal strategy of large tax cuts
and larger deficits. We also had to preserve the president's emphasis on
education and the other areas that he believed very strongly we needed to
In November comes the crisis over shutting down the government.
...The budget shutdown actually was in two parts. First, the Republicans
threaten the president on the ceiling.
Correct. The basic threat was, "We will not raise the debt ceiling, therefore,
you will not be able to pay the debt, and you'll be in default," as a way of
pressuring the president to sign a budget that he basically believed was
unsound. At the Treasury Department, we found a means of drawing on federal
trust funds -- something that'd never been done before, at least in the way
that we did it -- to continue paying the debt, even though they wouldn't raise
the debt ceiling.
Did that "trump" the Republicans' hand, essentially?
That trumped the Republicans' hand, and took that strategy off the table. So
then they moved to the strategy of forcing a showdown over shutting down the
government, and that, ultimately, is what happened.
What was the president's tenor like at this time?
The president was terrific. The president had put out a budget. The president
had a very strong sense from the very beginning of the administration of what
he wanted to accomplish. He also had a very strong sense that some things were
simply unacceptable. As you might remember, in 1995, there were proposals to
make enormous cuts in Medicare. And at one meeting, he said that even though
the Medicare proposals were the ones that had the most political salience, the
thing that most troubled him was that the Republican budget involved large cuts
in Medicaid, health care for the poorest. And he said that, while that had not
very much political constituency, he would never ever sign a bill that had that
provision. I had enormous respect for his resoluteness, first in the face of
the threat of default, which we fortunately were able to design a way around,
and, secondly, in the face of the government shutdown.
In 1996, the, the major economic battle is welfare reform. There is a
discussion in the cabinet about this. As we understand it, the debate was
The debate on welfare . . . was an interesting example of how the president
functioned in decision making. He's an extraordinary decision maker. . . . I
thought he was as good as any decision maker I'd ever worked with. Each of us
expressed our views. The president would explore with each of us the issues
that our views raised, and then with all the substantive, and political pros
and cons on the table, he raised some issues himself, that he felt we had not
adequately raised. He was exceedingly knowledgeable about the issue, and then
he said he would make his decision. Shortly therefore, he did make his
decision. But the tone of that meeting was not a tone of heated debate. The
tone of that meeting -- and I remember it exceedingly well -- was a tone of
enormous respect for the difficulty of the decision that he needed to make, and
for the complexity of the tradeoffs that were involved.
This was almost a core emotional issue for Democrats.
It was an issue of competing core emotional views for not only Democrats, but
for people more generally.
But within the cabinet, you had advocates such as Donna Shalala, who clearly
thought this was the wrong thing to do.
But even the people who felt he shouldn't sign the legislation felt that this
was a relatively close call, and that there were very powerful competing
considerations, and that there was strong weight on both sides of the argument.
The thing that was most impressive about this meeting . . . was that you had a
very serious thoughtful discussion of these pros and cons amongst a very large,
relatively large group of people who were deeply involved in the issue.
In 1996, Clinton wins the second term in November. Did you have a sense
after that reelection that the president had some kind of economic mandate, or
was there a sense that you could accomplish other things in the second
Probably the single most significant issue in the election, at least in my
opinion, with respect to mandate going forward, was that [Dole] and Kemp had
proposed an enormous tax cut. It gave the American people an opportunity to
vote for an enormous tax cut, on the one hand, or for continuation of deficit
reduction . . . for a continuation of fiscal discipline, on the other hand. I
think it was pretty broadly held that was that this was a mandate to continue
on the path that we'd been on.
In early 1997, the Asian economies start to "melt down." How did the president react to that, and what did actions tell you about him
as a decision maker?
The Asian crisis was a very complex matter, and he got into it very quickly.
He wanted to know what was going on, and what we were doing, and why we were
doing it, and, for that matter, why we weren't doing some things we weren't
doing. He kept himself very closely informed through the whole process.
I remember, a little later in the process . . . I was fishing for salmon in
Alaska. The Secret Service agent who was standing next to me got a call on his
cell phone, and it was the President of the United States. I had a salmon on,
and he wanted to talk about Russia, and he was very interested in getting into
some very specific aspects of what was happening. I told the Secret Service
agent, "Ask the president if I can call him back in just a few minutes. I have
a salmon on, and I want to land him." The president said okay. I landed the
I called him back, and he was very focused on very specific aspects of what was
happening in Russia. He was deeply, deeply steeped -- not only the issues and
the problems -- but also in the various kinds of approaches that people were
taking to try and deal with the early stages of the crisis, and then the later
In late 1997 and early 1998, what is the real economic threat?
