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Former Treasury Secretaries Rubin and Paulson dissect the global economy at the BIO International Convention

Posted by Scott Kirsner  June 19, 2012 02:59 PM

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I'm not exactly sure why today's keynote conversation at the BIO International Convention was closed to the "mainstream media." (It was open to biotech industry trade reporters.) Nothing controversial was discussed, no news was made, and there was no time for a question-and-answer session. Mostly, two collegial former U.S. Treasury Secretaries defended their past actions, forecast some continued choppiness for the global economy, and expressed optimism that the U.S. will be able to avoid capsizing, by arriving at some kind of bipartisan compromise (after this year's Presidential election) to increase taxes and cut spending. Little was discussed that had specific relevance to biotech or pharmaceutical companies, which probably explained why the ballroom at the Boston Convention & Expo Center was more than half empty by the time the session wrapped up at 2 p.m.

James Greenwood, a former congressman from Pennsylvania who is now CEO of the trade group BIO, moderated the conversation, asking first about bailing out companies and countries deemed "too big to fail." Both Robert Rubin and Henry Paulson, Jr. acknowledged the problems that bailouts can create, by neutralizing any penalties for the same risky behavior that created the crisis in the first place. "You never really break the cycle of financial crises followed by bailouts," Paulson said. "The best we can hope is to mitigate it." Paulson served as Secretary of the Treasury from 2006 to 2009, and is also a former CEO of Goldman Sachs. (He's on the right in the photo.)

"From the beginning of time, we've had financial crises," he continued. "The root causes are almost always failed policies at the government level." In the years leading up to the housing crash of 2008, he said, those policies encouraged people to borrow too much and save too little. "We've done very little to correct [those] policies," he said.

Robert Rubin, who headed the Treasury under President Clinton, observed that the three biggest industrial regions on the planet the U.S., the Eurozone, and Japan "all have unsound, unsustainable, deeply dangerous fiscal situations." Paulson said he was "not optimistic" about Europe getting its debt situation under control in the short term. "Under the best of circumstances, this will drag on for a long time," he said. "Leaders are doing what they can do politically, but it's not sufficient for the markets."

How will that affect the U.S.? "Under the best reasonable case, we have an economy growing very slowly," Paulson said. The U.S. economy will continue to "muddle along," without enough growth "to make a dent in unemployment," he said.

In 2013, the pair predicted, when Bush-era tax cuts expire and the U.S. once again hits its borrowing limit, some sort of difficult bipartisan compromise will be reached on cutting spending and increasing taxes on individuals and corporations. "We'll get through this," Paulson said. "We always have. But to be honest, I'm concerned."

"We have a cliff coming," Rubin said. "The idea is to avoid the cliff."

The pair only briefly addressed issues relevant to biotech and pharmaceutical companies, when Greenwood asked them about tax credits and deductions for innovative young companies developing new drugs. "If I had a magic wand," Paulson said, "I would reduce the corporate tax rate overall, and do away with preferences [credits and deductions]. If I made any exceptions, it would be for real research." He added that he was concerned about the levels of investment in R&D spending in the U.S.

(As an aside, I attended the session while wearing my conference-issued badge identifying me as a Boston Globe columnist. No one instructed me not to attend the keynote session when I received my badge, and no one seemed to be checking badges at the door of the keynote to figure out who was trade press versus "mainstream media." I think if you want to bother making a silly distinction like that, you should maybe figure out how to enforce it.)

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Scott Kirsner was part of the team that launched Boston.com in 1995, and has been writing a column for the Globe since 2000. His work has also appeared in Wired, Fast Company, The New York Times, BusinessWeek, Newsweek, and Variety. Scott is also the author of the books "Fans, Friends & Followers" and "Inventing the Movies," was the editor of "The Convergence Guide: Life Sciences in New England," and was a contributor to "The Good City: Writers Explore 21st Century Boston." Scott also helps organize several local events on entrepreneurship, including the Nantucket Conference and Future Forward. Here's some background on how Scott decides what to cover, and how to pitch him a story idea.

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