Last summer, when it looked as if the world’s economy might be imploding, market commentators routinely said that if Robert Rubin stepped down as treasury secretary, the Dow would plummet a thousand points or more. Only Alan Greenspan’s resignation would be more significant. Today, Rubin went ahead and resigned, and save for what looked like a very short bout of panic selling, the stock and bond markets both shrugged. I guess the world’s economy really is in fine shape again.
Actually, while it’s tempting to view the relative lack of reaction to Rubin’s departure as a kind of vote of confidence in the global economy, the truth is that even had Rubin left months ago–though, I’ll grant you, not if he had left in September or early October–the markets would likely have reacted the same way. Rubin has obviously prepped Lawrence Summers well to succeed him, and Summers probably understands the economy as well as anyone in America (assuming that you really can understand something as complex as an economy).
More to the point, the market as a whole grasps what most analysts (judging at least from their surprise about the market’s lack of a negative reaction) don’t: At this point no one, not even Greenspan, matters that much to this economy. Given the general consensus in Washington in favor of fiscal rigor, budget surpluses, and no meaningful changes in the tax code, the difference between Rubin and anyone who could realistically succeed him is minuscule.
The one exception to this might be the currency market, where traders quickly learned to take Rubin’s word seriously, which sometimes allowed him to influence prices without acting. But the impact of Rubin’s departure, like his influence on the dollar, will only be short-term. In the long run, prices are determined by fundamentals, not trading, and Rubin’s continued tenure in office wasn’t going to materially affect the U.S. economy’s fundamentals.
It’s easy to go too far in this direction and assert that it doesn’t matter who’s in office, because no one can really shape the market. But while the latter assertion is false (if governments run huge budget deficits, or the Fed starts printing money, they’ll certainly shape the market), the former is pretty true, at least when it comes to this particular moment in time. Rubin and Summers and Greenspan deserve credit for keeping the economy on a harmonious path, but they earned the lion’s share of that credit by following the principle “First, do no harm.” In our perpetual quest for heroes, we want to think that these guys–what Time called “The Committee to Save the Free World”–are responsible for the Goldilocks Economy. But it’d probably be more accurate to say that the Goldilocks Economy was responsible for them.
