Review: In an Uncertain World

I read this autobiography by former Treasury Secretary Robert Rubin a while ago, but never wrote a review about it.

There are two interesting parts of the book, in my opinion. The first is in the middle. Rubin had to deal with the 1994 Mexican financial crisis immediately after being sworn into office, and drew heavily on his previous experience as a risk arbitrageur at Goldman Sachs.

He proposed shoring up of the Mexican financial system so that the "financial contagion" of its failure wouldn't spread. This economic principle, seen most famously in the widespread failures of banks during the Great Depression, says that lack of confidence in a financial system is like a virus -- once it knocks one country out, it will attack the next weakest, and continue until the whole thing collapses.

His use of probabilistic thinking (that nothing is certain, only "highly probable") helped change the U.S. government's approach to financial problems. The political environment would have been conducive to being "penny-wise and pound foolish" -- doing nothing but hoping for the best. In all likelihood this would have meant letting Mexico fall and then having to deal with the costly aftermath of problems (kind of like the S&L scandal in the previous decade).

Instead, the Clinton administration risked a lot by offering a $40 billion loan to the Mexican government, and ended up the plan worked. Instead of a financial meltdown, Mexico recovered with surprisingly quickly.

This experience, in turn, helped shape U.S. policy in 1997 during the Asian financial crisis, where the IMF and G-7 aided several Asian countries and Brazil to ensure worldwide financial stability. They also rejected Russia's request for help because of recalcitance about reforms.

The second interesting part is in chapter 13, where Rubin comments on supply-side economics, deficit spending, and the tax cuts made in the wake of 9/11.

Supply side economics says that cutting taxes is OK, because it will cause the economy to grow, and thus increase tax revenues later. The problem is that once taxes are lowered, no one wants to raise them again. And if the economy doesn't grow enough, the country's stuck with a chronicly increasing debt burden.

Rubin seems like a mix of fiscal conservatism and global liberalism -- he opposes tax cuts for the rich as unnecessary, and understands the plight of the poor worldwide. As such, he advocates free textile and agricultural trade for developing countries, a move that could help eliminate poverty in a way that would surpass other relief aid.

I like a quote he gives about the impact of free trade agreements, often criticized for their concentrated negative impacts. To President Clinton, who commented on the plight of poor Japanese fisherman, he said, "to help those poor fishermen, you're going to prevent the vastly greater benefit that would come to the poor throughout Japan from being able to buy cheaper fish."

I understand what he's saying in light of the current debate about the Korean FTA. Rice is much more expensive there than in the U.S., but it's such a staple that even the poorest of the poor still buy it. Rice imports would hurt Korean farmers (and boy are they vocal about it), but it would benefit so many more.

Rubin also touches on the nature of politics in the post 9/11 world, and left me feeling really exploited. After 9/11 the public was willing to go along with many decisions by the country's leadership, and opportunists took advantage of the situation. Corporations wanted lower taxes both before and after; they saw an opportunity and they got it. The richest and most powerful wanted their capital gains taxes cut; they got it.

I don't know what kind of person I would recommend this book for, but the mixture of politics and economics made those parts the most interesting.