NYT, pg1: Rubinomics Recalculated in New Economic Team

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Rubinomics Recalculated in New Economic Team
By JACKIE CALMES
Published: November 23, 2008

WASHINGTON — It is testament to former Treasury Secretary Robert E. Rubin’s star power among many Democrats that as President-elect Barack Obama fills out his economic team, a virtual Rubin constellation is taking shape.

The president-elect’s choices for his top economic advisers — Timothy F. Geithner as Treasury secretary, Lawrence H. Summers as senior White House economics adviser and Peter R. Orszag as budget director — are past protégés of Mr. Rubin, who held two of those jobs under President Bill Clinton. Even the headhunters for Mr. Obama have Rubin ties: Michael Froman, Mr. Rubin’s chief of staff in the Treasury Department who followed him to Citigroup, and James Rubin, Mr. Rubin’s son. All three advisers — whom Mr. Obama will officially name on Monday and Tuesday — have been followers of the economic formula that came to be called Rubinomics: balanced budgets, free trade and financial deregulation, a combination that was credited with fueling the prosperity of the 1990s.

But times have changed since then. On Wall Street, Mr. Rubin is facing questions about his role as director of Citigroup given the bank’s current woes. And in Washington, he and his acolytes are calling for a new formulation to address the global economic crisis that Mr. Obama will inherit — and rejecting or setting aside, for now, some of their old orthodoxies.

Instead of deregulation, Mr. Obama has sworn to usher in a period of re-regulation, to avoid the freewheeling risks that Citigroup and the rest of the financial industry undertook after Mr. Rubin, with Mr. Summers, helped tear down the regulatory walls between banks, brokerages and insurance companies, and freed them to trade in unregulated and little-understood derivatives worth trillions of dollars. Mr. Geithner spent his first years as president of the Federal Reserve Bank of New York seeking ways to at least monitor those markets better.

Instead of balancing budgets, the Obama team will be going deeper into debt for at least two years by spending hundreds of billions of dollars more to stimulate the economy, without concern for deficits, for aid to the jobless, states and cities; tax cuts for workers; and job-creating construction of roads, schools and other public works. Nor, given the downturn, is Mr. Obama expected to try to quickly bring in more revenue by repealing the Bush tax cuts for those making more than $250,000.

Mr. Summers, who may well end up being Mr. Obama’s closest economic adviser, has been especially public in calling for a big stimulus package. Many saw his touch in Mr. Obama’s call this weekend for the stimulus plan to create or save 2.5 million jobs. “Everyone recognizes that we’re looking at deficits of considerable magnitude,” said Jared Bernstein, an economist at the liberal Economic Policy Institute. “Whether it’s Bob Rubin, Larry Summers or the most conservative economist, that is a widely shared recognition.”

Liberals like Mr. Bernstein had long had an aversion to the kind of centrist economic policies of the Clinton years, which they felt were too concerned with deficit reduction and not focused enough on investment programs for labor and the middle class. But Mr. Bernstein’s past differences with Mr. Rubin have so softened that the two men recently wrote a column together about their new common ground on spending, regulation and trade protections for workers. As for Mr. Summers, he has “truly evolved,” Mr. Bernstein said, based on his reading of Mr. Summers’s columns in the Financial Times this year. Both men have been advisers to Mr. Obama, and at a recent meeting, Mr. Bernstein recalled: “I told him, ‘Boy, Larry, your views on trade, on income inequality, on stimulus spending, they’re approaching ours at E.P.I.’ And he sort of huffed and puffed, and said, ‘Oh well, changing circumstances.’”...

http://www.nytimes.com/2008/11/24/us/politics/24rubin.html?_r=1&ref=todayspaper