Decision Making in an Uncertain World

Monday, September 11, 2023
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Author, The Yellow Pad: Making Better Decisions in an Uncertain WorldChairman Emeritus, Council on Foreign Relations; Former U.S. Treasury Secretary (1995–99)


President, American University; Member, Board of Directors, Council on Foreign Relations; Former Chief of Staff to the Secretary of the Treasury, U.S. Department of the Treasury (199597)

President, Council on Foreign Relations; Former Chief of Staff to the Secretary of the Treasury, U.S. Department of the Treasury (199799)

In a conversation with two of his former chiefs of staff, former U.S. Treasury Secretary Robert E. Rubin discusses his decision-making process and how policymakers should think about economic issues including the national debt, trade, and inflation.

BURWELL: (Laughs.) So I was on the way down to this event and heard from Mike and Bob that they are in New York. So here they are. (Laughter.) And you know, the good news, though, is that Mike didn’t show up, but Mike’s father, Abe Froman, is here with us tonight. (Cheers, applause.) So we thank you for being here, even though Mike is not here live but here virtually with Bob.

So, Mike, why don’t I turn things over to you?

FROMAN: Well, thanks very much, Sylvia. And I am really, really sorry that we are not there in person. In fact, this whole event was in part organized as a way of kicking off the season with a great in-person event in the D.C. office and bringing the D.C. CFR community together. And, well, the best-laid plans. So we’re delighted to use technology and to be with you virtually. And, Sylvia, we are very grateful to you for being the glue that holds this thing all together.

You will see we’re coming together to talk about—talking with Bob Rubin about a number of issues, including his most recent book, The Yellow Pad: Making Better Decisions in an Uncertain World. You’ll see copies in the back that you can purchase after the—after the show. And I—

RUBIN: And, Michael, just to make clear, there’s no limit on the number you can buy. You get no quota. (Laughter.)

FROMAN: And Sylvia has agreed to sign them all for you. (Laughter.)

RUBIN: This is actually—this is actually not what it seems to be. This is actually a coup, and Sylvia is going to be the new president—(laughter)—and I’m going to be Rasputin, and right away.

FROMAN: So there we are. Bob, thank you for doing this. It’s going to—looking forward to this. Sylvia and I, having worked for you as your chiefs of staff—

RUBIN: You were both my employees.

FROMAN: Yes, and you have not let us forget that—(inaudible, technical difficulties). So it’s great to come together around this.

We wanted to talk about your book, which is a really interesting description of how you’ve made decisions your whole life, from your days going merger arbitrage at Goldman Sachs, to public policy, to investing, across the way. And it really is—if I understand it correctly, which I think you’ve—(inaudible, technical difficulties)—over and over again—it really boils down to probability analysis, and assessing the likelihood of an outcome and the impact of that outcome, and assessing that against the likelihood of the other outcome, and figuring out which one makes sense to pursue.

And it reminds me of the recent Oppenheimer movie, which I assume—(inaudible, technical difficulties)—in the audience have seen, where Edward Teller does some theoretical analysis that shows that if a nuclear weapon goes off it could trigger a chain reaction that would incinerate the whole world. And he shows it to Oppenheimer, who was sufficiently worried about it that he takes it to Albert Einstein. Einstein seems to be worried about it. But they never tell Truman about this possibility. And when Colonel Matt Damon asks—(laughter)—the likelihood of that eventuality happening, Oppenheimer says a near-zero likelihood. And Oppenheimer says: What do you want? And Matt Damon says: Zero, not near zero.

And I—as I was watching the movie, I couldn’t help but thinking about your book because I was wondering—(laughter)—what little Robbie Rubin, as Mrs. Collins calls you in the book—

RUBIN: Well, she was my fourth-grade teacher. And when we got to the White House, where I spent two years before running Treasury, I got a letter one day from a Mrs. Collins, who said: Are you the same Robbie Rubin I had in my class? So I said—I wrote her back and said, indeed I am.

FROMAN: So I think you would have been about seven years old. This meeting took place in the Oval Office where Truman has assembled his war Cabinet to decide whether to drop nuclear weapons on Japan. And you’d be sitting there in your short pants with your little yellow pad, and—(laughter)—what advice you would have given President Truman? Because there was a near-zero chance of total annihilation versus a quite probable—not maybe a hundred percent, but quite probable chance that dropping the bombs would have brought an end to the war more quickly, saved probably hundreds of thousands of American and Japanese lives. How would you have weighed that decision—near-zero annihilation probability—

RUBIN: Sitting in my short pants in 1945? (Laughs.)

FROMAN: Yes, exactly. And you’re advising—

RUBIN: I think I would have advised him to get an adult.

FROMAN: (Laughs.) If you’re advising President Truman, what would you have told him?

RUBIN: Well, look, Mike, I think that one of the cardinal sins in decision-making—I ran the arbitrage department at Goldman Sachs for years, and that is a risk business where you evaluate the risks and the rewards of taking positions. The risks are very high if you lose, and sometimes you take very large losses. And I think one of the mistakes people made—that we did not make, I might add—in business is if they think there’s a very small—I think there’s a very common mistake in decision-making; if people think as a practical matter there’s a very small probability of something going wrong, they put it aside as if it were zero. Now, extinguishing life on Earth as we know it or extinguishing life on Earth period as they describe in that discussion is actually a quite consequential event. (Laughter.) And—

FROMAN: I can imagine.

RUBIN: Well, it is. (Laughter.) But, you know—and that you have to weigh against what was projected to be very large American and Japanese lives lost if they invaded.

