As Treasury Secretary from 1995 to 1999, he was the main architect of the Clinton administration's economic policy. He was formerly co-chairman of Goldman Sachs. Interview conducted July, 2000 by Chris Bury

A friend of mine, David Sawyer, and I, hosted a dinner for then-Governor Clinton. There were maybe 12 or 15 people there. We had a three or three-and-a-half hour discussion of economic and other issues, and I left, thinking to myself that this was a man who had a really good understanding of the issues we faced. In that context, he had internalized the need to deal with the deficit which, in my judgment, at least, at that time was the single most important threat we had to our economic well-being.

What made you decide to work for him?

I was very impressed by the dinner that we had. I felt that our economy was in morass. I felt that, if we didn't face the issues that were in front of us, that our economy could well remain in morass for a long, long time. I'd been an active Democrat anyway, so it all came together and, and I got quite involved.

Did the president call you personally, or did someone make a pitch? What role were you offered early on?

Having been involved in Democratic campaigns over quite some period of time, I knew most of the people around the campaign. What happened, as I recollect it, is that over time, a small group of people, perhaps half a dozen people or so, started to get called regularly by the campaign to talk about the economic issues as the campaign itself worked its way through these issues. Without anybody saying so, we became a group of about a half a dozen people that got identified, both internally and in the press, as the outside economic advisers to the governor.

During the New York primary, Governor Clinton goes to Wall Street, and gets nothing but hisses and boos, and catcalls. Did that worry you a little bit?

The New York primary period was an exceedingly difficult period for the governor. . . . But, as it turned out, things worked out as they had hoped.

Were you somewhat of an emissary to Wall Street?

No. I was involved with about a half a dozen other people in this role of outside economic adviser, and they never really tried to reach out to Wall Street in any formal kind of way. But there were a reasonable number of people in the street who got involved. I think the reason they got involved was that the view amongst many, in that time in Wall Street, was that we really had very serious problems in this country. If we didn't face the problems -- and the central problem was the deficit, in the eyes of those people -- then it was likely our economy was going to be very troubled for a long period of time.

A lot of people on Wall Street basically felt that we had to have a dramatic change in economic policy, and that that dramatic change had to be in the direction of fiscal discipline, if we're going to work our way out of these problems. And that basically was what Governor Clinton was talking about in the campaign.

Traditionally, that constituency is a Republican one.

It had been, traditionally. On the other hand, the federal debt had quadrupled from 1980 to 1992 under a Republican administration. Governor Clinton, as a function of his own convictions about what our country needed to do economically, campaigned on a plank of serious deficit reduction, as well as investing in our people through education and the rest. But deficit reduction was very central in his approach to dealing with the economic issues during the campaign.

At what point are you asked to come on board as a top economic adviser?

Some time after the election, during either the late November or early December part of the transition, the governor invited me down to speak with him. It basically was an interview, although it wasn't labeled as such, and I spent about two hours with him. It was a very interesting experience, because we talked almost not at all about economic issues. Instead, it was a broad-ranging discussion about all kinds of things. And I realized afterwards that the president-elect was trying to figure out, not where I was on economic issues -- he probably knew that at that point -- but, rather, what I would be like to have in an administration and how effectively I would work with other people. He was enormously focused on the notion that, for his administration to be effective in the economic arena, people had to work together as a team, as opposed to having the kind of internal warfare that has so often characterized past administrations.

What led you to take a $26 million pay cut to join this fledgling administration?

During the transition, I was in Frankfurt, Germany, on business, and the phone rang about 2:30 in the morning. I woke up and it was Warren Christopher, who was leading the transition team. He said, "The president-elect would like you to be head of the new National Economic Council," and I said, "Chris, I would be delighted," and I went back to sleep, and I was on board.

For a long, long time, I had thought it would be extraordinarily interesting to see what the world looked like from inside a White House, assuming that one had a reasonable job and an effective relationship with the president. And I also cared enormously about the issues. When this opportunity came along, it, it brought those two things together, and so, for me, there was never any question about doing it.

What was it like working in those early days? From everyone we've talked to, it was basically kind of a 24/7 madhouse.

It was relatively active, I would say. During the early days of the transition, in January 1993, and then the first couple of months in the White House, from the point of view of economic policy, it was one relatively continuous process.

An understatement?

It's probably a fair but understated characterization. When you think of the enormous amount that was accomplished during that period, it's really quite remarkable. The president, from a standing start, put together a government. We put together a budget. The budget, in effect, represented a broad-based economic strategy that represented really quite a dramatic change from where the country had been. And the president launched that economic strategy to the nation with his speech to the Congress in February.

During this transition, there is a bit of a battle in the White House between those who favored deficit reduction, such as yourself, and others who really felt that Clinton's promises had emphasized investment in people first.