The greatest threat during that period, and maybe the greatest threat during
the entire Asian financial crisis, was the possibility of Korea going into
default in the last week of December of 1997. At Thanksgiving of 1997, the
president was at Camp David, and I was at a little house we have in the
country. We needed to get the President of Korea and the Prime Minister of
Japan on successive phone calls with the President of the United States, to
urge the president of Korea to pursue economic reform, and to urge the prime
minister of Japan to pursue certain policies in Japan.
So we set up a conference call which I was on, although the president would
obviously be doing the speaking. The president spent probably two hours of his
Thanksgiving evening waiting for the others to get on the phone, and talking to
them, then doing a reprise of the discussions and then waiting for the other
one. During the time when we were waiting for the Prime Minister of Japan to
get on the phone, he was working a crossword puzzle and said to me something,
"What does this word mean" or something. And I didn't have any idea. So I
said to my son, "What does this word mean?" And he said, "Oh, any idiot would
know that. Who's so stupid?" I said, "The President of the United States."
But in any event, the president was very deeply involved, and a very active
participant in helping get or try to persuade or urge the various participants
around the world to do what, in the judgment of all of us, needed to get
In January of 1998, the Lewinsky scandal breaks, and on January 23, the
president has a cabinet meeting. What do you recall about that?
I remember being there, and I remember his discussing it, and that's about what
I remember. We had a cabinet meeting, as you correctly say. He discussed it.
I had a broader view of this whole thing, which is that whatever the facts may
be, he may have made some terrible mistakes. But I also felt that, relative to
everything else that was going on, this whole set of events was being given a
focus that was vastly disproportionate to its importance relative to everything
else that was going on.
In this cabinet meeting, the president lied to his cabinet.
Look, the president made some terrible mistakes, and he's admitted that. And
all of us make terrible mistakes. My reaction to that period, starting with
that cabinet meeting and then going forward over the course of the next year,
was to have an increased respect for the president -- because what I saw was a
president who came into work every day, despite these immense external
pressures, and basically applied himself to the issues that were in front of
I can remember a meeting we had when the whole impeachment matter was in a
boil. He had about 50 or so members of Congress -- half senators, half representatives, half Republicans, half Democrats. We
discussed Social Security, and it was in a meeting that he led. And it was a
remarkable discussion. He pursued the various intricacies of Social Security
reform as if there was nothing else happening around, in an effort to move that
process forward, even though quite a number of the participants in that meeting
were people who basically wanted to see him impeached. That, to me, was an
example of the tremendous commitment to and effectiveness of what he was doing,
despite these vast external pressures. I developed a great respect for how he
handled that whole situation.
Did you ever consider leaving at that point?
Absolutely not. As I said, my respect for the president was enhanced. I think
he made some terrible mistakes. He acknowledged that. But I also watched how
he handled himself in the face of those enormous pressures, and I developed an
enhanced respect for him.
On September 10, the president invites you and other members of the cabinet
to the residence -- to say what?
There was a meeting in the residence, and he discussed the situation. I don't
think I feel comfortable repeating what he said. But I'll tell you what I
said. A number of people spoke, and I was one of them. I said, "Mr.
President, you've acknowledged you've made terrible mistakes, and I think
that's right. But I think you've handled yourself extraordinarily well, and I
have enormous respect for the way you've handled yourself through an extremely
difficult situation, number one.
And, number two, while they were serious issues, I think they were vastly
disproportionately covered by the American media at a time when there are a lot
of other issues that are of tremendous importance to the American people. And
I think there was a lot of hypocrisy in the way the people reacted to this
whole set of events." And that's a pretty good characterization of what I said
during that meeting. . . .
During the impeachment period, especially before the Senate vote in the
House, several members of the administration during that time have told us that
they were concerned at moments that this president might not finish his term. .
. . Was there ever a moment when you thought that this president would either
be removed from office or would have to resign?
I don't think so. I suppose each of us reacted to that period in a different
way, and it's probably a reflection of our own nature and psyche. My reaction
was to do what I was doing, and we had an enormous amount going on at the time.