But I think what I would have done, Mike? Look, I think the reality of life is that there are no zero-probabilities. There really are not. If you get metaphysical, which is I’m not going to do at this point, but I’ve discussions with the kind of people who actually are capable of doing that. Which I’m not, but I’m capable understanding it to some extent. There really is no such thing as a zero risk. But as a practical matter, there seems to be a very, very, very, very small risk, called a—(inaudible, technical difficulties). Most people just put it aside. And I think for investors, for example, I think that’s a very dangerous thing to do because every once in a while—albeit very infrequently—that very low probability will occur.

And when I was at Goldman Sachs, once we took a very big arbitrage position on something called Anaconda, I think it was. And the people at another firm that we talked lot to in those days said they were taking as large a position as they could take, because there was no risk. And I said—(laughs)—I said, I don’t think there’s no risk. Nothing is zero risk. And so they decided it was so infinitesimally small you risk your career on it. And they said, you’re not being practical. I said, OK. We took a large position, but not that large of a position. And it went bad. We lost a lot of money. He lost his job.

FROMAN: So bomb Japan, or not?

RUBIN: Oh. (Laughs.) Well, what I would have done if I had been there, and if President Truman had asked me, I would have done what you should have done when you were my chief of staff, which is—(laughter)—I don’t recollect it, though—I would have framed this in a probabilistic way. We did this with President Clinton on the Mexican thing, remember? Larry Summers and I went to President Clinton in January of 1995. He got kind of killed in the ’94 midterm, as you all remember. And we went to him the evening—the evening I was sworn in, actually. First I was sworn in, and then we said: Mr. President, we’d like you to stay with us for a little while.

And we said, we think that we should provide assistance to Mexico because if you don’t, there’s a real chance that Mexico will go into terrible tailspin. And that would be terrible for us. Obviously, terrible for Mexico, but, you know, leaving Mexico aside, terrible for us. But then we said to him exactly what you just said about, Michael. We said, this is not a zero-risk situation. We think it’s a small risk, but there is a risk. And it’s both substantive and political. And politically, we’re against doing it because they said the political risk isn’t worth taking. And he looked at us and he said, you know, this is what we were elected to do. And we did it. But he did it knowing—and, by the way, he had a probabilistic mind. He really did. He did it knowing that there was some risk this thing could fail, in which case he would pay a terrible price politically in the country would pay a meaningful price substantively.

BURWELL: Thank you. I’m going to—we’re going to continue maybe on this how to use probabilistic decision making. And Mike took us to the past, and I’m going to take us to the present and maybe the future. And we’re going to maybe go to artificial intelligence, Bob, and applying this approach to AI. And I was recently at a panel where AI was being described and discussed in depth. And, you know, the conclusion from the hour-long back and forth to the experts basically was if we do not take certain actions within a two-year window, then in a two- to ten-year window that the technology will be smarter than we are. And therefore, we will either be extinct or pets. (Laughter.)

Now, some people in the audience reacted, I treat my pet really well. (Laughter.) But that was not exactly where I went with this. So, Bob, in thinking about this one, we’re back to extinction again, possibly, of the human race, or being a pet, or some variant of that. How would you think about applying the problem-solving skills and approaches that you describe in the book, and have used for your entire life, on this new problem or opportunity? Because it’s a challenge or opportunity, just like that—when you put that—that could have gone very well in terms of the one you just described, in terms of your investment. Similarly, this is a challenge or opportunity. How would you approach it?

RUBIN: Well, let me answer it this way, Sylvia. I should not profess expertise in AI. I decided some time ago that AI, based on virtually nothing but the little bit I knew, was going to be a very important part of our future. So I hired a tutor. And I now have a one-hour tutorial twice a week on AI. And what he has done—I said—I was telling Michael about this before. What he has done is he has—(inaudible, technical difficulties)—understand what he’s talking about. But in any event, what he has done is he has given me a conceptual understanding—oh, that’s overstating it—some level of conceptual understanding of how it works. But we’ve also discussed, and he’s extremely good at this, the possible ramifications. And just today at my session, we were talking about the risks of AI replacing human thought, man—well, you’re not supposed to say mankind anymore. I guess you’re supposed to say humanity. So AI replacing humanity.

And I would say, Sylvia, before I started taking this tutorial twice a week, one hour each time, I didn’t have the foggiest knows how to relate to all this, but none of it seemed to me so immensely important that I should be thinking about it. Now, I think the risks are enormous. The risk of autonomous warfare, where each side has a system so that when it sees something approaching it automatically responds, and then there’s no way of intervening with human beings. I was watching a clip the other day—probably most of you seen this, but I was not conversant with it until recently—of deepfakes. And I could not tell the difference between the real person and the fake person. And the person who had put that together, who is also a tutor of some sort, said to me: There is no way to tell the difference.

And so the question is, what do we do in political campaigns, Sylvia? Now, you know, one policy suggestion has been to watermark it, the deepfakes or the real thing, whatever it is. But that’s—the practicalities of that are probably not what—again, I don’t profess the expertise in the space—from the little bit, the very little I know—probably not very great. So I think that—oh, and he was saying today—no, it wasn’t today. It was the other day, actually. That the—and I checked with somebody I know at Harvard who kind of knows a fair—the same thing. That within a shorter period of time—you said, two to ten years. I think he will say less than your ten but maybe more than your two—these things may develop the ability to engage with each other, communicate with each other. They will have greater ability to analyze the human beings have. And they may decide to replace human beings. And this would not be a good outcome, Sylvia. So there are a lot of other examples you could—well, it wouldn’t be a good outcome.

BURWELL: I mean, you could replace chiefs of staff, but maybe not at anything else other than that. (Laughter.)

RUBIN: Absolutely. Chiefs of staff—(inaudible, technical difficulties)—how a senior public official is supposed to deal with chiefs of staff that are—(inaudible)—but you didn’t want to discuss that.