The president, during the campaign, had basically said we need to do three things. We need to get the deficit down; we need to invest in people; and then, when he endorsed NAFTA, we need to open markets abroad and keep our own markets open at home.

The Bush administration had put out their last budget estimates. They were much higher deficit estimates than we had expected, and it was clear that that presented a whole new challenge to the president, to the administration. So we met on January 7, 1993, during the transition, in Little Rock. It was a newly named economic team -- with all the principal political advisers, with the president, the vice president, Hillary -- and it was about a six-and-a-half hour meeting.

And I remember before going into the meeting, one of his principal political advisers said to me, "You all are going to recommend very strong deficit reduction. But that means the president is going to have to defer doing a lot of other things that he thinks are extremely important. You can't possibly expect him to make that decision at this meeting." So we got to the meeting, we sat down, and I would say about a half an hour or so into the meeting, when we had made our basic recommendation, and we're beginning the discussion, he stopped. And he said, "Look. There are a lot of things that I think we need to do, but the threshold issue is the deficit. Until we deal with that, nothing else is going to work, and we're not going to do the rest of what we want to do. So let's take that as our threshold issue and then, within that context, let's do as much else as we can." That set the tone for the rest of the development of that budget, and the economic strategy. . . .

... And it was that basic decision that framed the rest of the development of the budget and the carrying forward of the economic strategy from that point forward.

Did you feel, at that time, that the economic team had won that debate?

It never framed itself to me as a debate. It framed itself to me as a question of, what should we do economically? The thing that most struck me, at the time, was that the president-elect obviously had internalized what needed to be done in this economy, at least from the perspective of most of us on the economic team.

A lot of people who worked at the White House in that time said that there were passionate arguments about this. A lot of people thought that the emphasis on deficit reduction was, in fact, abandoning promises that had been made during the campaign.

The president's view was not that he was abandoning anything. The president's view was that the circumstances were substantially worse than he or any of us thought they were. Even though it was a very tough path to take, politically, if he didn't do the politically tough thing -- which is deal with the deficit -- then the thing that he was elected to do, which is get the economy back on track, wouldn't happen. And only way he could get the other things he wanted to do done would be to get the economy back on track.

. . . There were certainly disagreements. But the disagreements were predominantly around taking on this very difficult political decision. But the president said, "This is what we have to do, this is what I was elected to do, and this is what I'm going to do."

But were there, in fact, passionate arguments about this?

There were differences of view. At times, they became more heated, and, at times, less heated. But all the reports notwithstanding, we basically were on the track, once the president made the decision.

Was there some kind of tacit agreement with Chairman Alan Greenspan of the Federal Reserve at this time, that he would agree to certain interest rates if he saw a commitment from this White House on deficit reduction?

There was no tacit agreement, some of the written reports to the contrary, notwithstanding, and I was there for the entire process. When we met with the president-elect on January 7, what we said was that if we have fiscal discipline, and we bring the deficit down, that is obviously contractionary. That'll reduce the rate of growth.

On the other hand, if interest rates go down as a result, then that will stimulate growth, and we thought that the beneficial effect of lower interest rates would outweigh the contractionary impact of the deficit reduction. We also said to the president-elect, that there were two critical reactions in all of this. One would be the bond market. This program would not work unless it was credible with the bond market, and therefore it had to be real and had to be seen as real. And, secondly, it was obviously very important what the Fed would do. But there was absolutely no explicit or implicit agreement. . . . We talked about how the Fed would react. But there was neither an explicit nor an implicit agreement with the chairman.

Beginning in January, there was a series of budget meetings. Some people have described them as going on forever. I think Lloyd Bentsen called President Clinton "the meetingest person I'd ever met in my life."

There was a series of meetings that began almost from the first day that we actually in the White House. They were held in the Roosevelt Room of the West Wing, and they were long. But I think they were a remarkable testament to the process the president set up -- this National Economic Council process, and to the president and the vice president in terms of their seriousness of purpose. We went through that budget, and for most of us, including the president, this was the first time we'd been through a federal budget. We went through it major item by major item, all it to determine what should be reduced and, and what, in some cases, should be increased, and how to get to our spending reduction targets.

And at the same time, this was being done in the context of knowing that there were certain targets that we had to reach. I think that, intellectually, substantively, and, ultimately, politically, it was a remarkable process.

Did you feel the president was too involved in the details?

No, I don't think so. I think it actually served him exceedingly well. For one thing, I think a lot of those decisions could only have been made by a president, because we were cutting a lot of things that had constituencies. There was a reason why the federal debt had quadrupled in the 12 years from 1980 to 1992, and the reason is that every program has a lot of political friends and it is very tough, politically, to cut any program.

