2016 Salt Conference: Summers, Rubin Encourage Political Compromise

May 11 2016 | 12:13pm ET

Former Treasury Department heads Robert Rubin and Larry Summers spoke in a roundtable discussion with Carlyle Group co-CEO David Rubenstein at the SALT Conference on Wednesday and offered expectations for the U.S. economy ahead while reflecting on their time in public service.

Discussing the U.S economy, Rubin said that looking forward to the next President, the ability of both political parties to work together will be central to success.

“The whole key is the willingness of Congress willing to engage in necessary compromise,” said Rubin.

Summers argued there exists a starting point for politicians and economists on the left and right to find common ground. Summers said it is a ripe time for public investment given record-low interest rates, low material costs, and high construction unemployment.

“It is insane we have the lowest rate of infrastructure investment in 60 years,” Summers said.

He also said it is a problem that our tax and regulatory system isn’t formulated to benefit growth, a point of argument among many Conservative leaders.

On High Denomination Bills

“The basic fact about high-denomination notes — if you look how widely they are used for bad purposes and how they are used for good purposes — the ratio is extremely high,” he said. “They support drug trafficking,” tax fraud, and money laundering.

Summers said that stopping high demonization currencies would have little impact on commerce.

On Janet Yellen and Interest Rates

Rubinstein asked both Summers and Rubin what advice they would offer to Federal Reserve Chair Janet Yellen if she requested their insight on how to handle interest rates.

Said Summers: “You should do… at each moment, whatever the right thing is, and the fact that there is an election” should not impact that decision. Summers said there is very little evidence that the Fed’s policy is politically driven and that data-dependence on the state of inflation and inflation expectations are key. “I would support a policy of data dependence, and the market has made a judgement that inflation expectations are coming down.”

Rubin says that it has taken pressure off political leaders to do what is necessary to improve the economy. He supported the argument for data dependence and explained that the Fed is just a smaller part of the equation than investors have made the central bank out to be.

“I think one of the problems that we have had is there is a massive focus on the Fed here,” Rubin said.

Tough Decisions

“I never thought I’d ever go to work and have a 45-second walk to work from the Oval office,” Summers said.

Rubin and Summers both discussed the transitions between the private and public sector and the most challenging recommendations they made during their time in the Washington.

“Bob made the recommendation to bailout Mexico at a time that it was believed by many political advisers that if it went wrong it could have affected the President’s reelection chances,” Summers said.

Summers called the the bailout of the auto industry a “very difficult decision,” and says that he is proud of the advice he offered with both Mexico and the auto industry.

Most Concerning Economic Issue Today

Rubin said that he recently spoke at the China Policy Forum a few months ago and listened to statements from economists in the country. He said that economists — one-on-one — are more uncertain. China “is a risk we have to be cognitive of.”

If something happens in the next three years, Summers says that political risk driving “economic huge economic risk is something that he always thought in emerging markets.” Now, he worries that such risk is here in the United States given the rise of populism. He says the risk is not properly priced into markets yet. “China and political risk [here] stand out.”

Summers is a Harvard University professor, the Former Director of the National Economic Council for President Obama, and Secretary of the Treasury for President Bill Clinton.

Rubin is the former Secretary of the U.S. Treasury and the Co-Chairman of the Council on Foreign Relations.

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