10 Questions For Robert Rubin

By Bill Saporito

Former Treasury Secretary Robert Rubin spent six years in the Clinton Administration, where he and Federal Reserve Chairman Alan Greenspan got credit for keeping the U.S. economy booming. in his new book, In an Uncertain World (Random House), Rubin discusses why that economy worked. He talked with TIME's Bill Saporito about why the current one has been struggling.

YOU ONCE WAGED AN UGLY BATTLE WITH NEWT GINGRICH OVER THE FEDERAL DEBT CEILING. NOW REPUBLICANS SEEM TO LOVE MASSIVE DEFICITS. WHAT HAPPENED?

I honestly don't know. Our long-term fiscal situation is going to have an enormous impact on our economic well-being. If you look across mainstream economists, they do virtually all agree that sustained deficits over time are exceedingly likely to have an adverse impact on interest rates. It affects consumer confidence, financial confidence and a lot else. It is an immense problem, and we will pay an immense cost unless we deal with that.

BUT DIDN'T WE NEED THE TAX CUTS BEHIND THE DEFICITS TO KICK-START THE ECONOMY?

We could have accomplished our full stimulus effects with tax cuts that were temporary and targeted and more in the form of state and local assistance projects like homeland security or infrastructure. There were a lot of deferred projects that could have been started up very quickly.

IT'S CLEAR FROM YOUR BOOK THAT YOU DON'T THINK CONGRESS UNDERSTANDS THE ECONOMY. WHY ARE THEY SUCH DUNDERHEADS?

You can't expect people to be expert in everything. We live in a very complex time--complex interrelationships, rapid global change. The system would benefit enormously from a better understanding of these dynamics among Americans and among those who affect policy. It would create a political environment that would produce more sound decisions.

HOW DO WE DO THAT?

Public high schools should have a required course in economics. If they have geography and history, why wouldn't they have economics?

BUT IT WAS A PHILOSOPHY COURSE THAT MOST INFLUENCED YOUR ECONOMICS, RIGHT?

I did develop a strong view, partly through taking philosophy, that there is no provable certainty. Once you accept that premise, you view decisions as being about probabilities and trade-offs. That basic approach has framed everything I've done. And, I might add, an awful lot of investors would have stayed out of trouble in the late '90s if they had better understood the risks and the probabilistic aspects of what they were engaged in.

DOES THIS WORK IN YOUR FLYFISHING HOBBY?

It would indicate how you are going to cast, what flies you would tie, although I don't apply it with the same rigor.

AS SECRETARY OF THE TREASURY, YOU HAD ONE COUNTRY GOING BROKE AFTER ANOTHER. HOW DID YOUR SYSTEM WORK THEN?

A good one is the Mexico debt crisis in 1995. [The U.S. provided the country with $20 billion in aid.] If we had let Mexico go, the cost to us could have been enormous. Avoiding that cost was worth the risk of it not working. You can sit down and figure out what decision would give you the best probabilistically weighted result. That's what we tried to capture for President Clinton. He got it in about one nanosecond.

WHAT WAS YOUR WORST DAY AT TREASURY?

For me, late December 1997, when South Korea was in trouble, was the worst because Korea was such a big economy. It wasn't clear how it was going to work itself out.

STOCKS ARE RISING LIKE ROCKETS. ARE OUR MEMORIES GETTING SHORT AGAIN?

People should be figuring out over a longer period of time what the risks are and try to figure out an expected value as to whether stocks, bonds and other assets are fairly valued now or too cheap or too dear. People lose that discipline very quickly.

AS TREASURY SECRETARY, YOU HAD TO MEASURE YOUR WORDS. NOW YOU DON'T. SO, YOU SPENT SIX YEARS WITH BILL CLINTON. WHERE'S THE DISH?

You are outside the ambit of my experience.