I.O.U.S.A. (38 page)

Something else to look at is that more and more of the debt of the federal government is owned abroad because we have a combination of very large fi scal defi cits that have to be funded someplace, on top of a very low
de minimis
national savings rate and a large trade defi cit. And the consequence of all this is that a larger and larger percentage of the debt of the federal government is owned abroad. But does that matter? I think it probably does matter, because there ’ s a higher probability that a continuation of the current set of fi nancial conditions that we have — a low savings rate, fi scal defi cits, and large trade defi cits — will create unease abroad and in foreign capital markets, which would then translate back into higher interest rates in this country and a lower currency than would be the case if we were dealing only with our own domestic markets. But that ’ s a very complicated subject.

The bottom line is I think probably foreign ownership of debt creates a somewhat greater risk of adverse interest rate effects and currency effects than if the debt was domestically held. But it is an inevitable consequence of today ’ s fi scal conditions, savings rate, and trade defi cit, and the way to get at this is to put in place sound, long - term fi scal policy.

Q:
What happens to the fi rst person who raises their voice about
these fi scal imbalances and the overall fi nancial situation?

Robert Rubin :
I think it is absolutely imperative that our political system address what is now a very unsound, long - term fi scal situation, and I think it ’ s going to have to act both with respect to spending, including entitlements, and we ’ re going to have to have increased revenues. If we do all that, I think we can have a very successful economy for a long time.

The problem politically, however, is that putting forth a specifi c proposal, given the very deep, long - term fi scal hole we ’ re in, c09.indd 136

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Robert

Rubin
137

putting forth a specifi c proposal is more likely to generate antagonistic response and a moving away from that, a criticism of that proposal, than it is any kind of constructive reaction.

And in a sense, it can lead toward that proposal being, as a consequence, taken off the table politically. Somebody described it as being like a turkey shoot. If you ’ re a bunch of turkeys, the turkey that puts its head up gets shot off. And so there is actually a nonconstructive dimension to putting forth specifi c proposals.

Therefore, what I think we have to do is have some kind of special political process outside of our normal processes, involving the president, the leaders of both Houses, and the leaders of both parties coming together to take joint political accountability for the very, very diffi cult decisions that are going to have to be made about spending and about revenues and the trade - offs amongst them.

Q:
Can you explain to me, what is the
American economy
and what
role does that play in this country and in the world?

Robert Rubin :
The term
American economy
is simply a phrase that captures the full output in our country of goods and services. So in a sense, it ’ s the aggregate standard of living of all of us. Even with the growth that has occurred around the globe over the past several decades, the United States is still the engine of economic growth for the global economy. When we do well, that helps fuel growth around the world; and conversely, when we do badly or when we have diffi culty, that creates or can create economic diffi culty around the world. As a consequence, the fi scal issues, our unsound fi scal conditions, our low savings rate, and our large trade imbalance, which are a threat to our own economy, are also a threat to the global economy. For that reason, there is enormous focus around the world on our unsound, long - term fi scal prospects and an enormous focus on the importance of our reestablishing sound fi scal policy, not just for our sake, but for the sake of the entire global economy.

One of the political problems with the fi scal debate is it does crosscut with ideology, so that some who believe that fi scal c09.indd 137

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138 The

Interviews

conditions are very important say that we have to solve it solely on the spending side and that we should not do anything to increase revenues; in fact, we should even reduce tax rates. And others will look at the same set of facts and say that we shouldn ’ t reduce government expenditure; in fact, we should increase government programs and government expenditure and increase revenues to pay for that. I don ’ t think there ’ s any question that the reality lies in putting aside all ideology and making very practical trade - off judgments based on fact and analysis about the government programs — most of which are very important to our economy, national security, and all the rest — and also about the revenues to pay for them. And I think when you ’ re all fi nished, the conclusion that you ’ re going to reach is that you have to have serious spending discipline, you also have to make room for critical public investment, and we ’ re going to have to have increased revenues. And if we do all that, I think we can thrive for a long, long time economically and socially.

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