And here we were cutting many of them, and I think it took the president's involvement and the willingness to make tough political decisions to get where we had to get. Secondly, it gave us all a grounding in the budget that then served us, and served him exceedingly well each successive year in dealing with budget issues, because we'd been through it once in such detail.

Some people have said your role was that of a traffic cop. You were there to prod the president and keep things moving along.

I think my role was to do what the president had envisioned the NEC doing -- get everybody to the same table, draw up the agenda each day so that we could keep on track, and try to keep the process moving along. That was really my most fundamental role. I also had points of view, and I felt perfectly entitled to express my point of view. But, at the same time, everybody else was expressing theirs, so that we all had our views in front of him at the same time. He could sort out the pros and cons of each decision he had to make. In February of 1993, just as the pressure to get this economic plan out is building, there's also a sense among some that things aren't working as well as they should. There's a Camp David retreat. The political people and economic people go. Tell us a little bit about that retreat.

I was there, and I think there was a feeling that the new administration needed to come together, and have its senior people talk their way through a little bit how they're working together, and where they were going. There may be different views as to how successful that was. My own view is that it didn't accomplish very much, and I think that, in many ways, these were just the natural start-up difficulties of a new administration. After all, what you had was a president who was, in effect, the chief executive officer of the largest economic entity in the world. He had to get his whole entity up and starting in one day, with people who, for the most part, never been part of this entity before. That is a major, major undertaking. I personally thought we were doing pretty well, but there were some who felt that it needed to have people come together a little bit, and that was the purpose of Camp David. I suppose some people felt it was successful.

Was the White House staff, at this time simply too "green," too young, too inexperienced?

The White House of that period did a far better job than it has been given credit for doing. One reason for that discordance between the job it's perceived as having done and the job I think it did, is because it did it in a way that Washington isn't accustomed to. Mack McLarty, the first chief of staff, was extraordinarily effective at getting people to work together. While there was a fair bit of roilsomeness, there also was a basic coalescence and a basic mutual undertaking. Without it, I don't think we could have gotten that first budget done the way we got it done, and gotten it enacted the way we got it enacted. The same thing was subsequently true of dealing with Japan and NAFTA and a lot of very difficult issues, with a process the president put in place. Mack's execution of that process, and support of that process, resulted in the White House working in a different way than Washington had seen before in many respects.

In February 1993, the president has to tell the nation that he's going to have to raise taxes. What do you remember about that day and your advice to the president about how he ought to frame that decision?

When you say that the president had to tell the nation he was going to raise taxes, what the president said to the nation was that income tax rates would go up on the top 1.2 percent of taxpayers. There would be a gas tax increase that would amount to about, if I remember correctly, about $36 a year for an average family of four, and that there would be a Social Security tax increase for the top 15 percent of Social Security recipients.

So it was a very carefully targeted tax increase, and there was an increase in the corporate tax rate. It was almost entirely at those who could most affect to pay it, in order to get this economy back on track. That was the message that we thought that the president needed to get across, and it was our view that he should do it in a very serious, and substantive way, which he did in that February speech.

Some of the political advisers wanted to see that tax increase using much different rhetoric. Paul Begala wanted to sell that tax increase as we're "soaking the rich."

Yes. There was debate on the very day that the speech was delivered. The morning of the day speech was delivered, there was a draft running around. I remember saying to Hillary, "I think the president's got the substantive measure part of the message exactly right. But I do think there's a little question here of tone, and I think the president has to decide exactly what tone he wants to have." Hillary and I went down to speak to Paul, who was sort of the "holder of the pen." We went over sections of this with him, and, basically Hillary said, "Let's make sure that we don't have a divisive tone to what we're doing." She made an enormous contribution to avoiding what I think could have been a counterproductive tone.

What was her role at that time?

Hillary was there a fair bit of the time. She's very smart.

Powerful?

I wouldn't say that she was powerful, at least in anything that I was exposed to, other than the sense that she's smart. She would have points of view, and she was in some meetings and not in other meetings, and when she was there and expressed a point of view, it was a contribution to the process.

Although you just told a story in which she wields her power pretty effectively, if she's the one going down to tell Paul Begala what ought to be in the speech and what ought not to be in the speech.

We went down to speak to Paul. We went through this, and talked about various phrases and how various things should be done. But, ultimately, all that went to the president, and then the president saw alternative ways of presenting these things. And he had to make a decision about what tone he wanted the speech to have.

In some of the books that have been written since, and in some of the reporting that's been done, you get some of the blame for health care reform. "Rubin didn't think it could work the way it was laid out. It was too expensive; too many unanswered questions. But he didn't want to stand up to Hillary."

