Jan. 4 (Bloomberg) -- Robert Rubin was the guest of honor at the first meeting on economic policy held by incoming House Speaker Nancy Pelosi and her newly elected Democratic caucus. Rubin, executive committee chairman at Citigroup Inc., spent two hours promoting a strategy of free trade and balanced budgets.

``He was received with great respect,'' Dale Kildee, a representative from Michigan, says of the Dec. 6 gathering.

The former Treasury secretary's influence is on the rise as Democrats take control of both houses of Congress today for the first time in 12 years, says Norman Ornstein, resident scholar at the Washington-based American Enterprise Institute, a public policy research organization. Democratic leaders say the party will have to deliver on issues like expanding health care benefits to retain control of Congress and win the presidency in 2008. To do that, Pelosi said in November, Democrats must govern from the middle --exactly the strategy that Rubin and his then boss, former President Bill Clinton, followed in the late 1990s.

Rubin, as a cabinet officer, spearheaded efforts to eliminate the budget deficit, promote free trade with Mexico and China and invest in education and health care. The moves spurred the economy to grow at an average annual rate of about 3 1/2 percent during Clinton's two terms through 2000 compared with 2 1/2 percent since then.

``Rubin walks on water for many Democrats because of the economy's performance during the Clinton years,'' says Robert Borosage, co-director of the Campaign for America's Future, a public policy research group in Washington.

Rubin Advises Paulson

In April, Rubin helped start the Hamilton Project, named after the first U.S. Treasury secretary, to propagate the ideas he espoused during the Clinton years. The Washington group, with an annual budget of about $2 million, is financed by Rubin and 15 other corporate executives, including Roger Altman, a former Clinton official who's co-chief executive officer of investment bank Evercore Partners Inc.; Timothy Collins, head of buyout firm Ripplewood Holdings LLC; and Eric Mindich, founder of hedge fund firm Eton Park Capital Management LP.

Rubin, 68, participates in the group's conferences and co- authored one of its papers, ``An Economic Strategy to Advance Opportunity, Prosperity, and Growth.''

Rubin, who declined to be interviewed for this story, is exerting influence behind the scenes as well. Treasury Secretary Henry Paulson, who left Goldman Sachs Group Inc. to take the post in July, has consulted Rubin on a range of issues, including dollar policy, say two administration officials who requested anonymity because they're not authorized to speak on Treasury matters. Rubin was the architect of Clinton's strong-dollar policy, a stance that Paulson has emulated.

Pelosi Attacks Deficit

Pelosi, too, has taken a page from Rubin's playbook. The speaker, who has a good working relationship with the banker, has attacked President George W. Bush for allowing the budget to fall into deficit after the surpluses from 1998 to 2001. She's promised to bring back pay-go rules that would require lawmakers to specify increased revenue or savings to offset the cost of new spending plans or tax cuts.

In a sign of Rubin's growing clout, the Democrats chose Peter Orszag, director of the Hamilton project, to lead the Congressional Budget Office.

Democrats also back much of Wall Street's regulatory agenda after industry donations favored them over Republicans. The securities firms earmarked 52 percent of their $48.3 million in contributions for 2006 campaigns for Democrats -- the first time they haven't given the majority of their money to Republicans since 1994. Wall Street is calling for a loosening of corporate accounting rules under the 2002 Sarbanes-Oxley law, arguing that they induce fledgling companies to sell shares overseas.

Hands Off Hedge Funds

Hedge fund firms may also get a break in the new Congress. ``The overall regulation of hedge funds is not on the agenda,'' says Barney Frank, a representative from Massachusetts and the new chairman of the House Financial Services Committee. ``You're talking about very wealthy people who want to gamble with their money.''

Rubinomics is running into resistance in at least one key area: trade. The Bush administration wants to strike a global free trade deal and is also working on a separate agreement with South Korea. Both are at risk as some Democrats, anxious about the loss of U.S. manufacturing jobs to foreign competition, take a hard stance on trade.

``Rubin's very connected to Wall Street, but he seems to be operating from a level divorced from Main Street,'' says Marcy Kaptur of Ohio, one of a number of lawmakers who challenged Rubin on trade at the December meeting.

Trade Debate

Leaders of the AFL-CIO, a labor federation that spent a record $40 million on Democrats' behalf in the November election, are pushing lawmakers to reject Rubin's free-trade mantra. AFL-CIO President John Sweeney met Rubin and Altman in November in an effort to air their differences.

``We need to review the Rubin agenda that's led to millions of lost jobs and a declining standard of living for the middle class,'' United Steelworkers President Leo Girard says.

Rubin did deliver the goods for Democrats in the 1990s. Now, with voter angst growing over free trade in key states like Ohio, politicians face a tough choice on whether to heed the banker's call once again. Either way, Rubin is already leaving his mark on the 2008 elections.

To contact the reporter on this story: Rich Miller in Washington at rmiller28@bloomberg.net

Last Updated: January 4, 2007 00:02 EST