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Mix-Ansicht- Da wird uns aber noch einiges zugemutet werden: Rubin kommt Greenspan ade? - Emerald, 03.08.2004, 21:27
Da wird uns aber noch einiges zugemutet werden: Rubin kommt Greenspan ade?
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RUBINOMICS, AND KERRY SUBLIMINAL MESSAGE
Caroline Baum is a columnist for Bloomberg News. The opinions expressed are her own.
Rubin's Choice Seat Is Reminder, Omen: Caroline Baum (Correct)
Rubin's Choice Seat Is Reminder, Omen: Caroline Baum (Correct)
(Corrects typographical error in second paragraph. Commentary. Caroline Baum is a Bloomberg News columnist. The opinions expressed are her own.)
By Caroline Baum
Aug. 3 (Bloomberg) -- Just in case you missed the message of the Democratic National Convention last week that happy days can be here again if we elect John Kerry, the Kerry campaign used subliminal signals to supplement the speeches.
Sitting in the seat of honor to the right of Teresa Heinz Kerry during her husband's acceptance speech Thursday night was none other than Robert Rubin, the Democratic party's eminence grise.
Rubin was the first chairman of President Bill Clinton's National Economic Council, an utterly useless post that should have been eliminated if the Bush administration were serious about smaller government. Instead, it tried to install a Rubin clone -- one Stephen Friedman, another former chairman of Goldman, Sachs & Co. -- in a job that, as best as I can tell, exists solely to coordinate among the president's economic advisers. (If they can't talk to one another without an intermediary, hiring a staff psychologist would seem to be a better use of the taxpayers' money.)
So there was Rubin, looking as solemn at Teresa's side as Federal Reserve Chairman Alan Greenspan was uncomfortable perched next to Hillary Rodham Clinton at her hubby's first State of the Union address in 1993.
What's more, Rubin and his wife Judith were among the select guests invited to join the Kerry and Edwards families at a party following Kerry's Thursday night speech.
Rubinomics
Observant TV viewers, which may not be the same subset as undecided voters, would be tempted to draw two conclusions from the Bob and Teresa photo-op: 1. Kerry is serious about deficit reduction, which is high on the list of voters' priorities, and 2. Rubin is serious about another stint in government -- Fed chairman, perhaps -- in a Kerry administration.
Let's start with No. 1. Rubin is the poster boy for deficit reduction. Early in the Clinton administration, Rubin persuaded the new president to forgo middle-class tax cuts and new government ``investment'' to ``grow the economy'' in favor of a tax increase and spending curbs.
Thus was born Rubinomics. This dubious economic theory holds that raising taxes reduces the deficit, brings long-term interest rates down and stimulates investment and economic growth. The fact that Rubin had the causality wrong -- economic growth reduced the deficit; reducing the deficit didn't produce economic growth -- is just an inconvenient detail.
Unpaid Advertising
The turnaround in the federal budget during the Clinton years from a record deficit of $290 billion in 1992 to a record surplus of $239 billion in 2000 owes largely to the rise in productivity, which raised the economy's potential non-inflationary growth rate, and the stock market bubble, which produced a windfall in revenue from capital gains taxes and options-related income for the Treasury.
The post-Clinton Democrats adopted fiscal discipline as their own, which isn't that hard of a sell given the profligate spending of the Bush administration.
While Kerry's most visible economic advisers are Gene Sperling, Rubin's deputy at the NEC who was elevated to chairman in 1997; Roger Altman, another Clinton Treasury hand; and Alan Blinder, a Princeton University economics professor; it's Rubin who provides the gravitas, who participates in key economic policy discussions, who signs off on all of the big issues.
Putting Rubin in the seat of honor next to Heinz Kerry was an unspoken endorsement of Kerry's economic plan, which features new spending on health care and education and middle-class tax cuts, to be paid for with the revenue from rolling back the tax cuts for those making over $200,000 a year.
In Play
The fact that the non-partisan Tax Policy Center says the tax rollback won't pay for the new initiatives is less important than Rubin's implicit imprimatur on Kerry's plan, touted as a means to cut the deficit in half by 2008.
The second subliminal message from the seating selection at Thursday's conclusion of the convention is more interesting: Rubin is considering, and being considered for, a high-level economic post in a Kerry administration.
Rubin's name has been bandied about as a possible candidate for Fed chairman. When Rubin left the Treasury in 1999 -- he is currently chairman of Citigroup Inc.'s executive committee -- he was adamant about not wanting another Washington post that would take him away from his family.
The Rubin Fed?
``I don't see him coming back to Washington unless it was to be Fed chairman,'' says Greg Valliere, chief political strategist for Charles Schwab's Research Group. ``But he's the odds-on favorite (in a Kerry administration) if Greenspan steps down in 2006.''
From the Kerry campaign's point of view, it doesn't really matter whether Rubin would consider going back to Washington or was merely willing to convey that impression to bolster the candidate's economic credentials.
The seating ``was a convenient and potent prop,'' Valliere says. ``It was good politics -- and good for the markets.''
Still, it's not idle speculation to consider how Rubin would be as Fed chairman. For starters, he's a lawyer, not an economist. Second, his grasp of economics appears slim, confined to buzzwords and mantras rather than a command of how the various parts of the economy interact.
Treasury secretaries will forever be indebted to Rubin for the legacy of the ``strong dollar policy.'' No matter how nonsensical the concept, his successors must utter that meaningless mantra or else be censured by the foreign exchange market.
Questionable Stimulus
As Fed chairman, Rubin would have to demonstrate that he understands the difference between Treasury's strong dollar policy (a posture) and the Fed's money-creation monopoly (a process), which is the real determinant of the currency's value.
Where Rubin might add value to the Fed is in the communications department. He's so smooth, he might actually help the Fed sharpen its communication skills and increase its transparency.
When it comes to the implementation of monetary policy, just the idea of a Rubin Fed would keep me up at night. Someone who thinks raising taxes stimulates the economy is apt to think raising interest rates will produce the same result.
To contact the writer of this column:
Caroline Baum in New York at cabaum@bloomberg.net.
To contact the editor responsible for this column:
Bill Ahearn at bahearn@bloomberg.net.
Last Updated: August 3, 2004 09:22 EDT
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