I don't remember seeing that, but I think it would be an inaccurate characterization of what occurred. I think that the president's and Hillary's and Ira Magaziner's perceptions with respect to the health care system were, in many respects, basically right. Our health care costs were a very large percentage of GDP relative to other countries. It was increasing rapidly, and there were large numbers of uncovered people.

This was clearly a dysfunctional system. There were a lot of debates about how to best approach this, but what the president and Hillary wanted to do, and Ira, was to bring market forces to bear on how our system worked. It's clear, in retrospect, that this was just far too big an undertaking for the political process to do all in one fell swoop. But I think their perceptions to what was wrong, and quite a few of their observations with respect to what should be done about it, were about on track.

And as far as the debate is concerned, it's a matter of record that Laura Tyson and I, and to some extent, Lloyd Bentsen, at various times felt that various proposals that were made needed to be reexamined and reanalyzed. Ultimately, the president made a decision as to what he wanted to do.

With health care being one-seventh of the economy at this time, did you think that basically they were biting off far more than they could chew?

I thought, and I still think, that a lot of what they thought should be done about it made sense. There was never adequate debate about whether it should all have been done at one time -- if that were politically possible -- or whether you should have eased into it, so that you could see how pieces of it worked before you did other pieces. In retrospect, it would have been a good debate to have. Independently of the substance, the politics clearly turned out to be that you couldn't do all this at one time.

Although you agreed with the analysis of the Clintons on what was wrong with health care, you had some genuine problems with the plan that they were developing?

In the initial proposals that were put forward, there were a number of us who had some reservations. There was a report on the front page, I believe of the New York Times, about a very large meeting. It took place in the Roosevelt Room with the president, Hillary, and quite a large number of staff people. Laura Tyson and I, principally, argued that pieces of the program needed to reanalyzed, and perhaps to some extent redesigned. In fact, substantial changes were made after that.

My own instinct in all of this is that a lot of what they talked about doing would have made a lot of sense, had it ever been enacted. I do think that probably the politics became impossible. But had it not been for the politics, you could have taken their basic proposal, and worked from it to something that would have been substantially better than we have today..

Even though deficit reduction is being emphasized during this period, the president is perceived in many ways as a liberal. How was it that this new president, who is adopting your policies, became perceived as such liberal?

The president wasn't adopting my policies. I am absolutely convinced that the president was elected with an internalized view that he had to deal with this immense deficit and debt loads that he had inherited. I think if you look at what the president did in the time that he was in office, and the measures that he proposed, and the strategy he proposed, I'd say he was an economic pragmatist. Why people label him as a liberal is sort of a political message issue, and I don't have a good answer to that, other than that was a tendency -- particularly in the business community -- to operate on the presumption that anybody who's a Democrat is likely to be somewhat liberal.

But if you disassociate the president from his label, and look just at what he's done and what he proposed doing, I think that you would say that, with the exception of health care, this was an economic pragmatist.

In early summer of 1993, the president reportedly is in a funk, and his confidence is a bit shaken. According to the Elizabeth Drew book, "He was so low that Bob Rubin asked a cabinet officer to please try to cheer him up." What was that story about?

I don't remember that instance. I'll say this. I think it may be fair to say that the president is probably the most resilient person I've ever worked with. And I have worked in other circumstances with people who've had to deal with enormous pressures. But there may have been individual instances where it was useful to have somebody go and provide some encouragement. That would be true of all of us. But I think when people look back on this presidency, and they say, "What was this man about? What is he as a person?" I think "resilience" would be one of the characteristics that they're likely to identify.

It's an interesting choice of words there -- resilience. . . . It seems that this White House and this president have been characterized, time and time again, by going to the brink of disaster, only to pull it out of the embers.

I would put it differently, though I don't think it's inconsistent with what you said. If you look at the economic policy issues, he made a succession of judgments, or succession of decisions -- the 1993 deficit reduction program, NAFTA, and the Mexican support program as three examples -- that were very, very difficult, politically. Clearly, in each case, he put himself in a position where there was a very real risk of political failure. But he had the strength, and I would say the resilience, because there were times when things looked pretty bleak, in, in all of those three situations. But he had the resilience and the strength to fight for these proposals, and, ultimately, to be successful.

Had he made easier decisions, politically -- though I think decisions that would have been less good for the economy -- then he never would have gotten near the kind of extreme political difficulty he would have had, if he had lost in any of these measures.

Was there something about Bill Clinton himself that led the White House to seem to lurch from crisis to crisis?

I'd make two comments in that respect. One, the president was willing to make very tough political decisions that, in many ways, had not been made for a long time, and for good reason. They were tough. And if you're willing to make tough political decisions, then you are putting yourself at real risk, and he did that on a consistent basis. Those were exactly the right decisions for the nation, but they did expose him to a succession of political risks.