Go back to—(inaudible). We definitely need to have some sort of regulatory framework. But the problem, Sylvia, is our political—I can’t imagine it being capable of doing—maybe I’m wrong—but it’s the politics and the substance together. And has to be global, not just national. So how do you get global cooperation? When you look at the current state, the dysfunction in our political system. I mean, Biden accomplished a lot. And I think he deserves a lot of credit for it. I don’t agree with everything he did, but I think basically he did a good job. But the great preponderance of our challenges still remain to be faced. And our system is highly dysfunctional. Global governance is certainly dysfunctional. And how is all that going to deal with the need to regulate something, Sylvia, that presents the risks that I was just describing? And I don’t think it’s a very uplifting kind of thought to have.

BURWELL: So it sounds like we better start providing data to AI about how we, and how well we treat our pets, is the conclusion that I’m drawing from that, Bob. (Laughter.)

Turn it back over to you, Michael.

FROMAN: Thanks. One interesting aspect of—(inaudible, technical difficulties)—is the element of time. You know, when you were doing merger arbitrage there was a deadline, that either—(inaudible, technical difficulties). The probability analysis may be right. But it may take much longer to be right than you expected, and you may miss opportunities in the meantime.

RUBIN: Yeah, but I think that’s a question, Michael, of how you frame the question. And if you—like the thing Sylvia and I were just talking about right now. You know, is this risk from AI in the indefinite future? No, I wouldn’t pose the question that way. I’d say, what are the probabilities of this happening in the next five years? Or even in the risk arbitrage stuff, Mike. We tried to incorporate—we had to—time was money. And so we would say, what is the probability of this transaction reaching consummation within, whatever—two months, three months, four months, whatever, right? So time is just part of your question.

FROMAN: And so I know this audience will want to know your perspective on where the economy is and where it’s going. What’s your expectation of economic reform? Will we see a recession over the next two years?

RUBIN: (Laughter.) First place, who the heck knows, in all seriousness, is the best answer. I have a friend who runs a small hedge fund. All the investors are Chinese. He’s a very smart, shrewd character. And he does a few little consulting things on the side, of which I’m one of his clients. And he said to me the other day—and he’s about, I would say, maybe late ’50s, or something. He said to me the other day that all the time that he’d been investing, he thinks is most uncertain and most complex environment with respect to the outcome that he’s experienced. Now, obviously, you know, individual moments have been more complex. The Cuban Missile Crisis, or ’07 financial crisis. But he was talking about on average. And so I think the best answer your question is, who the hell knows?

Having said that, if I were forced to give an answer, yeah, I made list. I have—on a yellow pad, actually. I don’t have any yellow pad.

FROMAN: They all have yellow pads in the room, by the way.

RUBIN: Yeah, and they can buy books if they want to. But I made a list of all the factors that I think could contribute to a recession. And I had a list of sixteen factors. Now, they’re not all going to materialize, and maybe none of them will materialize. Who the heck knows. But my view, for whatever it’s worth—and I know this is a little bit now maybe not conventional thinking—but I think there’s a material chance we’re going to have a recession. But there’s also material chance we won’t have recession. But I think there’s a material chance of recession and material chance of not having a recession. And I think when you have that much uncertainty, if I were an investor in the ordinary sense, which I’m not. You know, I’m highly illiquid. But if I were, I would have a cautious bias.

FROMAN: And just to further complicate the question, we seem to be heading towards another government shutdown, debt issues. How does political functionality, dysfunctionality—

RUBIN: Well, here’s one of my sixteen items Michael. I think the probability of—again, what the hell do I know—but I think the probably of a shut down, when you look at what the—this is not a political comment, what I’m about to say. It’s not a partisan comment. But you look at the Freedom Caucus in the House and the things they’re demanding, Michael, it would seem to me, as a nonprofessional with no expertise in this stuff, that the probabilities are very high we’ll have a shutdown.

And I’ll say another thing that worries me. And this is not a political comment. I believe our system works well when you have a one party that is conservative, the center-right. The other party’s progressive or liberal or whatever, to the center-left. There are few people each that are willing to work together and compromise, and so forth. But I don’t think that’s what Trump is. Trump is something outside of that range. And, basically, I think he overhangs the political environment. And I think—maybe I’m wrong, I hope I’m wrong—but I think he’s going to worry—I think he becomes—there’s a possibility, at least—another one of my sixteen items—that he will become an increasingly worrying factor in markets and things of that sort.

FROMAN: Sylvia.

BURWELL: Thank you, Bob. Continuing, Michael talked about the challenge of time—oh, you want to say something else? Yes. (Laughs.) Go right ahead, Bob.

RUBIN: Well, look, I have a right to say something too. (Laughs.) One of the problems with respect to the outlook is inflation. And, you know, core inflation right now, and you all probably know all this, but core CPI is about 4 percent, or—whether you do it year over year or six month over the month before. It’s about 4 percent. So, yes, inflation has come down. But inflation is still strong. And there are a lot of factors, including wage pressure, which has ameliorated to be sure but nevertheless is still real, and pricing power, which is ameliorated but nevertheless is still strong. So there’s—and if you think there’s a real risk of a continuation of inflation, then that, of course, increases the odds that the Fed will respond to it in some way. That, in turn, increases the odds of recession. Hopefully, we won’t have one. But I think you have to say there’s—I, at least, think that there’s a material risk.

BURWELL: Thank you. Time. We went from time and the challenges of time, and you talked about how you managed that. Another challenge—and this is for—there are many policymakers in the room, as I look at folks that have served and worked on policy. One of the other challenges as you’re thinking about the policymaking and applying a probabilistic approach, is that sometimes the measures don’t align in terms of you’re comparing things that don’t have similar measures. Sometimes it’s murky how you measure the outcome. And I’ll be specific.

