Robert Rubin was a real Treasury Secretary. This man knows markets because he was a trader for one of the largest Wall Street Investment Banks. He called the Asian crisis of the last 1990s before it happened. How you ask? He looked at the yield level of where Asian government debt was trading and knew it was overpriced. This knowledge was the result of his experience.
Rubin, Panetta and Clinton made a fabulous economic team that produced real results - a budget surplus and a vibrant economy. Rubin wrote an editorial in the Wall Street Journal titled "We Must Change Directions Now." As I don't have a subscription to the WSJ, I have culled various parts of the editorial from several websites that have posted excerpts. How I wish this man was still the Treasury Secretary.
To start, since 2001 the fiscal position of the federal government has deteriorated from a $5.6 trillion 10-year surplus, as projected by the Congressional Budget Office, to a 10-year deficit of $5 trillion to $5.5 trillion, according to most independent analysts. Allowing for methodological differences, that is a deterioration of roughly $9 trillion. Moreover, while 10-year numbers are unreliable, the deficits could turn out to be higher just as readily as lower, and the fiscal situation beyond 2014 will become increasingly difficult as baby boomers' retirements accelerate.
Thank-god somebody finally noticed. Bush came into office with a fiscal surplus. He was in prime position to pay down the than existing debt. Instead, he implemented a reckless tax policy, cutting government revenues (which are still 6.7% below 2000 levels) while increasing government expenses and engaging in a voluntary war. In short, Bush's policies are incredibly reckless.
If we continued these policies....
The Congressional Budget Office estimates that the 2001 and 2003 tax cuts--if made permanent--will cost roughly $4 trillion during the next 10 years, putting them at the heart of this long-term fiscal threat
the US will be in a world of hurt.
Our enormous trade deficits, now heavily financed by foreign central banks that buy dollars and invest in U.S. Treasury securities in order to promote their exports, are a parallel risk. If concerns about these "twin deficits" come to outweigh the desire to push exports, our currency could suffer a sharp decline that could contribute to further increasing interest rates..
The trade deficit is an accident waiting to happen. It currently stands at 6.5% of US GDP. To finance the deficit, the US must pull-in 70% of the world's capital flows. This is no way to run a national economy. At some point, foreign creditors will tire of lending the US money and will either pull-out of the US market or demand higher interest rates as compensation for perceived increased risk.
Some would argue that our reasonably healthy GDP growth ... indicates that we can stick with the economic policy status quo. I believe this would be a serious mistake. Median real wages ... have been roughly stagnant for the past five years -- and many Americans have had falling real incomes. Private sector job growth has been the lowest of any recovery since the '30s. ...
After inflation, non-supervisory wages have increased a paltry 3% over the last 5 years. The poverty rate has increased in each year the last 4 years and median incomes have been stagnant as well. The expansion's job creation record is the worst of the last 50 years. Ever wonder why a majority of people think the economy is in poor shape? Just ask the 80% for whom non-supervisory wages are their respective wages and you'll get the answer.
Rubin makes the following prescriptions:
(1) We should re-establish sound fiscal conditions for the intermediate term ... and put in place a real plan to get entitlements on a sound footing ... (2) We need a strong public investment program -- paid for, not funded by increased public borrowing -- to promote productivity growth, to help those dislocated by technology and trade, and to equip all citizens to share in our economic well-being and growth. (3) We must pursue an international economic policy that continues global integration, ... (4) We should work toward a regulatory regime that meets our needs and sensibly weigh risks and rewards.
This all makes perfect sense. First, the US fiscal situation is a disaster. The Republicans have squandered a surplus and borrowed to fund their pet programs - hence the party of borrow and squander. Fiscal sanity was one of the central reasons for Clinton's economic expansion. Market participants saw the federal deficit continually inch downward until there was a surplus. That creates financial stability and removes the national economy away from the economic cliff.
Public investment in infrastructure and new technology would be a far more effective way to spend federal money than a voluntary war. Flood think thanks and universities with money for pure research and I guarantee the next big technological advance that drives US economic growth will emerge. It will also create solid good-paying jobs which this expansion lacks.
Global integration is a touchy subject for Democrats. It is fraught with inherent problems of exploitation, unfair advantage lower wages and a host of other problems. However, I would argue the US has not kept up its part of the internationalization bargain. We have become fat and lazy, reaping the benefits of cheaper products while refusing to actively create the next manufacturing and product wave to export to other countries. The old manufacturing giants of GM and Ford are prime examples of this malaise. While they are going through a massive and painful restructuring, there is nothing taking their place. And there should be. There is a ton on know-how in this country that could create it with help.
The Republicans always say regulation is killing business. I have an idea - let's ask the families of the recently deceased coal miners if more safety would have been good. How about asking some of Enron's investors if better accounting would have been warranted. Nuclear power is safe, Mr. Republican? Fine. Prove it by building your house next to one that is not subject to any government regulation. I would love to tell you people act responsibly. But the reality is greed is usually a stronger motivator than safety or concern for other people. Regulations are essential for the general public good. It's that simple.
I have to admit, I was surprised the WSJ printed Rubin's editorial. Usually they print nothing but garbage. At least some quality finally snuck through.