Once he said to me, "I sometimes tend to express the complexities of issues in public, and people might prefer to have somebody ride up on a white horse and announce what they were going to do." That might have given people a little sense of, to use your term, lurching. I don't think it was lurching at all. I think it was a man who has an enormous ability and an orientation toward seeing the complexity of things. That's extremely good when it comes to making good decisions, and sometimes did it in public, in ways that people are not usually accustomed to seeing.

How did Vince Foster's suicide in July, 1993, affect the president?

. . . Vince struck me as a very sensible, very sound individual. I remember thinking to myself, before he died, that this was somebody that I'd like to go to and sit with when there were difficult things that I wanted to just talk out. I think it was a great shock to everybody and I'd include myself in that, even though I didn't know him that terribly well when he committed suicide. I don't think it had an impact on the functioning of the administration but I think it had a very strong emotional impact on a lot of people.

Later that summer, in August, the deficit reduction bill finally passes the Senate, but it is a harrowing day.

Yes, it was a harrowing day. In the House, it passed by one vote. I remember being in the Oval Office the night of the vote, and a little television screen there showed the floor of the House. It showed the count as it was building. We were sitting and watching that vote, and it was, to use your term, harrowing. But, ultimately, it passed by one vote. I think there was a sense of very great unease as we watched it, and then of course in the Senate; it was a tie, and then the vice president cast the tie-breaking vote.

In the Senate, the key senator is Bob Kerrey, and he's missing.

Quite a number of people were uncertain at various stages. But as you correctly say, in the Senate, in the final analysis, Bob Kerrey did seem to be the critical individual. There was a fair sense of unease until Bob made up his mind, what he was going to do.

Were you, at that time, worried that the thing might not pass?

All of us were concerned. Substantively, we felt that if it didn't pass, it could be a terrible shock to the economic system, including the markets. And, politically, if it didn't pass, it obviously would be an enormous setback to the president at the very beginning of his presidency. That, once again, makes the point that he took a very tough path, politically, because he thought it was right, economically. He could easily have taken a more moderate deficit reduction path and not have to face this kind of political difficulty.

In September, 1993, the NAFTA debate heats up. Different people in the White House have really different views about whether NAFTA was the right thing to push at that time. Many of the political people were really against the idea that the economic team was pushing.

My view is not complicated. I think that our own open markets, and opening markets abroad, contributed enormously to the economic conditions of the past seven and a half years, and NAFTA was a part of that process. It was a very good thing to do for this country. Our own open markets -- although it's not politically popular to say this -- resulted in lower prices, more competitive pressure in this country, greater productivity and all the rest. The president, despite the enormous political difficulty in pursuing this trade liberalization agenda, has done so from the beginning of the administration with NAFTA right through the China WTO accession.

Did you want to put off health care in favor of NAFTA?

I don't remember it being framed quite that way. The decision, as I recollect it at least, was made was to go with NAFTA, to try to get that done quickly, and at the same time, to move aggressively with health care but in a way that was consistent with working on NAFTA. I do not recollect whether that meant some deferral of the health care effort or not.

Mrs. Clinton, at this time, reportedly is angry with you and members of the economic team for suggesting that health care be put off while NAFTA is pushed.

That may or may not be. I truly do not recollect it. Clearly, if you were going to have a full court press on NAFTA, you couldn't, at the exact same time, have a full court press on health care. But how much that delayed actively moving ahead with health care, I do not recollect. In the spring of 1994, interest rates start to rise, and people haven't quite anticipated by how much. . . . Can you characterize the president's concern about interest rates at this time, and, and what you told him? . . .

There was a concern that when interest rates started to go back up it might choke off the recovery. Laura Tyson and I went to the Oval Office, to have a specific discussion with the president on a very narrow technical question - "What is the full employment rate of growth of the economy?" We said to the president that the economy was getting back on track, but at the same time, if we're going to have an extended recovery, then you couldn't let the recovery get out of hand on the upside either. You needed to have a certain discipline. And that the increase in interest rates might very well, in the long run, benefit the economy, even though it would reduce short-run growth below what it otherwise would have been.

What was the president's mood after the 1994 elections in which the majority was lost in the Congress?

There was a period -- not just with the president but with people in the White House -- of general concern, a sense of having lost our footing, and of a need to regroup and try to think our way through it. . . . But what was most interesting to me was that this was one of those kinds of events in life that just shakes at your footing, and you have to rethink your footing and where you are. And then the president led the way back, because he thought his way through to where he wanted to position himself. He got himself back on his feet, and figured out where he wanted to go from there. And you think about it, the administration did very well from that point forward.

Was there a concern that not having a majority to work with was really going to affect the economic plan?