So we’re in the middle of Bosnia and the conflicts. You’re sitting at the Office of Management and Budget. You’re having to make a decision. Are we going to open a new line of munitions and do an accelerated form of night vision goggles or are those dollars going to go to Early Head Start? And when you are trying to do analysis and make determinations like that, because there are limited resources, but those are hard things to compare and contrast. And so how do you think about applying your approach to when you have an apple and an orange?

RUBIN: If you have an apple and orange you can try and make a stew out of it, or something. But I think what I would say to that, Sylvia, and we’ve—you know, you and I lived through this together in the White House and also at the Treasury. I think what you—ideally, but I don’t think this is the way it works. And then I’ll take what I think you do. Ideally, there’d be some social utility overarching objective. And then you could measure everything against that. But as you correctly say, if you’re talking about Head Start on one hand. or whatever you were talking about, and night goggles on the other, you have two very different objectives. A domestic wellbeing and a national security.

And I think you just have to make a value judgment. But, very importantly, I don’t think you can make that judgment—though it would probably be preference, I guess what I should really say, a value choice. But before you can make that judgment, you’ve got to figure out—at least, I think you’ve got to figure out— probabilistically what are the effects of the various decisions with respect to Head Start? If you really don’t fund Head Start adequately, what does that mean for the future of our country? That’s a probabilistic question. Then if you don’t have the night goggles, or whatever else you were talking about, the same thing. Then you can compare those effects.

And you can say, well, the effects but not having the night goggles are just massively important right now with respect to national security and that overwhelms the Head Start. Or you could say the Head Start is massively important with respect to the future of this country, and the night goggles, the probability is fairly small as to the meaningful this and that, and so you say that the Head Start. And so you take both of these, you flesh them out probabilistically, and then decide. But ultimately, you’re making a choice.

BURWELL: Open the line of—the answer was, open the line of munitions, in terms of history. (Laughs.) But go ahead, Bob. That one was a real one.

RUBIN: But the problem too often when we make a decision like that, Sylvia, is we don’t first flesh out what each of those decisions means and then make the choice. So you don’t really know what you’re deciding for and against.

FROMAN: So we’re meeting up here in New York with the cochairs of the Select Committee—the House Select Committee on the Chinese Communist Party.

RUBIN: On what?

FROMAN: The Chinese Communist Party.

RUBIN: Oh, on China.

FROMAN: It’s the Select Committee on the Chinese Communist Party.


FROMAN: And it was fascinating discussion. But there’s a case along the lines you just said, where we have some fundamental choices to make. Do we try and engage with China and influence their behavior through engagement? Do we try and decouple or de-risk from them? How far do we take that decoupling? How do you apply your probability analysis to those kinds of choices?

RUBIN: Michael, I have the same view now that I’ve had for a long time, and it is very much a minority view. But I think you can actually reconcile what you called the dichotomy into one decision. And I’ll tell you what I think it is. If you think about—and thinking about this probabilistically I think is very helpful—China is going to—China has all kinds of economic challenges right now. And I thought this a long time ago. About four years ago—that may be a little off—but I was—well, I was until super recently, actually—on an advisory committee for a very large, giant actually—well, very large—private equity fund. And they were investing in China.

FROMAN: What’s the difference between very large and giant?

RUBIN: Oh, very large and giant? The difference is that giant is larger than very large.

FROMAN: Thank you.

RUBIN: But you should have been able figure that out by yourself. In any event, this was the problem we had a Treasury, Michael. He constantly needed me to help us find things for him. But in any event, interpret things, rather. But I thought there was—I thought challenge—China had really a lot of challenges. This was four years ago. Now, of course, this is common—the commonly held view. But I thought it then. So I think the following, Michael. I think when—Trump had an animus toward China. He took—he acted on that in various ways, as we all know. I think he did a lot of harm. I think there was the opportunity, maybe, when Biden got elected to try to take a different approach. But maybe there were a lot of good reasons for not doing it. I wasn’t there, so I don’t know.

What I think what we should do now is I think we should go to Xi Jinping, and I think we should say: Look, our common interests are, you know, climate change and, well, AI regulation as a matter of fact, but nuclear weaponry, which I think is far—more I don’t profess my knowledge of this, but I know people who know a lot about it and I think as much more dangerous than we now are discussing. And we should—oh, and on international trade norms and other things. We should get together, work together on these areas constructively. And then the areas like Taiwan, South China Sea, human rights, where we don’t agree, we should at least try to discuss them with each other in the context of a constructive relationship.

But at the same time we do that, I think we should absolutely protect all of our interests. Because we don’t know what Xi Jinping wants to do. And it may well be he doesn’t want to be a regional or global hegemon. Who the heck knows? So I think we got to absolutely protect our own interests, but I think we should try to get together. But the prevailing view, I think, is that he wants to be a hegemon and we have to prepare ourselves accordingly. Well, I think we should prepare ourselves, but I think we at the same time, simultaneously, should try to see if we can change the nature of this relationship. That’s what I think we should do, Michael.

FROMAN: We’re going to go to questions from the audience. Sylvia, do you want to go to the last part of our Q&A?

BURWELL: Great. I’ll just give a little preview. And once a chief of staff, always a chief of staff. I’m going to staff you, Bob, and suggest that you ask Michael a question. But before we do that, just making sure everyone knows a little bit of the history here, how the three of us came together. And it was, as Bob Rubin had been asked by President Clinton to start the National Economic Council. And as you can hear from Bob’s two times tutoring on AI, Bob was going to make sure he knew and understood. And so he spoke with a number of folks, whether it was Brent Scowcroft, Roger Porter, and others, to make sure before we set up the National Economic Council he had as much information. It’s just as he says, his probabilistic, the yellow pad, lots of pluses, minuses, understanding what’s happening.

