As Treasury Secretary under President Clinton, Robert E. Rubin was widely credited with fashioning the economic policies that helped produce the prosperity of the late 1990s. An ardent believer in fiscal discipline, Rubin has since become a sort of éminence grise on economic policy for the Democrats and is one of the key advisers to Senator John Kerry.
Now a senior executive at Citigroup (C ), Rubin talked with BusinessWeek Senior Writer Rich Miller on July 19 about the Democratic Presidential hopeful's economic plans. Edited excerpts follow:
Q: Senator Kerry has proposed some ambitious spending programs, yet at the same time has promised to cut the budget deficit. Many in the financial markets are skeptical he can do that. What do you say to assuage those concerns?
A:We're now in an enormously difficult and threatening fiscal hole which is of our own making. The 2001 and 2003 tax cuts were at the core of that, if you look at the numbers. Kerry's argument is, if you're going to make new proposals, you need to find way to pay for them. And he has done that. That's a beginning.
Secondly, if you look at his record, it has been very good on fiscal matters. I think ultimately you have to make a judgment about what you think somebody's going to do when they're in office. The only way we're going to dig out of the hole we're in is to get a President who goes to both houses and both parties and provides very strong leadership to try to get them to all hold hands and make what are going to be some extremely difficult political decisions.
Q: So is Kerry wrong to be proposing new programs, even if he does pay for them?
A:I don't think that. If we're going to be competitive in the global economy, we've got to dig out of our fiscal hole, fix health care, and have a more effective public education system. If Kerry gets elected, he would be terrific on these issues.
Q: Kerry has said he would roll back the tax cuts on the wealthy to pay for his spending programs. But if he wants to fix the deficit problem, won't he have to raise other taxes as well?
A:I don't think you can make proposals to try to dig out of this hole until you've gotten elected and until you've organized effectively across both parties and both houses. If you start to put out proposals now, they would be vigorously attacked, and they would in effect become tainted so they couldn't be used.
Q: Is reform of Social Security and Medicare essential to fixing the country's fiscal problems?
A:That's an immensely important long-term objective. But it won't have that material effect on the 10-year projected deficits.
Q: So you need a two-tier strategy, one to deal with this hole you say we've put ourselves in on the budget deficit and the other to deal with the longer-term problem of entitlements.
A:You need to look at the 10- to 15-year projections, and then you need to look at the very long term, in which case, obviously, entitlements are very important, and Medicare, in particular, is very important.
Q: Won't Kerry's plan to roll back President Bush's dividend tax cut hurt the stock market?
A:I don't think it would make a difference. As I recollect it, the change in dividend [taxation] didn't have a meaningful and lasting effect on the stock market.
What's ultimately going to drive the stock market is what happens to the economy. And although there's a lot to be positive about with respect to the comparative advantage of the American economy, we have enormous issues we've got to deal with. What happens economically is whether we deal with those issues or we don't.