Rubin, former treasury secretary, discusses international economy

Former Treasury Secretary Robert Rubin analyzed the international economy in a lecture Friday and said that the coming decade is unlikely to be as bullish as the last one.

He argued that industrialized nations should significantly increase aid to developing countries, warned of continuing deficit spending and criticized the Bush administration's proposed tax cut.

Rubin's lecture in McCosh 50 was the keynote address of a symposium organized by the Center for Economic Policy Studies.

Rubin, who served as treasury secretary from 1995 to 1999, said that many Americans' attitudes toward the economy today were shaped by the "great bull market" of 1992-99.

He said the success of the 1990s has led many Americans to be overly optimistic about continued economic growth. His own belief is that the risks will be greater and the economic difficulties more significant in coming years than many Americans expect.

Rubin, who now chairs Citigroup's executive committee, said that market integration and technological development resulting from globalization have, "on balance," been beneficial. However, he added that there is a "powerful and growing backlash" against globalization.

Foreign aid

He said that there has not been enough effort to combat poverty in developing nations.

"A gated-community approach to poverty by the industrialized countries simply will not work," he said. "The industrial countries have a massive self-interest in increasing foreign assistance."

However, he said that one of the obstacles to increasing foreign aid is that it is not popular politically. The only way to change the political situation is through a "broad public advocacy campaign," he said.

He added that foreign assistance will only succeed in combination with effective policymaking and governance in developing nations.

Rubin also discussed the dangers of continued deficit spending. "We are now back into a situation where we have a longterm fiscal morass," he said.

Effect of deficit spending

He said this would have effects on interest rates, consumer and investor confidence and inflows of foreign capital. "Most forecasters have significantly underweighted future fiscal conditions in projecting future economic conditions," he warned.

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Deficits could significantly hinder the nation's economic growth in the decades ahead, he added. "Over time, you should try to have no structural deficit or very little structural deficit," he said.

In the question-and-answer period, Rubin criticized the Bush administration's latest tax-cut proposal, which would cut federal income taxes by roughly $670 billion.

"We should have some kind of stimulus," he said, but it should take effect either this year or next and it should have a significant effect for the dollars spent. The Bush proposal is the "antithesis" of that, he said.

In particular, he questioned the Bush administration's proposed elimination of shareholder dividends from personal income taxes. He said this measure would be "extremely unwise" if it is deficit-financed.