Rubinomics
Encyclopedia
Rubinomics, a portmanteau of Rubin and economics, was originally used to collectively describe the economic policies of President of the United States
Bill Clinton
. It is named after Robert E. Rubin, former United States Secretary of the Treasury
.
Rubinomics emphasizes the effect that balancing the government budget has on long term interest rates. Tax
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
– fiscal policy affecting long term inflation (as expressed by long term interest rates).
Rubinomics has never rejected Keynesian 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
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
) attributed this high yield curve
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 liberal advisers such as Robert Reich
and Joseph Stiglitz. In particular, Stiglitz (recipient of the 2001 Nobel Prize in Economics) was not opposed to Clinton's plan to reduce the deficit, but suggested that Clinton put less money into research and development, technology, infrastructure, and education, quoting "given the high returns for these investments, GDP in 2000 would have been even higher, and the economy's growth potential would have been stronger."
President of the United States
The President of the United States of America is the head of state and head of government of the United States. The president leads the executive branch of the federal government and is the commander-in-chief of the United States Armed Forces....
Bill Clinton
Bill Clinton
William Jefferson "Bill" Clinton is an American politician who served as the 42nd President of the United States from 1993 to 2001. Inaugurated at age 46, he was the third-youngest president. He took office at the end of the Cold War, and was the first president of the baby boomer generation...
. It is named after Robert E. Rubin, former United States Secretary of the Treasury
United States Secretary of the Treasury
The Secretary of the Treasury of the United States is the head of the United States Department of the Treasury, which is concerned with financial and monetary matters, and, until 2003, also with some issues of national security and defense. This position in the Federal Government of the United...
.
Rubinomics emphasizes the effect that balancing the government budget has on long term interest rates. Tax
Tax
To tax is to impose a financial charge or other levy upon a taxpayer by a state or the functional equivalent of a state such that failure to pay is punishable by law. Taxes are also imposed by many subnational entities...
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
Fiscal theory of the price level
The fiscal theory of the price level is the idea that government fiscal policy affects the price level: for the price level to be stable , government finances must be sustainable: they must run a balanced budget over the course of the business cycle, meaning they must not run a structural...
– fiscal policy affecting long term inflation (as expressed by long term interest rates).
Rubinomics has never rejected Keynesian 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
Structural deficit
Structural deficit forms part of the public sector deficit. Structural deficit differs from cyclical deficit in that structural deficit exists even when the economy is at its potential....
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
Alan Greenspan is an American economist who served as Chairman of the Federal Reserve of the United States from 1987 to 2006. He currently works as a private advisor and provides consulting for firms through his company, Greenspan Associates LLC...
) attributed this high yield curve
Yield curve
In finance, the yield curve is the relation between the interest rate and the time to maturity, known as the "term", of the debt for a given borrower in a given currency. For example, the U.S. dollar interest rates paid on U.S...
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 liberal advisers such as Robert Reich
Robert Reich
Robert Bernard Reich is an American political economist, professor, author, and political commentator. He served in the administrations of Presidents Gerald Ford and Jimmy Carter and was Secretary of Labor under President Bill Clinton from 1993 to 1997....
and Joseph Stiglitz. In particular, Stiglitz (recipient of the 2001 Nobel Prize in Economics) was not opposed to Clinton's plan to reduce the deficit, but suggested that Clinton put less money into research and development, technology, infrastructure, and education, quoting "given the high returns for these investments, GDP in 2000 would have been even higher, and the economy's growth potential would have been stronger."
See also
- ClintonomicsClintonomicsClintonomics refers to the economic policies of United States President Bill Clinton during the 1990s...
- Democratic Party (United States)Democratic Party (United States)The Democratic Party is one of two major contemporary political parties in the United States, along with the Republican Party. The party's socially liberal and progressive platform is largely considered center-left in the U.S. political spectrum. The party has the lengthiest record of continuous...
- Fiscal theory of the price levelFiscal theory of the price levelThe fiscal theory of the price level is the idea that government fiscal policy affects the price level: for the price level to be stable , government finances must be sustainable: they must run a balanced budget over the course of the business cycle, meaning they must not run a structural...
- FreakonomicsFreakonomicsFreakonomics: A Rogue Economist Explores the Hidden Side of Everything is a 2005 non-fiction book by University of Chicago economist Steven Levitt and New York Times journalist Stephen J. Dubner. The book has been described as melding pop culture with economics, but has also been described as...
- ReaganomicsReaganomicsReaganomics refers to the economic policies promoted by the U.S. President Ronald Reagan during the 1980s, also known as supply-side economics and called trickle-down economics, particularly by critics...