And it was very much the president's reaction.
I think one of the things that affected how that whole White House functioned
was the fact that he, himself, continued to devote himself to what needed to be
done with such enormous energy. But I don't think that I ever thought that. I
think my view was that this thing would work its way through in one way or the
other. On the other hand, I was not enormously focused on that issue. My
focus was on what we were doing.
Since the impeachment period, did the president change? Did you notice a
difference about him? How would you characterize the president in the
I don't think that he was particularly different, as far as I could see. As
you may remember, there was this enormous debate over what to do about the
surplus, and he spoke to the American people about preserving the surplus to
protect Social Security. That wasn't the exact phraseology, but that was the
thrust of it. And he threw himself into this question of trying to avoid
having the surplus consumed by a tax cut, and rather to preserve it in order to
promote a national savings, promote the fiscal position of the government, and
in fact to strengthen Social Security.
And it seemed to me that this president was the same person I had been working
with all along, somebody who was deeply involved in what he was doing, cared a
lot about the substance of it and was willing to take very difficult political
You leave your post as secretary of the treasury in May, 1999. Did you
postpone your departure so you could see the president through his difficult
period of impeachment? Why did you choose to leave?
I might have left a little bit earlier if it hadn't been for the Asian
financial crisis and the impeachment crisis, because you had two crises going
on at the same time. But I had thought to myself that if I was going to leave
-- and I wasn't sure that I was -- but if I was going to leave, probably the
right time to do it would be with about two years left in the term.
. . . Given that there were still, in my judgment, some instabilities relating
to the Asian financial crisis, and given that there was still unsettled issues
around the impeachment crisis, it seemed to me that I should not leave until
that had reached an appropriate point. Fortunately for me, I had an
outstanding deputy, Larry Summers, and I knew that whenever I did leave, I
certainly thought there would be a seamless transition which, in fact, there
Did you worry how it might look if the secretary of the treasury was
resigning during this impeachment process?
Firstly, I wasn't going to resign during the crisis. And as I said, my respect
for the president and my view of the president were enhanced by how he handled
himself. So that was my net reaction to that entire set of events. I don't
think I ever thought about how something would look, in that respect. What I
did think a lot about was being there until the instabilities around the Asian
financial crisis really seemed to work their way through, and also being there
through the completion of this impeachment process.
It was important to show loyalty?
Oh, I think it was more than an issue of loyalty, although I think that was a
piece of it, perhaps. But I think much more importantly was, as long as these
events of great moment were going on, there was the possibility, at least, of
things happening where I could have been useful. And while I had total
confidence that Larry Summers, who is really truly outstanding, would have a
seamless transition, the fact is I had been there for a long time. I was seen
as having been pretty deeply involved in a lot of what had happened, and it
seemed to me useful to have me there until these issues had worked their way
Now that you've had a chance to reflect on this administration, we're asking
everyone the same question -- in history, good and bad, and as succinctly as
you can, what do you think this president's legacy is going to
The question of what his legacy will be is a broad issue that all of us will
probably think about and have different views on as we have further distance
from it. I can reflect . . . I'll give you a few pieces of what I think his
legacy will be. I think he will be seen as a president who took office at a
time that the economy was in a morass, unemployment was substantially above 7
percent, there were large fiscal deficits and the rest. He put in place, at
great political difficulty, a dramatic change in economic policy that not only
repositioned the country for recovery, but also for long-term economic well
I think he will be remembered as a president who, in that context, stood for
fiscal discipline, for trade liberalization, for leaving our own markets open,
for dealing with inner cities, and education and the other areas that are so
important for future productivity. I also think that he will be remembered as
a president who understood what's sometimes now referred to as the forces of
change of the new economy, and who geared economic policy toward globalization,
toward the needs of the new technologies, and toward the enormous opportunities
available to the spread of market-based economics around the world.
In time, hopefully people will look at this administration with more perception
and also more examination. He should be remembered as a president who brought
a kind of managerial insight to the White House that has not always been there
-- the insight that if structures are created and incentives are created for
people to work together in a reasonably cohesive fashion, that that can result
in a great deal more being accomplished than if people are constantly at odds
with each other. And I think that he did a great deal in that respect, which
would be well worthy of study by others who have to set up administrations.