Born-Again Rubinomics

When Robert Rubin speaks his mind, his thoughts on economic policy are the gold standard for the Democratic Party. The former Treasury Secretary, now executive co-chair of Citigroup, captured the party's allegiance in the 1990s as principal architect of Bill Clinton's governing strategy, the conservative approach known as "Rubinomics" (or less often "Clintonomics"). Balancing the budget and aggressively pushing trade liberalization went hard against liberal intentions and the party's working-class base. But when Clinton's second term ended in booming prosperity, full employment and rising wages, most Democrats told themselves, Listen to Bob Rubin and good things happen.

So it's a big deal when Robert Rubin changes the subject and begins to talk about income inequality as "a deeply troubling fact of American economic life" that threatens the trading system, even the stability of "capitalist, democratic society." More startling, Rubin now freely acknowledges what the American establishment for many years denied or dismissed as inconsequential--globalization's role in generating the thirty-year stagnation of US wages, squeezing middle-class families and below, while directing income growth mainly to the upper brackets. A lot of Americans already knew this. Critics of "free trade" have been saying as much for years. But when Bob Rubin says it, his words can move politicians, if not financial markets.

Rubin has launched the Hamilton Project, a policy group of like-minded economists and financiers who are developing ameliorative measures to aid the threatened workforce and, he hopes, to create a broader political constituency that will defend the trading system against popular backlash. A strategy paper Rubin co-wrote defines the core problem: "Prosperity has neither trickled down nor rippled outward. Between 1973 and 2003, real GDP per capita in the United States increased 73 percent, while real median hourly compensation rose only 13 percent."

Astorm is coming, Rubin fears. He wants a new national debate around these facts. In an interview, he explains the danger he foresees for global trade: "Where there's a great deal of insecurity, where median real wages are, roughly speaking, stagnant...where a recent Pew poll showed 55 percent of the American people think their kids will be worse off than they are, I think there is a real danger of heightened difficulty around issues that are already difficult, like trade.... Look at the difficulty around immigration."

Princeton economist Alan Blinder, a Hamilton participant and Federal Reserve vice chair in the Clinton years, describes the "difficulty" in more ominous terms: "I think the prospects for the liberal trade order are not great," he says. "There's a whole class of people who are smart, well educated and articulate, and politically involved who will not just sit there and take it" when their jobs are moved offshore. He thinks CNN commentator Lou Dobbs, who has built a populist following by attacking globalization and immigration, "is just the beginning--nothing compared to what's going to happen in the future."

What should we make of Rubin's heightened concern for the "losers" who, he now recognizes, include a vast portion of the populace? Many view the Hamilton Project as just more talk-talk. I regard it as an important event--a "course correction" in elite thinking that, given Rubin's influence, may reshape the familiar trade debate, at least among Democrats. Rubin's central objective, however, is to control the terms of debate: to address the economic disparities globalization has generated but without disturbing anything fundamental in the global system itself.

His program consists mostly of familiar ideas that might soften the pain for displaced workers. But I doubt the Hamilton proposals will do much, if anything, to reduce the global forces that are depressing incomes for half or more of the American workforce. Even Rubin is uncertain. When I ask if his agenda will have any effect at all on the global convergence of wages--the top falling gradually toward the rising bottom--he says: "Well, I think that's a question to which nobody knows the answer. I think the proposals and approach we are proposing are the way to get the best possible outcome for the United States in a complicated world.... But whether that's going to stop the global convergence of wages, I don't know the answer to that. I would guess the answer is no."

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