WASHINGTON -- Former Secretary of State Hillary Clinton's message ahead of her imminent presidential campaign announcement has focused on boosting the fortunes of the middle class. But to appeal to progressives with that message, Clinton may find it expedient to distance herself from the policies promulgated by Robert D. Hormats, a Clinton cheerleader and former Goldman Sachs vice chairman who served under her at the State Department.
Hormats, who was the undersecretary for economic, energy and environmental affairs from 2009 to 2013, has advocated for the deregulatory approach that was begun by the Reagan administration and continued by former President Bill Clinton. Progressives say this deregulatory strategy contributed to widening income inequality: Data collected by economists Emmanuel Saez and Thomas Piketty have shown that the top 1 percent of earners in the United States doubled their share of overall income from 1980 to 2012, whereas the share for the top 0.1 percent of earners nearly quadrupled. In the same period, the share of income for the bottom 90 percent of earners fell by 15 percent.
Now, as Clinton attempts to navigate concerns about inequality without alienating her corporate backers, she has solicited Hormats' advice, presumably to diversify the voices contributing to the formulation of her message. The Wall Street Journal mentioned that Hormats was one of a small number of economists, professors and former policymakers who met with Clinton in December to discuss wage stagnation and economic security.
To better understand how a potential President Hillary Clinton would tackle entitlement spending, free-trade agreements and financial regulation, it's worth considering the economic policies Hormats has espoused in his decades of government and corporate service, as there are some key areas of dissonance between what Hormats believes and what the more progressive wing of the Democratic Party hopes Clinton will pursue.
In 2009, Hormats received something of a windfall from Goldman, where he worked for more than a quarter-century before he started at the State Department. Under Clinton, he was in a new position created to push a strategy she called "economic statecraft," or promoting American corporate interests abroad. His role was influential: Sen. Ron Wyden (D-Ore.) called him "Secretary Clinton's go-to person on global economics" at a 2012 Senate hearing on trade.
Perhaps most troubling for Democrats was that before he served under Clinton, Hormats frequently articulated support for privatizing Social Security.
"I think there are arguments for investing some portion of Social Security funds into stocks or bonds. But there are also major issues raised by such a policy," he said in a conversation with CNN in 2000. "A potential compromise is to allow the federal government to use private sector money managers to invest a portion of Social Security receipts in the markets as opposed to having individuals do it in individual accounts."
Four years later, Hormats pointed to other countries that have "let workers invest in private savings accounts combined with safety nets that provide income security if markets underperform ... reduced incentives for early retirement or gradually raised the retirement age or upped payroll taxes" and "pared down" promises of future benefits, as a model for the U.S. And, in a Huffington Post blog piece from 2007, he explained that entitlement reform would be necessary to meet national security obligations.
"If the US is to protect its security interests in coming years, the government will need a long-term financial strategy to meet the needs of the military, strengthen homeland defenses, and enhance intelligence and improve overseas information programs," he wrote. "At the same time it will need to find growing sums of money to pay for rapidly rising non-security requirements, chiefly those related to Social Security, Medicaid and Medicare. Meeting these needs in a fiscally responsible way will require broad entitlement reform so that outlays and inflows converge over time, more rigorous resource prioritization in national security and all other programs, and fiscal discipline so that tax revenues and spending are closely aligned.”
Clinton has supported financial regulations such as the Dodd-Frank package, a bill that aimed to regulate financial services and protect consumers and that was passed in response to the Great Recession. In 2008, as a presidential candidate, she upset some of her Wall Street supporters when she backed the regulation of derivatives and called for eliminating the “carried interest” loophole that allows some Americans to avoid paying millions in income taxes. As Congress attempted to weaken Dodd-Frank earlier this year, she tweeted, "Attacking financial reform is risky and wrong."
In contrast, Hormats has argued that "widespread deregulation" is essential for global growth. Progressive voices within the Democratic Party, such as Sen. Elizabeth Warren (D-Mass.), have argued that such deregulation was directly responsible for the financial crisis in 2008, which in turn caused the Great Recession.
Similarly, in a discussion of whether former Federal Reserve Chairman Alan Greenspan should be reappointed by then-President George W. Bush, Hormats said Greenspan, who is loathed by progressives, had done "a terrific job."
"He enjoys respect on both Main Street and Wall Street," Hormats said. "In short, he’s really been one of the great financial leaders in American history."
In the same conversation, Hormats argued that while Greenspan had facilitated a positive economic climate, other factors, including deregulation, were also responsible for private sector growth.
"[Greenspan] has power, but what’s really driving this economy is the dramatic change that’s taking place in the private sector in this country," he continued. "We’ve had government deregulation, which has held."
Hormats has also been a consistent advocate for government austerity. In a 2007 House Budget Committee hearing on U.S. debt, he suggested that deficits could incite terrorism and that "vulnerability breeds aggression."
This history of statements from Hormats about Social Security and deregulation is at odds with an emerging consensus among congressional Democrats that Social Security benefits should be expanded, rather than contracted, and that the party should move more aggressively on regulating financial services. In what is expected to be the absence of a real Democratic presidential primary for Clinton, progressive groups are expected to stand in for her challengers and urge her to reject Hormats’ worldview.
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