I think the concern was a much more general one of how to deal with what was really a seismic change in the political environment. Subsequently, in 1995, in the summer, the question honed in more on what the president's proposed budget should look like. He made the decision -- rightly, I think, although it was a very controversial decision internally in the White House at the time -- he made the decision to put forth a budget that not only continued fiscal discipline, which was our strategy, but actually went to balance. And he said that was the next logical step in the strategy track he was on. He felt that that was the way to best carry forward what he was trying to do, and also to regain the initiative, politically.

At this time, Dick Morris comes onboard as a secret adviser with the code name "Charlie." Could you tell there was something going on here in the White House? Speech drafts were being changed; the president's focus was different.

. . . Because I went to the senior staff meetings every single day, in the White House, I was less attuned to what was happening than some other people. But then I began to hear from some of the people who were there, that something going on that seemed a little bit curious.

You said that before the president proposed his balanced budget, there was a lot of debate in the White House.

There was an immensely strong commitment to continuing with fiscal discipline. That debate no longer existed. But the question was, what is the best way to go forward? There were those who felt that we should continue on the fiscal discipline track that we were on, which would get us to balance, but over some longer period of time. And there were others who felt that it would make more sense, if we were going to continue on that track, to put out a balanced budget proposal right now.

The president was of the latter view. He said -- and I can very specifically remember this happening in a meeting we had in the Oval Office with him -- that we needed to put out a balanced budget proposal, both to best carry forward this whole strategy of fiscal discipline, and also, more generally to regain the initiative, politically.

And did you needed to do that especially because there was now a Republican Congress?

He was on a strategy of fiscal discipline right from the beginning, in 1993. The only dynamic that changed was how to protect that strategy against very large tax cuts, which could have undermined our fiscal strategy, and how to put in place a budget that basically continued to force the issue on deficit reduction, as opposed to moving back into a fiscal strategy of large tax cuts and larger deficits. We also had to preserve the president's emphasis on education and the other areas that he believed very strongly we needed to invest in.

In November comes the crisis over shutting down the government. ...The budget shutdown actually was in two parts. First, the Republicans threaten the president on the ceiling.

Correct. The basic threat was, "We will not raise the debt ceiling, therefore, you will not be able to pay the debt, and you'll be in default," as a way of pressuring the president to sign a budget that he basically believed was unsound. At the Treasury Department, we found a means of drawing on federal trust funds -- something that'd never been done before, at least in the way that we did it -- to continue paying the debt, even though they wouldn't raise the debt ceiling.

Did that "trump" the Republicans' hand, essentially?

That trumped the Republicans' hand, and took that strategy off the table. So then they moved to the strategy of forcing a showdown over shutting down the government, and that, ultimately, is what happened.

What was the president's tenor like at this time?

The president was terrific. The president had put out a budget. The president had a very strong sense from the very beginning of the administration of what he wanted to accomplish. He also had a very strong sense that some things were simply unacceptable. As you might remember, in 1995, there were proposals to make enormous cuts in Medicare. And at one meeting, he said that even though the Medicare proposals were the ones that had the most political salience, the thing that most troubled him was that the Republican budget involved large cuts in Medicaid, health care for the poorest. And he said that, while that had not very much political constituency, he would never ever sign a bill that had that provision. I had enormous respect for his resoluteness, first in the face of the threat of default, which we fortunately were able to design a way around, and, secondly, in the face of the government shutdown.

In 1996, the, the major economic battle is welfare reform. There is a discussion in the cabinet about this. As we understand it, the debate was fairly passionate.

The debate on welfare . . . was an interesting example of how the president functioned in decision making. He's an extraordinary decision maker. . . . I thought he was as good as any decision maker I'd ever worked with. Each of us expressed our views. The president would explore with each of us the issues that our views raised, and then with all the substantive, and political pros and cons on the table, he raised some issues himself, that he felt we had not adequately raised. He was exceedingly knowledgeable about the issue, and then he said he would make his decision. Shortly therefore, he did make his decision. But the tone of that meeting was not a tone of heated debate. The tone of that meeting -- and I remember it exceedingly well -- was a tone of enormous respect for the difficulty of the decision that he needed to make, and for the complexity of the tradeoffs that were involved.

This was almost a core emotional issue for Democrats.

It was an issue of competing core emotional views for not only Democrats, but for people more generally.

But within the cabinet, you had advocates such as Donna Shalala, who clearly thought this was the wrong thing to do.

But even the people who felt he shouldn't sign the legislation felt that this was a relatively close call, and that there were very powerful competing considerations, and that there was strong weight on both sides of the argument. The thing that was most impressive about this meeting . . . was that you had a very serious thoughtful discussion of these pros and cons amongst a very large, relatively large group of people who were deeply involved in the issue.

In 1996, Clinton wins the second term in November. Did you have a sense after that reelection that the president had some kind of economic mandate, or was there a sense that you could accomplish other things in the second term?

