Transcript: Robert Rubin Interview

Both times former Treasury Secretary Rubin has appeared on This Week with George Stephanopoulos, viewers have expressed extraordinary interest. For those who missed his appearance last Sunday, the following are highlights of his interview with George Stephanopoulos.

GEORGE STEPHANOPOULOS: Both the Congressional Budget Office and the Federal Reserve Chairman Alan Greenspan this week says the economy looks like it's on the path towards solid growth after coming out of a soft patch you agree with that conclusion?

ROBERT RUBIN: I think it breaks into two pieces, George. In terms of the shorter term, which I think is what Chairman Greenspan's referring to, through this year and to next year, it looks to me like it's a relatively complicated situation that's quite unclear. We had, as you know, very large job losses over the last three and a half years. We've got declining middle income — inflation-adjusted middle income. And yet, GDP growth up and down.

STEPHANOPOULOS: At the same time, though, what the Republicans came out again and again and again and say look the most important numbers right now, unemployment, inflation, consumer confidence it's very similar to what President Clinton had when he was facing re-election in 1996.

RUBIN: Oh, I think you have a very, very different situation. I think it's a diametrically different situation, George. And that is where the great problem in the longer term for our economy lies.

When President Clinton was facing re-election in 1996, he had re-established fiscal discipline. We had solid growth on a solid basis. What we have right now is we've had growth, although with job loss, and declining, falling inflation-adjusted income for middle-income people and with very large fiscal deficits.

We had sound fiscal basis and projected long-term deficit reduction and, ultimately, surpluses. What you have right now are very large, enormous projected long-term deficits. And I think that's a tremendous threat to our economy. I think, in fact, it's a diametrically different situation than we had in 1996.

STEPHANOPOULOS: You talk about the deficits. The Washington Post has done an analysis of both campaigns spending and tax plans and they say that the Kerry and Bush plans will both add $1.3 trillion to the deficit over the next ten years. Why should voters believe that Senator Kerry would be better on the deficit than President Bush?

RUBIN: Two comments, George. I think that the kinds of deficits that are now projected for the longest term in the United States economy, the Goldman Sachs, for example, an investment-banking firm is projecting a deficit between $5.5 trillion over the next ten years, in contrast to the $5.5 trillion surplus that was projected. For the following three and a half years ago we have had horrendous fiscal policy over the last three and a half years. I think that is an immense threat to our future economic growth.

And I think you have to look at Senator Kerry, look at his voting record. He's been extremely good on fiscal measures.

STEPHANOPOULOS: You say you've known Senator Kerry for more than 20 years. You also worked very closely with President Clinton and in your book you wrote President Clinton was a misunderstood figure and you said that what most impressed about President Clinton was his knowledge about the economy and the fact that he's willing to take the on tough political issues. How does Senator Kerry stack up to President Clinton?

RUBIN: I think it's an interesting — I think it's an interesting comparison, George. We spent about eight hours with Senator Kerry after the primaries, and — the general election portion of this campaign begun, the primaries were still technically going on, but he had won the nomination and now what was in effect a general election phase.

There were about five of us there, including Gene Sperling and Roger Oleman and when Gene and I left, Gene turned to me and said, "You know, discussing these issues with Sen. Kerry is just like we used to do with President Clinton. He's serious. He understands the issues. He wants to see them from all sides. He's thoughtful. And then once he does all that, he makes a decision." So I think in the respect of both understanding, Kerry is very good on the economic issues, and the thoughtfulness, try to see all sides and make a decision, I think he's very, very good at.

STEPHANOPOULOS: But then why are you having so much trouble — you talked about going from $5 trillion in surpluses to $5 trillion in deficits. That seems like a pretty simple story to tell?

RUBIN: George, that problem of fiscal policy, enormously important fiscal policy has and sound fiscal policy has. It affects jobs, income and our economy. It's been difficult, and difficult for Pres. Clinton to explain and it's difficult for Senator Kerry to explain. It's an inherently difficult problem to explain because it's complicated. But I think that as this campaign unravels at time goes on.

As time goes on, and the campaign moves ahead, I think you're going to see a lot of focus on economic issues from Senator Kerry. And I think that he will make a concerted focus on communicating with the American people about this very important issue.

STEPHANOPOULOS: One of the hottest issues in the presidential campaign this year is the issue of outsourcing. Senator Kerry has said he will take away the tax breaks that allows a lot of companies to not pay taxes as long as they keep the income overseas … will that stop the outsourcing problem?

