May 01, 2010
Robert Rubin is poisoning Washington again.
The former Treasury Secretary who presided over the nearly-fatal deregulation of the financial industry -- then made $126 million nearly killing Citigroup -- had been keeping an appropriately low profile in the nation's capital ever since everything he wrought went pear-shaped.
But now he's back, and once again trying to influence public policy.
On Friday he made his third major (and apology-free) Washington appearance in two weeks, delivering opening remarks at a conference that his pet think tank, the Hamilton Project, co-sponsored with the liberal Center for American Progress.
But the last thing Washington needs right now is another infusion of Rubinomics -- by which I mean the combination of deregulatory zeal, deficit obsession, free tradeism and general coziness with fat-cat Wall Street bankers that Rubin epitomizes.
It's long been troubling that so many of Obama's top economic advisers are former Rubin proteges, but the return and rehabilitation of the man himself is particularly unwelcome right now. Mild signs of recovery aside, we remain very much in the midst of an unemployment crisis that is devastating American families and that requires active, urgent government intervention -- not hand-wringing about the federal budget deficit. Financial regulation, to be effective, needs to limit what Rubin and his friends want to be able to do.
The Rubin effect could be felt at Friday's event, which was ostensibly about "The Future of American Jobs," but which -- with a few notable exceptions -- lacked a sense of urgency about the current unemployment crisis, focusing instead on long-terms "structural problems."
Asked by feisty moderator Chrystia Freeland of Reuters to explain why, if our capital markets are the best in the world, job creation is so weak, panelist and Berkeley economics professor Alan Auerbach instead launched into a disquisition on tax policy and the need to reduce corporate income taxes.
The centerpiece of Friday's event, a new report by MIT economist David Autor, did a commendable job of relating the polarization of job opportunities and contraction of the middle class to the feeble state of the America's public education system, but it glossed over the key role played by rapacious financial titans.
Panelist Ron Blackwell, chief economist for the AFL-CIO, was almost alone in giving more than lip service to the current jobs crisis. Blackwell said he had never seen a labor market "in worse condition than exists at present." He pointed out that the U.S. is an outlier country -- "No other country is experiencing anything like this," he said. He decried the way "globalization and financialization" has "changed the balance of power between workers and employers." And generally speaking, he made no bones about the government's essential role in both creating and fixing America's unique economic problems.
What's needed, he said, is nothing less than a "sustained public-investment led recovery that rebuilds the capacity of the American economy."
His cause was not taken up by his fellow speakers, however -- including Larry Summers, President Obama's chief economic adviser, and one of the event's two headliners (along with New York Mayor Michael Bloomberg.)
Summers began his remarks with an acknowledgment of the terrible trauma being caused by high unemployment. Then he pivoted.
"This is a profoundly important problem for our society, but it's the task of economists to analyze it in a more bloodless way."
And bloodless he was. For the next several years, he said, "What I think is safe to say is that even on optimistic assumptions, there is going to be substantial unused capacity in this economy," measured by, among other things, the unemployment rate.
Asked when that high unemployment would abate, he explained that it would depend upon "the pace of the economic recovery in terms of GDP" [Gross Domestic Product] and whether the formula that economists have historically used to predict job growth based on GDP would continue to be skewed by unusually high productivity. "Make your judgment about the GDP forecast over the next several years. Take your guess about whether the formula is going to snap back, or continue to be off, and you can form a view about the unemployment rate," he suggested.
"Maybe things will restore to normal," he said -- in which case job growth would actually outpace GDP. "That would be my guess, though not one I would hold confidently."
Summers did endorse some new government measures to spur job growth. "I don't see how anyone can look at the wholesale destruction of construction jobs [and] the state of our infrastructure in many spheres and not think that something ought to be done to increase the extent of our national effort around public investment," he said.
But asked if the country needs another stimulus, he replied: "I don't think framing the question in terms of a 'stimulus' is very helpful." He said he favored continuing unemployment insurance, new funding for local governments and investments in energy efficiency -- three major progressive goals.
But beyond that, he said: "Is this the moment for some major new experiment in Keynesian pump-priming? Absolutely no."
Rubin's public rehabilitation tour started last week, with a Hamilton Project event devoted to the principal that "it is vital that we begin to confront the challenges that pose a greater risk to our long-run prosperity than the Great Recession."
Vice President Joe Biden was the keynoter at that event, but, in a turnabout, used the occasion to challenge the Wall-Street friendly Democrats Rubin had assembled to join President Obama in making sure that this economic recovery, unlike the last one, actually benefits the middle class.
Rubin's second major appearance was on Wednesday, at a gala "Fiscal Summit" organized by fellow deficit hawk (and fellow Wall Street mogul) Peter Peterson. (The two men even joked onstage about their relative net worths.) That was a lovefest -- and a deeply disturbing one at that.
Although Biden didn't play along, Rubin has some highly placed enablers in his rehabilitation. The deficit summit's keynoter, former President Bill Clinton, had warm words for Rubin. "He's taken a few licks lately, like all of us have," Clinton said. But "I think he's the finest Treasury Secretary since Alexander Hamilton, and I still believe that."
At Friday's event, I asked Center for American Progress head John Podesta, who is close to the Obama White House, if he was concerned about enabling Rubin. He responded: "I think he has a track record, much of which is successful, some of which is not successful."
At last week's event, I asked Rubin about his role in deregulating derivatives -- one of the critical steps in the series of events that led to the country's financial meltdown. He replied that he had always favored regulating them. I wrote that even were this the case, his claim to fame remains that he killed the one serious attempt to regulate them.
Jumping to his defense Friday afternoon in Newsweek was Jacob Weisberg, the Washington Post Co. executive who co-authored Rubin's 2003 autobiography (talk about intimate relationships between journalists and their sources). Weisberg insists that Rubin supported regulation, but was just powerless to do so given the opposition from Wall Street and other members of the Clinton administration. Similarly, Weisberg argues, despite multiple reports to the contrary, that Rubin wasn't involved in the decisions that led to Citigroup needing a massive federal bailout to survive.
Is anything disqualifying from public life these days? Given the chance to weigh in, the voters evidently think so -- consider the parable of soon-to-be-former Sen. Chris Dodd.
In Washington public policy circles, however, the answer is apparently not -- certainly not if you're rich and well connected.
But as Rubin's literally disastrous track record so clearly suggests, Washington would be better off shorting Rubinomics than investing in it.
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