As part of that process, Roger Porter met with us. And Roger had advised my senior thesis on deregulation of the thrift industry, if anyone is interested in reading that. (Laughter.) And Roger said to me, pulled me aside as we were walking out, he said: Sylvia, you know, you were my student and everything. I’m going to do you a favor. And the favor is, get Michael Froman. He is my White House fellow. And so everybody in the transition will be scrambling and that sort of thing, but I’m giving you the inside track. (Laughter.) And so I explained to Bob we have the inside track. He did his probabilistic analysis. Michael joined the team. And the rest is history in terms of the three of us having the opportunity to spend lots of time and work together on many, many issues.

But, Bob, want to suggest to you that you ask Michael, our new head of the Council, a question from your perspective.

RUBIN: OK, Sylvia. I must say, Roger’s advice to you was pretty good. I think that—I think that worked out well. And we’ve all— the three of us have been friends. And we’ve also been involved in all kinds of things together. Yeah. Let me try one on Michael, OK.

There’s an argument to be made, Michael, that there’s a new normal in economic matters, with interest rates, inflation. But let’s leave that aside. It seems to me—and maybe this is wrong—but it seems to me there’s also a new normal developing geopolitically, with new alliances, new risks, new threats, nations like India that are becoming very important geopolitically that ten years ago weren’t. So how does—the Council has historically always been involved in providing policy development on the issues of the day and then promulgation. That is to say, increasing understanding in the public, Congress, and so forth. How will the Council engage—if this is right that we’re heading into something that’s very new, a new normal, something very different, how is the Council going to engage with that so that it performs its, I think, extraordinarily important functions?

FROMAN: Well, thank you for the question. I think we’re probably at—there’s probably been no more complicated time internationally since the perhaps the end of the Second World War, and no more polarized time domestically for these kinds of issues to be dealt with. And that’s where I think the Council really has a role to play. Being nonpartisan, being fact-based, focusing on expertise at a time sometimes when facts are brought into question, when expertise is brought into question, it underscores the importance of the Council. Both in providing that analysis to policymakers but equally importantly—and this is something Richard Haass really brought to the Council and set us on a very strong path towards—reaching out to other communities, local and state officials, religious leaders, educators, students, and helping people understand the complexities of foreign policy and what it means for U.S. leadership in the world.

So we have a lot of work to do right now. And I think where the Council can, I think, particularly contribute is at the nexus of different issues—of economics and foreign policy, of technology and national security, along with climate change and migration and conflict. Because we have such great expertise across so many of these issues among our fellows and our staff. And then provide that kind of content and analysis broadly, both at the expert level in Foreign Affairs, for example, which is the best in class, the leading journal in foreign policy, but also to the general public,, and to educators. We’ve got all the tools at our disposal.

And I think it’s really an important opportunity for us to play a leading role in that effort because, as I said, there’s no more complicated time. The issues abroad are more complex. The alliances, the return of geopolitics, as you said. And here domestically—this is not a partisan statement, as he would say—particularly heading into an election season, it just underscores the degree of polarization that’s in the country and just how important it is for institutions like us to remain nonpartisan and to provide that expertise broadly.

RUBIN: It’s a good answer, Michael. Let me just say one thing. I’ve known Michael for almost thirty years—actually, it is thirty years, I think. And I think he—I told Michael, when he was a candidate for being the CEO of this place, I was going to put in the rebuttal letter. (Laughs.) But, actually, I think Mike was a fabulous, fabulous choice. I think it’s going—I think it’s—and the Council was extremely wise in the decision it made. And I think it’ll stand Council in good stead.

FROMAN: Thank you. I’m blushing.

BURWELL: Thank you, Bob and Michael.

We’re going to turn to you all now in terms of questions. And there are a lot of mics. I would just ask, if you wouldn’t mind introducing yourself and your affiliation, that would be terrific. Welcome the questions. I think we have one here in the back. I can’t see, is that Ted?

Q: Yes.

BURWELL: It is Ted.

Q: Ted Truman. I’m now with Mossavar-Rahmani Center for Business and Government at Harvard Kennedy School. It’s quite a mouthful. And I did have the pleasure of working with all three of you.

And I would like to—I’m not sure I can put this in a probabilistic way, so I’ll leave that to you, Bob. So it’s very easy to get discouraged these days, and focus on the hole in the doughnut, if you want to use that analogy. And I worry a little bit about—especially among us—at least you and me. These other kids, these other guys, are younger. That we’re discouraging the young folk too much by this. So I’m wondering how—you know, whether there shouldn’t be—the Council on Foreign Relations ought to have a good news blog, or something like that—(laughter)—to go along with the bad news analysis.

BURWELL: Bob, can you hear—could you hear Ted’s question?

RUBIN: By the way, it’s nice to see you, Ted. Ted was at the Fed. And when Larry and I were in Treasury, and Michael and Sylva before that, Ted was Alan Greenspan’s principal adviser in anything international. So we worked a tremendous amount with Ted. It was terrific.

Look, I think it’s a very worrisome time. But, you know, I’ll tell you something funny, Ted. And I’m not accused of being rose-colored glasses. But—in fact, I have a tendency to focus on risks, and it’s probably stood me in reasonably good stead. But you have to balance that. And if you know that you, by the way, and this is in the book, too, if you know that emotionally or psychologically, rather—psychologically, you’re somewhat leaning toward focusing on risk, then you have to correct for that imbalance.

I think our problems in the political arena are tremendous, and they’re very troubling to me. But having said that, and I can’t really substantively exactly explain this—well, I could, to some extent, but I think it’s more psychological on my part is than substantive, I think we’ll come out of this one way or another. You know, we’ve had a history of resilience. A lot of things have happened in America that have been very difficult. We managed to get through it. We are a dynamic society. I’d certainly much rather have our problems and anybody else’s problems and or any other major country’s or major economy’s problems.

