By Larry Jones
February 11, 2008

Former Treasury Secretary Rubin Tells Mayors Stimulus Is Needed to Boost Economy

By Larry Jones

During the January 23 opening plenary session, former Treasury Secretary Robert Rubin, who served during the Clinton administration, discussed how various issues threaten to disrupt the nation’s economy, both in the near future and over an extended period. These included increasing mortgage defaults, tighter credit, softening housing prices, high oil prices and a zero personal saving rate. In the short-term, he said, “We are facing significant risk to our economy for the year ahead, and many families — especially lower-income families face the terrible possibility of losing their homes due to sub-prime mortgage foreclosures.”

He said the key economic risk is whether these challenges will significantly weaken consumption and cause further harm to an already faltering economy. Another concern mentioned was constriction in credit may be spreading to areas other than mortgage financing that could make the problem more severe. He also spoke of the possibility that longer-term risks, such as multiple financial imbalances or geopolitical events, could materialize in the short term if, for example, there is a destabilized dollar or a terrorist attack.

To address these challenges, Rubin believes there is a role for the Administration, Congress and city hall. “I do think the risk of more serious difficulty is sufficient to call for policymakers to be highly proactive,” he said. At the federal level, he feels the Administration and Congress should pass a short-term fiscal stimulus package involving both a boost in temporary spending and temporary tax cuts. On tax cuts, he believes rebate checks should go not only to workers who pay income taxes but also to workers whose earnings are low enough that they are not required to pay income taxes. These workers “...will spend the highest proportion of what they receive, creating the most demand for our economy per dollar of rebate.” He further explained that, “It is important to distinguish between temporary short-term stimulus to generate demand, and restoring sound long-term fiscal conditions to keep interest rates lower, increase savings, heighten business and consumer confidence, reduce the risk of market disruption, and strengthen our currency.”

to keep interest rates lower, increase savings, heighten business and consumer confidence, reduce the risk of market disruption, and strengthen our currency.”

For local governments, Rubin agrees that cities best understand their local strengths and can do a much better job of building around those strengths than any efforts directed from Washington. He believes public education is the most critical area of local engagement and key to our nation’s future competitiveness and economic success.

Improving local infrastructure is another critical area in which Rubin feels local governments can and should play a special role. He believes local leaders have a better sense of what should be done to improve, for example, water systems, air transport and mass transit systems.

He also mentioned a number of creative approaches that some local governments are using to finance infrastructure projects. One of the approaches mentioned was moving well-located municipal functions to less expensive real estate, and receiving the one-time gains from the land sale. The savings could be used to reinvest in existing or new infrastructure.

Rubin also said local governments could play a major role in developing energy alternatives and energy conservation as industries for the future. Several examples were provided including providing targeted aid for research at local universities to attract private sector activity; promoting public/private partnerships for pilot projects in innovative technologies; and making available special technical schools or university programs to prepare skilled personnel for these industries.