Probably the single most significant issue in the election, at least in my opinion, with respect to mandate going forward, was that [Dole] and Kemp had proposed an enormous tax cut. It gave the American people an opportunity to vote for an enormous tax cut, on the one hand, or for continuation of deficit reduction . . . for a continuation of fiscal discipline, on the other hand. I think it was pretty broadly held that was that this was a mandate to continue on the path that we'd been on.

In early 1997, the Asian economies start to "melt down." How did the president react to that, and what did actions tell you about him as a decision maker?

The Asian crisis was a very complex matter, and he got into it very quickly. He wanted to know what was going on, and what we were doing, and why we were doing it, and, for that matter, why we weren't doing some things we weren't doing. He kept himself very closely informed through the whole process.

I remember, a little later in the process . . . I was fishing for salmon in Alaska. The Secret Service agent who was standing next to me got a call on his cell phone, and it was the President of the United States. I had a salmon on, and he wanted to talk about Russia, and he was very interested in getting into some very specific aspects of what was happening. I told the Secret Service agent, "Ask the president if I can call him back in just a few minutes. I have a salmon on, and I want to land him." The president said okay. I landed the salmon.

I called him back, and he was very focused on very specific aspects of what was happening in Russia. He was deeply, deeply steeped -- not only the issues and the problems -- but also in the various kinds of approaches that people were taking to try and deal with the early stages of the crisis, and then the later stages.

In late 1997 and early 1998, what is the real economic threat?

The greatest threat during that period, and maybe the greatest threat during the entire Asian financial crisis, was the possibility of Korea going into default in the last week of December of 1997. At Thanksgiving of 1997, the president was at Camp David, and I was at a little house we have in the country. We needed to get the President of Korea and the Prime Minister of Japan on successive phone calls with the President of the United States, to urge the president of Korea to pursue economic reform, and to urge the prime minister of Japan to pursue certain policies in Japan.

So we set up a conference call which I was on, although the president would obviously be doing the speaking. The president spent probably two hours of his Thanksgiving evening waiting for the others to get on the phone, and talking to them, then doing a reprise of the discussions and then waiting for the other one. During the time when we were waiting for the Prime Minister of Japan to get on the phone, he was working a crossword puzzle and said to me something, "What does this word mean" or something. And I didn't have any idea. So I said to my son, "What does this word mean?" And he said, "Oh, any idiot would know that. Who's so stupid?" I said, "The President of the United States."

But in any event, the president was very deeply involved, and a very active participant in helping get or try to persuade or urge the various participants around the world to do what, in the judgment of all of us, needed to get done.

In January of 1998, the Lewinsky scandal breaks, and on January 23, the president has a cabinet meeting. What do you recall about that?

I remember being there, and I remember his discussing it, and that's about what I remember. We had a cabinet meeting, as you correctly say. He discussed it. I had a broader view of this whole thing, which is that whatever the facts may be, he may have made some terrible mistakes. But I also felt that, relative to everything else that was going on, this whole set of events was being given a focus that was vastly disproportionate to its importance relative to everything else that was going on.

In this cabinet meeting, the president lied to his cabinet.

Look, the president made some terrible mistakes, and he's admitted that. And all of us make terrible mistakes. My reaction to that period, starting with that cabinet meeting and then going forward over the course of the next year, was to have an increased respect for the president -- because what I saw was a president who came into work every day, despite these immense external pressures, and basically applied himself to the issues that were in front of us.

I can remember a meeting we had when the whole impeachment matter was in a boil. He had about 50 or so members of Congress -- half senators, half representatives, half Republicans, half Democrats. We discussed Social Security, and it was in a meeting that he led. And it was a remarkable discussion. He pursued the various intricacies of Social Security reform as if there was nothing else happening around, in an effort to move that process forward, even though quite a number of the participants in that meeting were people who basically wanted to see him impeached. That, to me, was an example of the tremendous commitment to and effectiveness of what he was doing, despite these vast external pressures. I developed a great respect for how he handled that whole situation.

Did you ever consider leaving at that point?

Absolutely not. As I said, my respect for the president was enhanced. I think he made some terrible mistakes. He acknowledged that. But I also watched how he handled himself in the face of those enormous pressures, and I developed an enhanced respect for him.

On September 10, the president invites you and other members of the cabinet to the residence -- to say what?

There was a meeting in the residence, and he discussed the situation. I don't think I feel comfortable repeating what he said. But I'll tell you what I said. A number of people spoke, and I was one of them. I said, "Mr. President, you've acknowledged you've made terrible mistakes, and I think that's right. But I think you've handled yourself extraordinarily well, and I have enormous respect for the way you've handled yourself through an extremely difficult situation, number one.