So what I say to people when they asked me is I say, look, I can think of reasons why we might come out of this, and how we might come out of this, specifically, that is, as well as a more general idea of resilience and so forth. But there are tremendous problems. When all is said and done, though, my view is I think it’s more likely than not we’ll come out of this. We have tremendous, tremendous strengths, Ted, as you know, as a as an economy for the long term. I would rather build a business here than anyplace else. I’d rather invest here than anyplace else. But it does require that we meet our policy challenges. And despite all the obvious, terrible problems with respect to our political system, I think on balance over time it’s likely that we will.

BURWELL: Right here on the left.

Q: Beverly Lindsay, multicampus University of California.

For those of us in major research universities, we’ve been dealing with issues of AI, although not always discussed in those terminology, for years. In terms of intellectual migration and a number of other areas. Could you speak of some of the advantages of AI rather than what we often see in the public as the negative aspects?

RUBIN: Oh, sure. Again, I don’t profess any expertise with respect to AI. But, yeah, I mean, I still have a job. I’m a senior counsel to an extraordinarily successful investment banking firm. It’s not public, so nobody knows their numbers. But they really are enormously well plugged into the Fortune 500—or, the S&P 500, rather, or maybe even the S&P 100, or something like that. In any event, so I think have a pretty good sense of what’s going on in American business.

I think there are enormous potential advantages to AI in terms of efficiency and effectiveness. I’m on the board of Mount Sinai Medical Center. And they’re talking about the use of it of AI to improve medical research and also to improve clinical care. So I think there are enormous advantages. On the other hand, it’s worth remembering that when you get more efficient and more effective, there very often is a consequence of that that you’re displacing workers. So we’ve got to have programs—it’s just like trade. You’ve got to have programs in our country that provide training—effective training—for people to move on from that which they’ve been displaced from to something else. And also, I think, income support of some sort, maybe an improved EITC or something of that sort, as a social safety net.

BURWELL: The gentleman in the back. We’ll do you both.

Q: Hi. Nelson Cunningham, formerly with McLarty Associates. Left last month.

So my question is actually for all three of you. When we were all colleagues in the Clinton administration, perhaps that was the apogee of neoliberalism, certainly in the Democratic Party. This president is in a different place. Has the pendulum swung? Are we moving back? Between neoliberalism and government intervention, where are we? Perhaps we’ll start with Secretary Rubin, but Mike and Sylvia, you both have things to say here. Thank you.

RUBIN: It’s a really good—it’s an interesting question. First of all, what does neoliberalism really mean? I mean, it’s a term used for a lot of different purposes. But Brian Deese gave it—who was former—you know, ran the NEC under Biden—gave a speech about—I could be wrong about saying two or three—I think he was—no, I think he’d left the administration. So say it was about a month and a half or two or three months ago, I don’t know. And what he did, sort of how I thought about it as well, if you think about what Biden is doing in terms of externalities, then I think what he did is very consistent with the approach that that President Clinton or Obama took.

All Biden is—now, if you look at it that way. Now, if you use it—if you use the externalities, as a pretext for choosing winners and losers or trade protection, that’s different. But if you look at what he’s done, I actually think it’s pretty—been about right. I mean, I’m not saying I agree with every single thing. I don’t. But, basically, I think he’s about right. Basically, what he’s saying is that for national security or economic security, the world we now live in, with all of its complexities, there are areas in which we need to subsidize what we’re doing at home. There are areas where we need to protect what we’re doing at home. Excuse me. Onshoring, or whatever it may be.

And as long as that’s what it is, as long as it’s making up for what you might want to call market failures, or the failure of markets to address those externalities, I think it actually is consistent with the approach that President Clinton took and that Obama took. Now, as I said, if you use that as a pretext for going into protectionism, and choosing winners and losers, which I don’t think they’ve done at this point—at least very predominantly. It maybe happened in some cases, but predominantly not. Then, I think, there’s a consistency.


BURWELL: Did you want to add—

FROMAN: Nelson, I’ll just add, look, I think I largely agree with that. I think the issue has been that we assumed, and I’ll use China as the foil here—we assumed that globalization, neoliberalism, bringing China into the global trading system, we would see a path of reform that would be linear, it would be unending, it would head towards market liberalism. And we, of course, had been somewhat disappointed by some of the reversals and the fact that China hasn’t always lived up to the global standards that we hoped that they would. I think in that context—you know, we always hoped China would become more like us. I think, in fact, we become a lot more like China, in that we’ve adopted some protectionism, we’ve adopted industrial policy, we’ve restricted exports, we’ve restricted foreign investment flows.

I think it’s largely in response to the fact that the promises of neoliberalism sort of assume that everybody lived by the same rules and that there was a level playing field. And I think one thing we learned was that we needed to take steps domestically to ensure that where the level playing field—where the playing field wasn’t level that we were, one, helping workers who were going to be displaced by technology and trade. And, two, address that unlevel playing field. And that meant, in some cases, adopting some of the same sorts of policies by making sure we could remain competitive and key technologies and the like. So I agree with Bob that I think these are basically the right steps. But I think it’s partly in response to the fact that the assumptions we had about neoliberalism haven’t fully played out.

RUBIN: You know, neoliberalism is a funny phrase, though, Michael. I don’t know what it means. (Laughs.) I honestly don’t, even though people say I’m a neoliberal. But I think, on Michael’s point, I think Michael got it actually right. There are externalities that exists now because of—perhaps, because of China—

FROMAN: And other issues.

RUBIN: And other issues. And I think that’s what Biden’s legislative measures were designed for. Now, sometimes they’re presented in a way that it sounds like they go beyond that, but I think that’s basically what they do.

