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What I've Learned: Dollars and Sense
Comments () | Published November 3, 2010
You worked under eight Presidents—which ones made your work easier and which more difficult?
I’ve established good relationships with Democrats and Republicans alike, and we’ve shared common goals.

In terms of Presidents, the relationship improved when President Clinton and his advisers decided they weren’t going to publicly comment on monetary policy. That decision was carried forward by President George W. Bush and now President Obama.

That doesn’t mean they don’t express their views about where the economy is going. But it has helped not to have the public back-and-forth that sometimes existed in the Reagan administration, when you had supply-siders and monetarists, both of whom seemed unhappy with the Federal Reserve’s performance from time to time from completely different angles.

The first President Bush’s relationship with Alan Greenspan was not great. President Bush himself said in a television interview, “I reappointed him. He disappointed me.” I think there’s no secret that Treasury Secretary Nicholas Brady and Greenspan didn’t hit it off as well as they could have. There were still good relationships with parts of that administration. Michael Boskin, the chairman of the Council of Economic Advisers, and Greenspan talked frequently. So it wasn’t as if the Fed was cut off from the administration, but it was a more difficult relationship. They waited a long time to reappoint Greenspan.


How should the government tackle the huge federal deficit?
I don’t have an easy solution for what to do about the long-run trajectory of the deficit and the amount of debt.

I worry that the very bad political dynamic that you see now would make something like the Greenspan Commission in the early ’80s—which came up with a bipartisan fix for Social Security—very hard to do. We need both parties to give up on some of their sacred cows and come together and figure out some way that we’re not going to bequeath to our children and grandchildren a much worse problem than we have today. I don’t see any evidence that it’s going to happen.

The demographics driving this—the aging population, people signing up for Medicare and Social Security, as I’ve done recently—mean society has a lot of obligations. We’ve got to figure out how to do some combination of controlling those obligations and raising the funds to meet the obligations that we do have. We can’t keep pushing it off. The longer we push it off, the tougher the problem is.

I would combine a shorter-term fiscal stimulus and longer-term fiscal restraint. You can’t do the stimulus without the restraint because by doing the stimulus now, you risk making the longer-term restraint more difficult.

I don’t think we can rule out the possibility that if the political process seems unable to come to grips with this, the financial markets will wake up one day and say this is a real problem. The government’s going to be issuing huge amounts of debt. That’s not a problem right now because the private sector isn’t issuing any debt because the private sector isn’t spending. It’s going to be a problem in five or ten years and start putting upward pressure on those long-term interest rates.


Since coming to Washington, have you seen a change in the political climate that makes it harder to forge bipartisan compromises?
I think so. I’m hesitant because I’m old enough to remember the late ’60s and early ’70s, when people were literally beating each other up and blowing up things and the far left and the far right were resorting to violence. That was a terrible time in this country.

If I look back since the ’70s, I do think things have deteriorated—I see a dynamic in which each party feels it’s being most successful when it energizes its base. It pushes centrists away from the center toward either end. I don’t blame one or the other party—I think they’re both guilty. They feel like their electoral success is appealing to either extreme.

President Obama was elected with huge support from the center of the political spectrum. Somehow that’s eroded. The Democrats wanted to push through health care and things that contributed to losing the center. Certainly the economic woes of the country have eroded the center.

I consider myself a pragmatic centrist, and I find myself increasingly isolated within the political spectrum. I’m not registered with either party.


What have you learned about life?
To expect the unexpected. One of the difficult things is to recognize what you don’t know. One of the traits I would advocate for policymakers is flexibility. I’m sure this is true in foreign policy and elsewhere, but it’s certainly true in economic policy. Our understanding of the systems that we’re interacting with, people’s behavior, is very partial. We should expect to be surprised quite often.

One of the very hard things to know is, when incoming data on the economy isn’t going the way you expect it to go, does that suggest something really has changed or that it’s just a blip in the data? Sorting out the signal from the noise is very hard. You’ve got to be open to the possibility that what you expected to happen isn’t happening. You’ve got to be ready to ask tough questions of yourself, of your colleagues, of the data.

You’ve got to be creative in thinking about current situations and how to respond to them. That all starts with, in my mind, humility about what you know.

This article first appeared in the November 2010 issue of The Washingtonian. 

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Posted at 12:00 AM/ET, 11/03/2010 RSS | Print | Permalink | Comments () | Washingtonian.com Articles