RUBIN: No. I think that outsourcing's part of a much larger issue. It's a part of trade liberalization and trade liberalization as Kerry said, and President Clinton used to say, is very much beneficial to the economic well-being, but in putting in place trade liberalization you have to include providing assistance to those that are dislocated and also, and I think this is critically important at this time George, effectively promote our competitive position to global economy when China and India are developing such large numbers of well-educated workers, and we have to have sound fiscal discipline so we have the low interest rates for investment and we have to invest in education and basic research and infrastructure and all that will make us competitive. If you do, you can have a very good economy.

RUBIN: We're on the wrong track right now in virtually every one of those strengths.

STEPHANOPOULOS: It sounds like what you're saying, outsourcing isn't that big of a problem in the economy.

RUBIN: I think outsourcing is partly — I don't think outsourcing's a phenomenon unto itself. I think outsourcing is part of a much larger phenomenon, a much larger phenomenon is trade liberalization and I think trade liberalization has been good for our economy and I think trade liberalization will continue to be good for the economy.

STEPHANOPOULOS: You've been hammering on the problem of fiscal discipline. Chairman Greenspan was up on the Hill a couple of weeks ago and said unless, unless you take on Social Security and Medicare, there is no chance you can control deficits in the longterm. President Bush says that that's the best way to deal with the social security problem in the long term is through these private accounts that he wants to set up and says Senator Kerry doesn't have any plan at all to deal with social security.

RUBIN: Well, I have the same view today that I had in Washington, I think Social Security was set up, and I think rightly so, as guaranteed retirement benefits. There is no question, George, that investing in stocks is risky. There are studies that show over the long, long-run, stocks without bonds but this is equally true and I've been involved in markets for a long, long time. I ran major trading options for decades. There is no question for over long periods of time, stocks can behave in all kinds of ways, that are difficult or troubling and that there are real risk in investing in stocks. I do not think that people's retirement should be exposed to the stock market.

STEPHANOPOULOS: But the Clinton administration did explore the idea of investing part of the social security trust fund in the equity market.

RUBIN: Ah, but that's a whole different matter. And that, I think, is a very complicated issue and I wasn't sure of what I thought about that. But that isn't exposing the retirees benefits to the risk of the stock market. That's saying that the government will take part of your trust fund and put it into stocks. But if that doesn't perform well, the government is still committed to the full amount of the benefits to the retirees.

I would add one other thing on Medicare. Privatization, I think, is not a good idea for the reasons I just said it also requires a very substantial additional amount of money in the next ten years.

STEPHANOPOULOS: $2 trillion.

RUBIN: It's at least a trillion dollars, and probably more because you have to continue paying current retirees, while at the same time you're taking part of your payroll taxes and putting them in a private account. When that was first proposed, there was a large surplus, and you could've spent part of your surplus for that reason I wouldn't have, but you could.

Now we have large deficits, so what do you do, is it would add another deficit on top of the large deficit you already have. So I think the fiscal policies of the last three and a half years have thrown away that option, even if it's one that should've been considered.

STEPHANOPOULOS: Former Fed Chairman Paul Volcker has said that he thinks that 75 percent chance of a major financial crisis in the next five years if we don't get a hand on these deficits, is that right?

RUBIN: You know, I don't know if his odds are about right, but I think the fundamental point is right. We have enormous fiscal deficits, and while ten-year numbers are pretty unreliable there is no reason to think that they'd be better rather than worse.

And at the end of that ten years, the ten years you know is the conventional budget window, at the end of those ten years because Medicare payments start increasing very rapidly due to Baby Boomer retirement, those projected deficits expect to go up very rapidly. And we really do face horrendous long-term fiscal situations that's totally unnecessary.

STEPHANOPOULOS: But do you think either Senator Kerry or President Bush are going to have the resources and the political capital to take on the problems that you're talking about?

RUBIN: You know, here's how I — here's how I think about it, I think it is an extremely good question. I think this is the most serious threat to economic growth in this country. Senator Kerry every fiscal issue, every fiscal proposal that came before Congress, at least to my recollection while he was in Senate. He supports these pay-go rules, which is a technical thing that it basically means you have to pay for what you do right now.

And you can contrast that record with the fiscal policy of the last three and a half years. I don't think there's any question who takes these issues with more seriousness Having known Senator Kerry the way I do, I also think there's no question he has internalized the need to deal with these issues.

Rubin's book, In an Uncertain World, has just been released in paperback.

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