Rubin on the Economy

Robert Rubin, the Secretary of the Treasury in the Clinton administration, was on the Charlie Rose show yesterday. He suggested that he would prefer to defer efforts to reduce the federal debt for a couple of years, feeling that stimulus was still needed to strengthen the economy and drive down unemployment.

He makes the very good point that we must focus as a nation on our long term economic growth, and that government production of public goods such as education, fundamental science, and infrastructure are critical to that growth. He also stressed, as would I, that government has a critical role in providing a social safety net for its citizens. (Incidentally, I would also stress that government plays a key role in counter-cyclical activity which helps to retain and rebuild the productive economy in periods of recession.)

Rubin further suggests that our government leaders should figure out how much money the government needs to carry out these roles in society, and then it should set revenues from taxes accordingly. If the government needs one-quarter of GDP to fulfill its obligations, then it makes no sense to try to collect one-fifth of GDP in taxes and borrow the rest as a long term plan. Makes sense to me.

Incidentally, he reads the experience of the Clinton administration and his term leading the Treasury department as strongly supporting the position that control of the government debt, especially holding the debt to GDP ratio at a suitably low level, is critical for business, consumer and investor confidence in the economy and thus an important factor in the promotion of economic growth. Thus he is strongly in favor of efforts to reduce the debt to GDP ratio over the next ten to twelve years, putting a strong plan in place now, but also beginning that period with another dose of stimulus to get the economy moving.

Seems reasonable to me!