When former Treasury Secretary Robert Rubin LAW ’64 announced Friday that the country’s economic woes might be worse than most current projections, Yale President Richard Levin saw his opportunity to cash in with hundreds of alumni in attendance at the first major Tercentennial event of the weekend.
“If there’s a dearth of current investment opportunity, would you recommend that these people give their money to Yale instead?” Levin asked at a panel discussion entitled, “Creating Economic Prosperity” held in Woolsey Hall.
Moderating a conversation with former Chair of the President’s Council of Economic Advisors Janet Yellen GRD ’71 and Rubin, Levin asked the experts to tackle questions about the economic boom during the administration of President Bill Clinton LAW ’73 and the future of economies around the world.
Levin introduced Rubin as a secretary of the treasury of comparable significance to Alexander Hamilton and as following in the long tradition of 52 Yale graduates who have served in presidential cabinets.
“Yale’s contribution has been no more evident than in the concentration of Yale men and women who crafted and executed the economic policies of the presidential administration of Yale Law School graduate President William Jefferson Clinton,” Levin said.
Clinton asked Yellen to be the chair of the Council of Economic Advisers in 1997. Yellen was responsible for communicating the council’s opinions to Clinton and participated in daily White House meetings.
Rubin said that by reducing and eventually destroying the country’s annual deficit, Clinton’s economic team restored confidence in the American economy and allowed for a prosperous eight years.
Ironically, a day later in the second major conversational panel at Woolsey Hall, former President George H.W. Bush ’48 said his biggest failure as president was his inability to show voters that the country’s economy was never in a recession and had begun to show signs of expansion during his administration.
Yellen explained that improved production methods allowed for unemployment and inflation rates to drop together during Clinton’s term. Traditional macroeconomic theories predict that inflation and unemployment have an inverse relationship.
“I remember sitting at the [Federal Reserve] scratching our collective heads,” Yellen said, recalling her reaction to the untraditional market behavior.
But she added that her peers did not tamper with the good fortune.
“The Fed did something wonderful; they did almost nothing,” Yellen said. “They let the economy run.”
Rubin said the Clinton administration and the Federal Reserve Board maintained an excellent relationship. Rubin had a weekly lunch with Federal Reserve Chairman Alan Greenspan and said that in all their meetings, nothing ever leaked to the press.
“In Washington when you speak to yourself, something leaks out,” he said. “The kind of relationship we had was indispensable.”
During his tenure as treasury secretary, Rubin is best known for his handling of the Asian financial crisis. Saying that the crisis was much more dangerous than most people realized, Rubin recalled one tense day when Korea had $4 billion in reserve and was spending $1 billion a day.
“It was our view that if Korea went into default, it would have set off defaults across the world,” Rubin said.
Rubin encouraged the United States and the International Monetary Fund to continue to take a leadership role in restoring financial security around the world during crises.
“If you don’t restore confidence, then nothing will work,” he said.
Rubin and Yellen agreed that America’s recent economic troubles were the result of an overvalued stock market. But both said that although economists foresaw this decline, there was no way to prevent a nasty correction period.
“We saw the excesses,” Rubin said. “What should we have done? Should the secretary of the treasury have made a speech saying, ‘Sell all your stocks’?”
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