Robert Rubin and the Villainy of the New Democrats

Robert RubinSome people don’t like that I’m so hard on the New Democrats. I don’t want to over state it, but there is a reason: they have been destroying the nation for two decades! So now we find Robert Rubin ranting on about “financial discipline.” On the pages of the Financial Times he tells us, Sound Government Finances Will Promote Recovery. He thinks he is threading the needle. More or less he is saying, “We don’t have to make a choice between job creation and economic austerity because economic austerity will create jobs!” This is a funny attempt to thread the needle give that this is exactly the argument that those calling for economic austerity have always made. I’m afraid Rubin has missed the eye of the needle by quite a ways.

As I discussed last year in, Alberto Alesina Wasn’t Right, the idea of “expansionary austerity” has been shown to be a cruel joke. Alesina argued that if businesses saw that governments were balancing their budgets, they would decide that the future looked bright and start spending. This is, of course, a supply side story of how the economy works. By this way of thinking, what drives the economy is the supply of goods rather than the demand for goods. It doesn’t work that way at all. Even a child should see, businesses create the products that they believe their customers will want. Thus, if a business owner sees that most of his customers are unemployed and have very little money, he will not hire more people to produce more products that his customers won’t buy.

But I’m not an economist, so let’s hear what a great economist has to say about the rubbish that Rubin is shoveling. Brad DeLong wrote, Department of “Huh”?!: Where is the Arithmetic in Robert Rubin’s Financial Times Piece?[1] So DeLong provides the math and it turns out that stimulus is a great idea and austerity is not:

Right now the US government can issue a 30-year inflation-protected maturity with a yield of 1.5% per year. Right now if the U.S. spends an extra $100 billion next year it gets $200 billion of increased real GDP and $67 billion of additional tax revenue next year, for $33 billion of additional debt and $500 million of additional annual debt interest in the further future. If $200 billion of additional GDP next year has a long-term boost to GDP of even 1/100 as large–either as extra workers set to work brush-up on their skills, as organizations and capital learn more about how to produce, or as greater corporate cash flow leads to productive private or as government purchases are diverted to productive public investment, the extra annual debt service is more than covered by extra taxes produced by higher potential output. Rubin says that stimulus is “no substitute for fiscal discipline.” But as long as interest rates and economic slack are at their current levels, stimulus is fiscal discipline. It is the failure to undertake fiscal stimulus right now that is long-run fiscal profligacy.

Of course, I have an answer to DeLong’s question. There is no math in Rubin’s op-ed because austerity is a matter of faith, not economics. When business owners are asked why they aren’t hiring, they say it is lack of demand for their goods. It isn’t that they think the government is going backrupt. It isn’t that they are concerned about “regulations” (although I’ll admit with all the right wing propaganda, a lot of businesses are unnecessarily worried about Obamacare). It is that they don’t have the customers and cutting spending will—Are you ready to be shocked?!—make the situation worse.

For four and a half years, Robert Rubin was Bill Clinton’s Treasury Secretary. And as such, he was the architect of Clinton’s strong dollar policy. I understand that people who don’t know much about economics immediately think, “But don’t we want a strong dollar?” And the answer is, “Yes! If you don’t want a job!” A strong dollar is great for people who already have lots of money. It means they can buy imports very cheaply. But it also means that our exports are very expensive. Thus, other countries don’t buy as many of them. Thus, fewer Americans are employed. When you hear “strong dollar” just think “gift for the rich from the poor.”

This is a great example of why our government is so messed up. The Democrats are supposed to be liberal. But the last two Democratic Presidents and the current one are all economically conservative. This is why the Republican Party has stopped being conservative and is now radical. Given that the Democratic elites have taken over all the old conservative economic policies (and in many cases made them even more conservative), what are the Republicans to do? Truly, I don’t know what their options were, but the one they picked was, “Go crazy!”

So we are left with a country where even conservative voters are to the left of the Democrats on economic issues. Yes, I still think we must vote for the Democrats. If the party wins presidential election after presidential election and controls huge majorities in Congress, the party will move to the left on economic issues. But the Democrats are currently not much of a choice. If you only care about gay marriage, then the Democrats are not bad. If you care about abortion rights, then the Democrats are pretty good. If you care about birth control, the Democrats are very good. But if you care about anyone who might exercise those rights having a decent job, then the Democrats are really quite bad. And Robert Rubin’s career and recent op-ed proves that.


[1] DeLong is a great economist, ’tis true. As a writer, not so much. That should have been, “Huh?!” Father, forgive them; for they know not what they do.

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About Frank Moraes

Frank Moraes is a freelance writer and editor online and in print. He is educated as a scientist with a PhD in Atmospheric Physics. He has worked in climate science, remote sensing, throughout the computer industry, and as a college physics instructor. Find out more at About Frank Moraes.

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