BURWELL: It’s Washington, D.C., and we need to say everything three times, the same thing. I will just add, Nelson, that I believe that, you know, it is—you know, I gave my budget example. And I believe the budget, and the economy, and your economic policy should be a reflection of your values and how you think a country and nation should work. And I believe that’s the through line. And as both Michael and Bob have said, in terms of from our day to the Biden administration, that’s the through line in terms of how we think about a world where people who basically work hard and play by the rules can do fine individually economically, and that the nation can have a healthy economy. That that’s the through line, and that the context is changed, as Michael reflected. What we thought was context in terms of certain behaviors and expectations changed. Bob articulated it as well. So we can say things three times just different ways. (Laughter.)

I think we had another question right in front of Nelson, and I’ll get that one. And then we’ll come to the sides here.

Q: Hi, there. Trooper Sanders, day job Benefits Data Trust. For this purpose, in 1993 I was an intern in Al Gore’s office and unceremoniously sent Mr. Rubin to a 7-11 to get some talking points that he needed to vet. (Laughter.)

So the question is, what decision went wrong for you? Where your analysis may have gone wrong? And what was the biggest lesson you took from that?

BURWELL: So the question—oh, you got it?

RUBIN: Yeah, I got it. I guess the biggest thing we missed—I wouldn’t say we missed it, actually. I don’t think we did miss it. But I think the biggest disappointment is something that Sylvia, in a sense, was just alluding to. When we did trade in ’93 and ’94, which was NAFTA and WTO accession—though it actually took place—WTO accession it took place in 2000. But when we did NAFTA, WTO accession for China, when we promoted trade liberalization, and then later much more with technology, I think, than with trade, the potentials for displacing workers, adversely affecting wages, Clinton recognized them. I’m going to call this a disappointment rather than mistake. Clinton recognized them, and Sylvia will remember this. He had all sorts of plans. And then we lost Congress. (Laughs.) So we did do some things in that respect, but we lost Congress in ’94 and we couldn’t act on that stuff—on those things anymore. And that’s probably my biggest disappointment, if that if that’s your question.

BURWELL: Thank you. I think we have another one here.

Q: Thank you. Thanks for this evening, bringing us together. I’m Rod Lewis. I’m a recently retired two-star general off the Joint Staff and, I guess, a reformed White House fellow. So I’ll ask this question as well.

I really enjoyed reading the book. And as I went through the process of really the probabilistical, you know, thinking, one of the things that jumped out at me, just like you just mentioned, missing something. The human element. I think you talk about that in maybe chapter eleven or so. Is there a frame of reference or a theoretical framework, or just specific frames, that have guided you throughout the years? That’s either overarching—you know, chapter eleven made me think of Maslow’s hierarchy, right? In terms of food, shelter, clothing. That brings in that human element so you don’t miss that, or you can bring that to the conversation. Is there particular variables or frames of reference that you’ve used, and that have guided you?

RUBIN: You know, it’s not, if you mean in some formalistic way. But I think you’re onto something, and we do discuss it in the book. I think as you make decisions, you always have to take into effect—I’m sorry—into account human psychology. And in two respects, I might add. One is you have to recognize—I think I’ve said all this before actually, or alluded to it—you have to recognize what are the psychological factors within your own psyche that may disbalance—is this the word, disbalance? Unbalance. Unbalance your decision making. And then try to, if you recognize them, then try to set them aside so you make a better calibrated decision. And then secondly, and very importantly, what are the psychological effects and other people of your decisions? And how will that affect the outcomes? So I think in both respects, the human psyche and human nature, if you will, really becomes very, very important. I think we have whole chapter on that in that book.

BURWELL: I think we have a gentleman over here.

Q: Good evening. My name is Henri Barkey. I’m both at the Council and also professor at Lehigh.

I have a difficult question. And it’s hard—actually hard to articulate. But it’s one of these, what was I thinking? And almost an existential question. We have now a situation—and this is not a partisan question. I mean, Mitch McConnell had a choice back in 2021 in terms of the indictment of President Trump. He didn’t—decided not to go for it. He might be regretting it today. He might be saying, what was I thinking then? We have historically examples of leaders who were not stopped and became essentially existential threats to the societies that they were in, and you can think who they are. So the question is, what would—how do you think about this issue? If you were Mitch McConnell back in 2021, what would you have done? What would you have said to him? And what would you say to him today? Is the question.

RUBIN: Not sure what I’d say to him today. I kind of—I could guess what he may think. But I don’t think politically—look, not a political analyst. Nobody’s ever—I’m not licensed to practice politics. When I had a political problem, I turned to Sylvia, or Gene Sperling, or such. But I don’t think he had a choice, politically. You’re talking about once he got impeached, whether would be convicted in the Senate, which is the question you raised. And Mitch McConnell was opposed to that. I don’t think he had a political choice. That’s my view.

Sylvia, what do you think? (Laughter.)

BURWELL: Thanks, Bob. You know, I actually—you know, I think I have not thought through, but I actually believe Bob’s approach to the analysis is actually the way to get to the answer of, you know, what I would have advised. I would have—you know, if I were his advisor at that point, I would have gone through it all. And I think probably, at the end of the analysis—of a probabilistic analysis, what you would have come down to is probably something like my Head Start/JDAM munitions example. Is really I actually think what you would have come down to, in terms of making the decision.

And by that, what I mean—and it’s important to have done the analysis. What Bob said, it’s hard to compare those things. You’d like to have something to compare, but you couldn’t. Similarly, it would have had to have been, what did you think was the risk that he would be able to run again and become president again? I mean, that’s the risk analysis that, let’s give—if you give McConnell credit, if you were advising him, you would probably go: Is the risk of the political fallout of doing that relative to the risk of could he do something, again, that was—or was the damage done? Was the assessment and the risk analysis that the damage that Trump had done, was done, and it wasn’t going to be any more? And so the political fallout of doing that decision.

