Rubinomics, a

portmanteau A portmanteau word, or portmanteau (, ) is a blend of wordsPresident of the United States The president of the United States (POTUS) is the head of state and head of government of the United States of America. The president directs the executive branch of the federal government and is the commander-in-chief of the United Stat ...

Bill Clinton William Jefferson Clinton ( né Blythe III; born August 19, 1946) is an American politician who served as the 42nd president of the United States from 1993 to 2001. He previously served as governor of Arkansas from 1979 to 1981 and agai ...

. It is named after Robert E. Rubin, former

United States Secretary of the Treasury The United States secretary of the treasury is the head of the United States Department of the Treasury, and is the chief financial officer of the federal government of the United States. The secretary of the treasury serves as the principal a ...

. Rubinomics emphasizes the effect that balancing the government budget has on long-term interest rates.

Tax A tax is a compulsory financial charge or some other type of levy imposed on a taxpayer (an individual or legal entity) by a governmental organization in order to fund government spending and various public expenditures (regional, local, or n ...

es should match government spending in the long run, and deficit-financed tax cuts are a counter-productive way to increase growth. This can be seen as a form of the

fiscal theory of the price level The fiscal theory of the price level is the idea that government fiscal policy, including debt and taxes present and future, is the primary determinant of the price level or inflation as opposed to monetary theory. FTPL requires confidence the gov ...

– fiscal policy affecting long term inflation (as expressed by long-term interest rates). Rubinomics has never rejected

Keynesian Keynesian economics ( ; sometimes Keynesianism, named after British economist John Maynard Keynes) are the various macroeconomic theories and models of how aggregate demand (total spending in the economy) strongly influences economic output and ...

approaches to economics, which call for the government to run a deficit in times of recession. But it worries about the long-term effect that deficits, especially

structural deficit Within the budgetary process, deficit spending is the amount by which spending exceeds revenue over a particular period of time, also called simply deficit, or budget deficit; the opposite of budget surplus. The term may be applied to the budget ...

s, have on inflation. During the early 1990s, long-term interest rates remained stubbornly high even as the Federal Reserve cut the Federal Funds rate. Rubin and most other economists (including

Alan Greenspan Alan Greenspan (born March 6, 1926) is an American economist who served as the 13th chairman of the Federal Reserve from 1987 to 2006. He works as a private adviser and provides consulting for firms through his company, Greenspan Associates LLC. ...

) attributed this high

yield curve In finance, the yield curve is a graph which depicts how the yields on debt instruments - such as bonds - vary as a function of their years remaining to maturity. Typically, the graph's horizontal or x-axis is a time line of months or ye ...

to an "inflation premium" that bond-traders were demanding. Reducing interest rates, Rubin argued, would lead to increased private sector investment and consumption and, therefore, stronger growth. Clinton, who had campaigned on the promise to put people first and invest in human capital, accepted Rubin's reasoning and put deficit reduction at the forefront of his economic plan, to the chagrin of more left-wing advisers such as

Robert Reich Robert Bernard Reich (; born June 24, 1946) is an American professor, author, lawyer, and political commentator. He worked in the administrations of President of the United States, Presidents Gerald Ford and Jimmy Carter, and served as United S ...

and

Joseph Stiglitz Joseph Eugene Stiglitz (; born February 9, 1943) is an American New Keynesian economist, a public policy analyst, and a full professor at Columbia University. He is a recipient of the Nobel Memorial Prize in Economic Sciences (2001) and the Joh ...

. In particular, Stiglitz was not opposed to Clinton's plan to reduce the deficit, but suggested that Clinton put more money into research and development, technology, infrastructure, and education, quoting "given the high returns for these investments,

GDP Gross domestic product (GDP) is a monetary measure of the market value of all the final goods and services produced and sold (not resold) in a specific time period by countries. Due to its complex and subjective nature this measure is often ...

in 2000 would have been even higher, and the economy's growth potential would have been stronger."

References

* * {{cite web , title=Rubinomics R.I.P. , website=WSJ , date=2008-01-15 , url=https://www.wsj.com/articles/SB120035796472889887 , ref={{sfnref , WSJ , 2008 , access-date=2022-07-12 Economic history of the United States

See also

References