The Wall Street Journal reported today on the split between the Wall Street oriented Rubinite/Hamiltonian wing of the Democratic wing and the more working class oriented populist wing of the party. There is little doubt which side the WSJ is on. The article comes right out swinging, telling readers that Robert Rubin �redefined the formerly protectionist, free-spending party as a champion of free trade and balanced budgets.� Hmmm, that�s objective reporting? Is it a fact that the pre-Rubin party was �free-spending?� According to my copy of the Economic Report of the President, the ratio of government debt to GDP fell from 56.1 percent in 1960 to 42.5 percent at the end of 1968. During the Carter administration the debt to GDP ratio declined from 36.2 percent to 33.3 percent. As I recall, both Walter Mondale, the 1984 president nominee, and Michael Dukakis, the 1988 nominee, ran on platforms of deficit reduction. I am sure that there were free-spending Democrats out there, but they don�t seem to have been calling the shots even in the pre-Rubin era. Calling the pre-Rubin party protectionist and Rubin a free-trader is probably even more inaccurate. The Democrats had supported a long-range of trade agreements through the whole post-war period. On the other hand, the Clinton administration was perfectly happy to accept and even increase protectionist barriers that supported the income of highly paid professionals like doctors and lawyers. Its trade agenda was mostly about eliminating barriers that protected less-educated workers from competition with low-wage workers in the developing world (benefiting guess who?). The �free-trade� Rubinites also deserve special mention for putting the TRIPs provisions into the WTO. TRIPs imposed U.S. style copyright and patent protections on the developing world, the largest increase in protection in the post-war era. The article also neglects to mention Robert Rubin�s unaffordable tax cut � his high dollar policy. This was great for short-term politics. The high dollar kept inflation down and raised living standards by making low-cost imports available. An over-valued dollar is of course unsustainable in the long-run. It leads to large trade deficits, which cannot be sustained in the long-run any more than the large budget deficits created by President Bush�s tax cuts. (The current account deficit is presently more than twice the size of the federal deficit, even after adding in the money borrowed from Social Security.) The high dollar also has important distributional consequences, shifting income from workers in the unprotected sectors of the economy (i.e. manufacturing) to people in the protected sectors (e.g. doctors, lawyers, Wall Street investment bankers). I could go on citing other passages that portray Mr. Rubin and his followers as the fonts of well-considered policy in contrast to the well-meaning but disoriented populists, but you can read the article for yourselves. I will just mention my favorite item. I see that my former employer, the Economic Policy Institute, appears in this article as an �advocacy group.� Get out your ad hominems, this is going to get nasty.
--Dean Baker