So that’s how I probably would have thought about it, if I were advising him at that time. And I do think it is one of those cases of comparisons of things that are hard to compare. So because what he would have been doing is giving up—you know, he would have seen it as devastating his own career, his leadership that had done so much. You know, look at the Supreme Court. I mean, I’m just viewing this from his—I’m advising Mitch McConnell now, you know, in terms of all of the things that he’d done. He would have been giving all of that up for this one thing. And so the risk calculation—I’m using Bob’s approach which, even in political things, I do believe is the way. And that’s part of why the three of us have always, I think, gotten along so well, is because we do adopt, you know, get all the facts, get as many as you can, and do that type of analysis. That’s how I would do it.

Oh, we may have someone who may have a better analysis of this particular. (Laughs.) Oh, OK, Andrea. I thought you were going to comment on that.

Q: Hi, Michael and Bob. I’m Andrea Mitchell from NBC.

And in looking at your subtitle, Making Better Decisions in an Uncertain World, take right now. How do you make better decisions using what has worked for you in business, in government, you know, brilliantly? How do you make better decisions in a world where you’re facing a potential government shutdown, which will hurt our credit rating, make no sense economically? But how do you deal with that when you’re dealing with irrational players, in an irrational system? One that, I would argue, in my forty-five years of covering government has never existed to this extent before.

RUBIN: You know, Andrea, if I were—that’s a really good question. Not surprising, given you ask some good questions.

I think if I were running a major financial firm today, which at one time I did do, Goldman Sachs, well, with Steve Friedman, we were the co-senior partners. I think I would look at all—I’m not quite sure—let’s see if this is responsive, Andrea. I would look at everything you just described and say there’s an enormous amount of irrationality. Just the possibility of Trump getting—and this is not a political comment. I just said, I would be very happy to see a conservative party. He’s not a conservative. He’s something way outside the range of what conservatives have always stood for. A conservative party, a liberal party, and willingness to work together a little bit.

I think I would say, if I were running such a firm today, that I would make a lot of adjustment in the sense of a caution bias to account for the fact that there are, just what you said, Andrea, large, irrational possibilities. A shutdown as a possibility. The very realistic possibility of Trump getting reelected, which I think is going to become more in people’s minds as we get closer. I mean, I don’t think that’s going to happen. First, I’m not licensed to practice politics, but I would bet on Biden right now. But nevertheless, it’s at least a possibility. And so I guess I would say you have to take—well, yes, you have to take into account the irrational. And I agree with you, Andrea. You are far more experienced than I am at this, but I think this is the worst environment that I have ever been aware of in the time I’ve been around.

BURWELL: Any other—any other questions? Yes, in the back. And I think—

Q: Urial Epshtein, Renew Democracy Initiative.

How do you factor in the impact your analysis of the probability of a particular outcome might have on the outcome itself? The example being Putin’s use of nuclear weapons. I mean, we hear a lot about people’s questions of what the probability is and so forth, but the honest truth is the more we ask the question in a public context, perhaps, the higher the likelihood is of that outcome because Russia sees that nuclear saber rattling works?

RUBIN: Well—(laughs)—if what you’re saying is—and I think it is what you’re saying—that mentioning the probabilities can affect what the probabilities are. And I think Putin is a really good example. No, I think you’re probably right. You could be right about that in some incidents, for some purposes. On the other hand, what’s the alternative? What’s the counterfactual? Are you going to suppress or not provide, or not engage in a fulsome analysis of probabilities? I don’t think that would be a good alternative. So I think your point is well taken. In some cases, well, just what you said, the very discussions and elucidation of probabilities can affect the probability of something bad happening. But I still think it’s incredibly important that we engage in that process.

FROMAN: You know—

BURWELL: Mike—oh.

RUBIN: Go ahead, Michael? I’ll just go back to Andrea for one second.

You know, I think, Andrea, that there’s a complacency in the worlds I live in—which is New York, basically, although a little bit of Washington and a little bit of Cambridge. And I think it’s a complacency that is totally uniformed. I think what you said is exactly right. It seems to be totally unwarranted. And so people in the decision making are sort of taking all these—what I—so I agree with you, Andrea—all these really horrendously unsound conditions, political conditions, and sort of just putting by the side, as if they weren’t going to matter. And I think what they should be doing is saying these things really matter, and then attaching probabilities to them. And I think they would—that would do dissipate a lot of the complacency, which seems to be as almost paramount in the world that I live in.

BURWELL: Mike, do you want to close us out?

FROMAN: Would be happy to. First of all, let me thank you, Sylvia, for stepping in like this, and keeping it all together. We really appreciate it. I want to thank Bob, of course, for participating in this. You can see why Sylvia and I—and I will speak—I’ll put words in her mouth—but how grateful we have been for now almost thirty years for the opportunity to work for Bob, with Bob. And how much we’ve learned—

RUBIN: It’s funny, Michael, I always had the impression that you and Sylvia thought I was working for you. (Laughter.)

FROMAN: There’s still time. (Laughter.) I am your landlord, actually.

RUBIN: You are my landlord.

FROMAN: I am your landlord. Yeah, there you go.

So thank you, Bob, for that. I hope you all have an opportunity to buy several copies and read this book. They make great stocking stuffers. Never too early to get those presents. Thank everybody there in Washington. Apologies, again, for not being there in person. We were really looking forward to starting off the season with an in-person event. And I hope you will all come back soon to the Council for the programming that we have lined up in the fall. And very much look forward to spending time with you. Thanks, Bob.

RUBIN: Thank you, Michael. And thank you Sylvia. (Applause.)


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