It's Rubin, Stupid

ROBERT RUBIN, NOT ONE TOduck a question, is cringing. Literally. Repeat to him what so many of his admirers in Washington and on Wall Street now say - that he may be the best U.S. Treasury secretary in memory - and Rubin visibly stiffens. His eyebrows arch high, and he averts his face with a comical grimace, as if you'd just raised something totally inappropriate, like rumors about his sex life (there are none). For the Treasury chief, whose self-effacing reputation in a town of monster egos is at the core of his influence, talk of his growing profile is like nails on a blackboard. ""I just don't think those kinds of comparisons are useful,'' Rubin snorts. Then, after a few more questions and a genial apology to his visitor, he's gone. He's off to a meeting next door at the White House and his newest fight: scrapping over the nasty details of balancing the budget. Clearly, Rubin believes it's far too early to write his legacy.

But is it? Now may be as good a time as any. When world leaders gathered in Denver last weekend for the so-called Summit of the Eight, they got a faceful of American triumphalism. More than at any other time since the Marshall Plan era, the U.S. economy has become the world's beau ideal - its champion of growth, fiscal responsibility and technological progress. While Europe and Japan still stagnate, America is enjoying the most capital spending in three decades, the lowest unemployment in 24 years and strikingly little inflation.

No one can take credit for anything as vast and complex as a $7 trillion economy, not to mention seven straight boom years - two longer than the Clinton administration. But it's also natural to wonder who's running things back in the engine room. And increasingly, appreciative eyes are turning to Rubin and his monetary counterpart, Federal Reserve Chairman Alan Greenspan. They are an odd pair, the rumpled, rheumy-eyed Fed chief and the slight, crisply barbered Treasury secretary. One began his career as a libertarian disciple of Ayn Rand's (Greenspan), the other as a liberal Democrat with deep compassion for the inner cities (Rubin). Yet it is in keeping with our times - if there was a Bronze Age and an Iron Age, this is surely the Age of Capital - that they have forged the closest relations between the Fed and Treasury that anyone can remember. Even Rubin says their partnership is ""simpatico'' at their Tuesday breakfast meetings, when they confer on the economy and the dollar, and ""discuss everything in the world.''

Many think they've got the world pretty much figured out: rein in public spending, give the private sector a firm greenback, then stand back and let it roar. Wall Street vets both, Rubin and Greenspan have an unmatched feel for matching policy to market indicators. Rubin, who made millions in risk arbitrage, has been an especially deft intermediary between Wall Street and Washington - keeping the bond markets in line by making sure their stern fiscal message is heard inside the White House; intervening in currency markets rarely, but like a ton of bricks when he does. ""Rubin understands modern capitalism better than any government official I know,'' says Lazard Freres & Co.'s longtime rainmaker (and ambassador to France-designate), Felix Rohatyn.

This prowess has enabled his boss, Bill Clinton, to forge an almost unheard-of alliance between a Democratic administration and the business community. Today, as the reputations of Clintonites and Repub- licans tumble around scandal-plagued Washington, the stature of America's top economic policymakers is immense. ""The fact is, Rubin and Greenspan together constitute the most formidable economic management that the United States has had in memory,'' gushes Jeffrey Garten, dean of the Yale School of Management.

It's at moments like this, of course, when journalists are waxing elegiac about economic clear skies, that smart investors begin to edge toward the exits. For there's a downside to every upside - and the golden age of Rubin/Greenspan will be no exception. No one knows when the stock market will have its long-awaited correction. And more and more, the world's frustrated have-nots are rebelling against free markets and globalization. In the United States, there's an unnerving gulf between rich and poor, skilled and unskilled; and workers have clearly suffered in the ongoing struggle between labor and increasingly mobile capital. Wages have lagged far behind corporate profits in growth during the '90s, especially as companies multinationalize.

To some extent, this legacy, too, must be laid at Robert Rubin's door - a sharp irony for a man who, even when he was a young trader at Goldman, Sachs, used to show up at New York community meetings on the inner-city poor. The Treasury chief's career is a profile in the sometimes agonizing choices that led the Democrats to sacrifice their party's traditional goals of social equality for market credibility.

Indeed, it's not surprising that most of the criticism of Rubin these days comes from the left. Rubin became Clinton's economic taskmaster, hewing tightly to the conservative fiscal and monetary line, zealously presenting the views of the bond market and business. ""I don't think he's hard enough on business,'' says one administration official who is more liberal. Former chief of staff Leon Panetta, for instance, confirms that it was Rubin's idea in 1993 to offer tax breaks for executives who link their pay to stocks and options - a decision that exploded into controversy as execs earned ungodly millions on the strength of the stock market (Rubin says he can't recall proposing it). The secretary has his liberal defenders. They point out that he opposed Clinton's decision to sign welfare reform - a much-criticized compromise with the GOP - as too harsh, and supported some progressive moves like expanding income-tax credits for the disadvantaged. Even so, says his old Goldman, Sachs cochairman, Steve Friedman, ""in a business context Bob was as much of a Republican as I am.''

Rubin, who took over Treasury from Lloyd Bentsen in January 1995 after heading the National Economic Council, denies that he's sacrificed his Democratic soul. The administration, he says, simply has had no choice but to bow to the markets. Clinton came into office confronting record deficits, and a gulf of suspicion between Washington and Wall Street. And that was after 12 years of business-friendly Republicans in the White House. ""The threshold issue had to be the deficit,'' he says, ""and how quickly you gain credibility with the markets, since ultimately it's market interest rates that drive the economy.'' Rates did in fact plummet along with the deficit, the economy soared - and so did Rubin's reputation, especially after Clinton's re-election last fall.

Today, many consider Rubin, 58, to be the most influential player in Washington. This is helped by his style - judicious, calm, accommodating. ""Rubin will sit there at a cabinet meeting and say nothing while everyone else jabbers away. Then at the end the president will turn to him and say, "Bob, what do you think?' And Clinton listens. It makes Rubin the statesman in the process,'' says an administration official. Adds Garten, ""He's a fantastic listener. Everybody who advances a position is convinced they had their day in court.''

Many on the side of labor, however, feel they haven't. And a key question now is whether, after five years of winning market credibility, the White House can take back part of the old Democratic agenda that Clinton and Rubin helped shred. Rubin insists the Democrats will continue to vouch for the underclass, even though the administration has been conspicuously fudgy on issues like the capital-gains-tax cut - which in this booming economy looks to many eyes like a plain giveaway to the rich. The current budget fight with the GOP, Rubin says, ""is largely about our view that tax cuts should help those who have not fared as well in this economy.'' But with his reputation secure, the question is, how far will Robert Rubin go to help them?

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