Robert Rubin: The biggest risks to the US economy are political, not financial

Published on11 OCT 2023

Robert Rubin has led both the US Treasury and Goldman Sachs, which gives him a rare perspective on interactions between the financial and political systems. His recent book The Yellow Pad lays out his approach to thinking and decision-making, drawing on those and other experiences from his life and career. While many investors have worried about the health of the financial system after three banks failed earlier this year, Rubin says he still believes the US economy has enormous strengths over the long term.

“The biggest risks today are not really in the financial system, they’re in the political system,” Rubin told Goldman CEO David Solomon in a Goldman Sachs Talks session. “The problem is we face enormous policy challenges. And while Biden accomplished a lot, the predominance of our challenges haven't been met.”

While Rubin believes that American resiliency and the dynamism of our society will get policy back on track, “it could be a messy process and there’s no guarantees.” The banking system, Rubin says, is in relatively good shape. However, the $250,000 federal deposit guarantee needs to be updated and that, too, requires policymaking from Congress.

“Our political system isn’t capable at the present time at meeting our challenges, and this is just one of a vast number you can name,” he says.

Rubin also says the US should change its approach toward China to one that’s built on common interests such as climate change, nuclear weapons, potential risks of artificial intelligence, and the threat of global pandemics. The two countries should try to work constructively on addressing these issues globally, and then use those policies as the foundation for engaging with each other on more contentious issues, he says.

“But that’s not where we are,” Rubin says. “It’s in the opposite direction. There’s tremendous mistrust and antagonism toward us over there. And certainly here [as well]. We’re just in the wrong place, and I think it’s very much against the interests of both countries.”

One of the concerns Rubin mentioned regarding China, climate change, is an existential risk that is beyond the scope of any one government to address.

“Seventy percent of emissions, roughly speaking, come from emerging market countries, and I don’t think that part of the world is engaging with this very much,” Rubin says. Solomon noted that while emissions fell by 6% in the Western world, they rose by 6% overall, and that more than 80% of all global carbon output still comes from fossil fuels.

The US needs to do more to ease the economic burden that combating climate change places on emerging countries, Rubin says. Only government has the power to address these issues at the necessary scale, through policies such as subsidies and taxes.

“The question one could logically raise is, ‘when government’s ineffective, what do we do?’” Rubin asked. Companies may choose to engage, but they can’ bear the responsibility of protecting the climate. 

“I don't think we want to take the risk of undermining our economy by moving corporations away from long-term profitability as an objective,” he says. “So I think we're in a very complicated situation, and it’s massively, massively troubling.”

In fact, combatting climate change and other global challenges requires a robust domestic economy.

“It is imperative that we have strong growth to meet our objective of widespread economic well-being, and also to meet our rapidly changing and increasing geopolitical challenges,” Rubin says.

He added that sustainable economic growth has three components:

  • Public investment in areas such as overcoming poverty and supporting people displaced by trade and technology
  • A sound fiscal trajectory
  • Reform in climate change, immigration, education, and other fields

“The problem is all of these require a moderately effective political system,” Rubin says.


This episode was recorded on September 13, 2023.

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