Rubin Robert Edward - In an uncertain world: tough choices from wall street to washington

IN AN
UNCERTAIN WORLD

TOUGH CHOICES
FROM WALL STREET
TO WASHINGTON

ROBERT E. RUBIN AND JACOB WEISBERG

RANDOM HOUSE | NEW YORK

CONTENTS

To my parents, Sylvia and Alexander, who have given me so much,
and
to my wife, Judy, my one certainty in an uncertain world

A NOTE FROM THE AUTHOR

PEOPLE WHO HAVE WORKED with me know that I dont believe in certainty. But one thing I thought I was sure of during my six and a half years in government was that I wouldnt write a book after I left. The idea seemed uncomfortably self-focused to me. Yet by the time I departed Washington and the Clinton administration in the summer of 1999, my feelings had begun to shift.

Both in Washington and on Wall Street, I found myself at the center of periods of great change and momentous issues and events. As I thought more about those times, I realized I had much yet to learn from what I had lived through. Writing a book seemed a way to think more systematically about that involvement and to understand it better. More important, I hoped my experiences and reflections might be of some interest and utility to others.

Today, markets are more important to the lives of more people than at any previous time in history. Government is vital to all of us. An integrated understanding of both worlds is necessary to deal with the economic and political issues we face. Having crossed over from business and the realm of markets to government, and now crossed back again, I thought I might be in a position to shed some light on these two worlds and their interaction.

The growing feeling that I had something I wanted to say coincided with an approach from a journalist named Jacob Weisberg, who proposed that we work together on a book growing in part out of an article he had written in The New York Times Magazine. That story had at its core a discussion of my fundamental view that nothing in life is certain and that, consequently, all decisions are about probabilities. Talking to Jacob, I became intrigued by the idea of trying to convey to others how my approach to decision making and my view of life permeate all that I do.

After considerable discussion, we decided to collaborate on a book that would draw on my personal historytwenty-six years at Goldman Sachs; six and a half in the White House and Treasury; then four at the worlds largest financial institution, Citigroupto express my views on questions of future importance to policy makers, investors, businesspeople, and all of us as citizens. As we began writing, debate continued to swirl around many of the same policy and political issues that had come to the fore during the Clinton years. For example: What are the merits of fiscal responsibility versus tax cuts as a core economic strategy for the future? Are globalization and market-based economics the right policy paths for the world economy? How can the international community best prevent or respond to the periodic financial crises that so far seem to be an inevitable feature of the advancement of developing nations? Central to all of these issues is the question of how markets behave, a matter also of interest to the average person investing in stocks.

Through narrative and reconsideration of my own experience as a decision maker, I hope to contribute to choices others will make in the future, individually and collectively. That is the primary purpose of this book. Ill share some of the views Ive formed through the course of a life in these two worldsabout the psychology of markets, how government functions in relation to the economy, and how to make decisions and work effectively within vast organizations on both sides of the divide.

The second purpose is to explain my method of decision making. A probabilistic approach is far from unusual and, at some level, merely describes what most people do, or think they are doing, when they describe weighing the pros and cons of an issue. But somehow or other, the discussion in Jacobs New York Times Magazine piece resonated, and since then people in all kinds of circumstances have told me it affected them. Two years after its publication, I met a money manager on a tennis court who told me he had pinned the key section of the article on his office wall. Someone else I know told me that a manager of a baseball team had also posted that part of the article in his office. (I dont know where that team finished in the standings.)

The best explanation I can offer for why this discussion drew the response it did is something Larry Summers once suggested when we were both at the Treasury Department: that while a great many people accept the concept of probabilistic decision making and even think of themselves as practitioners, very few have internalized the mind-set. For me, probabilistic thinking has long been a highly conscious process. I imagine the mind as a virtual legal pad, with the factors involved in a decision gathered, weighed, and totaled up. To describe probabilistic thinking this way does not, however, mean that it can be reduced to a mathematical formula, with the best decision jumping automatically off a legal pad. Sound decisions are based on identifying relevant variables and attaching probabilities to each of them. Thats an analytic process but also involves subjective judgments. The ultimate decision then reflects all of this input, but also instinct, experience, and feel.

This book also provides an opportunity for me to explore the thinking that underlies my approach to decision making and to life more generally. At the core of this outlook is the conviction that nothing can be proven to be certain. Modern science says this is so even in physics and chemistry, where the most familiar and fundamental precepts are based on assumptions about perception and reality that cannot be proven. That outlook runs like a thread throughout this book. It has, I suppose, been taking shape from my early college days in Professor Raphael Demoss Philosophy I course at Harvard, to arguments with classmates in the Coke lounge at Yale Law School, to some of the discussions during four years of breakfast meetings with Larry Summers and Alan Greenspan while I was at Treasury.

And once you enter the realm of probabilities, nothing is ever simple again. A truly probabilistic view of life quickly leads to the recognition that almost all significant issues are enormously complex and demand that one delve into those complexities to identify the relevant considerations and the inevitable trade-offs. Some people Ive encountered in various phases of my career seem more certain about everything than I am about anything. That kind of certainty isnt just a personality trait I lack. Its an attitude that seems to me to misunderstand the very nature of realityits complexity and ambiguityand thereby to provide a rather poor basis for working through decisions in a way that is likely to lead to the best results.

Although the fundamental purpose of this book is to help readers think more clearly about the future, it is grounded in narrative about the past. While this isnt a history or an academic text, my recollections of issues, events, debates, and my own reactions to them may contribute something to the work of historians who study the Clinton years and other times Ive lived through. Public service provided me with an unparalleled opportunity to apply my experience to issues that matter to vast numbers of people, here and around the world, and to see how our system of government operates by working at the intersection of policy, politics, and communication. Perhaps in relating my own experiences in government, and providing some sense of the great ability and commitment of so many of the political appointees and career public servants I worked with, this book will encourage young people to consider spending at least part of their careers in public servicefor the good of the country and to enrich their own lives. More broadly, I would like to prompt readers to get more involved in our political system by supporting candidates, ideas, and causes they believe in.