And, number two, while they were serious issues, I think they were vastly disproportionately covered by the American media at a time when there are a lot of other issues that are of tremendous importance to the American people. And I think there was a lot of hypocrisy in the way the people reacted to this whole set of events." And that's a pretty good characterization of what I said during that meeting. . . .

During the impeachment period, especially before the Senate vote in the House, several members of the administration during that time have told us that they were concerned at moments that this president might not finish his term. . . . Was there ever a moment when you thought that this president would either be removed from office or would have to resign?

I don't think so. I suppose each of us reacted to that period in a different way, and it's probably a reflection of our own nature and psyche. My reaction was to do what I was doing, and we had an enormous amount going on at the time. And it was very much the president's reaction.

I think one of the things that affected how that whole White House functioned was the fact that he, himself, continued to devote himself to what needed to be done with such enormous energy. But I don't think that I ever thought that. I think my view was that this thing would work its way through in one way or the other. On the other hand, I was not enormously focused on that issue. My focus was on what we were doing.

Since the impeachment period, did the president change? Did you notice a difference about him? How would you characterize the president in the post-impeachment period?

I don't think that he was particularly different, as far as I could see. As you may remember, there was this enormous debate over what to do about the surplus, and he spoke to the American people about preserving the surplus to protect Social Security. That wasn't the exact phraseology, but that was the thrust of it. And he threw himself into this question of trying to avoid having the surplus consumed by a tax cut, and rather to preserve it in order to promote a national savings, promote the fiscal position of the government, and in fact to strengthen Social Security.

And it seemed to me that this president was the same person I had been working with all along, somebody who was deeply involved in what he was doing, cared a lot about the substance of it and was willing to take very difficult political positions.

You leave your post as secretary of the treasury in May, 1999. Did you postpone your departure so you could see the president through his difficult period of impeachment? Why did you choose to leave?

I might have left a little bit earlier if it hadn't been for the Asian financial crisis and the impeachment crisis, because you had two crises going on at the same time. But I had thought to myself that if I was going to leave -- and I wasn't sure that I was -- but if I was going to leave, probably the right time to do it would be with about two years left in the term.

. . . Given that there were still, in my judgment, some instabilities relating to the Asian financial crisis, and given that there was still unsettled issues around the impeachment crisis, it seemed to me that I should not leave until that had reached an appropriate point. Fortunately for me, I had an outstanding deputy, Larry Summers, and I knew that whenever I did leave, I certainly thought there would be a seamless transition which, in fact, there was.

Did you worry how it might look if the secretary of the treasury was resigning during this impeachment process?

Firstly, I wasn't going to resign during the crisis. And as I said, my respect for the president and my view of the president were enhanced by how he handled himself. So that was my net reaction to that entire set of events. I don't think I ever thought about how something would look, in that respect. What I did think a lot about was being there until the instabilities around the Asian financial crisis really seemed to work their way through, and also being there through the completion of this impeachment process.

It was important to show loyalty?

Oh, I think it was more than an issue of loyalty, although I think that was a piece of it, perhaps. But I think much more importantly was, as long as these events of great moment were going on, there was the possibility, at least, of things happening where I could have been useful. And while I had total confidence that Larry Summers, who is really truly outstanding, would have a seamless transition, the fact is I had been there for a long time. I was seen as having been pretty deeply involved in a lot of what had happened, and it seemed to me useful to have me there until these issues had worked their way through.

Now that you've had a chance to reflect on this administration, we're asking everyone the same question -- in history, good and bad, and as succinctly as you can, what do you think this president's legacy is going to be?

The question of what his legacy will be is a broad issue that all of us will probably think about and have different views on as we have further distance from it. I can reflect . . . I'll give you a few pieces of what I think his legacy will be. I think he will be seen as a president who took office at a time that the economy was in a morass, unemployment was substantially above 7 percent, there were large fiscal deficits and the rest. He put in place, at great political difficulty, a dramatic change in economic policy that not only repositioned the country for recovery, but also for long-term economic well being.

I think he will be remembered as a president who, in that context, stood for fiscal discipline, for trade liberalization, for leaving our own markets open, for dealing with inner cities, and education and the other areas that are so important for future productivity. I also think that he will be remembered as a president who understood what's sometimes now referred to as the forces of change of the new economy, and who geared economic policy toward globalization, toward the needs of the new technologies, and toward the enormous opportunities available to the spread of market-based economics around the world.

In time, hopefully people will look at this administration with more perception and also more examination. He should be remembered as a president who brought a kind of managerial insight to the White House that has not always been there -- the insight that if structures are created and incentives are created for people to work together in a reasonably cohesive fashion, that that can result in a great deal more being accomplished than if people are constantly at odds with each other. And I think that he did a great deal in that respect, which would be well worthy of study by others who have to set up administrations.