Not long after my appointment as director of President Clinton’s National Economic Council in 1993, a letter arrived in my West Wing office. I immediately recognized the writer’s name: Mrs. Dorothy Collins.
“Are you the same Robbie Rubin,” the letter asked, “who was in my fourth-grade class at North Beach Elementary School?”
On one level, Mrs. Collins’s question had a straightforward answer: yes. But on another level, the answer to Mrs. Collins’s question was deeper than a simple yes or no. In 1947, when I sat in her classroom, my life could have gone in any number of directions. Today, after over half a century in business, government and politics, I find myself contemplating a different version of Mrs. Collins’s question. Of all the ways a fourth grader’s life could unfold, why did mine unfold the way it did?
Some people have grand visions for their lives and careers, but I’ve never been one of them. When I was in fourth grade, my goal was to get to fifth grade. When I was in fifth grade, my goal was to get to sixth. Looking back, I think it is fair to say that my life, like most people’s, has been shaped to a large degree by luck and circumstances beyond my control.
But it also seems clear that my answer to Mrs. Collins’s question has a great deal to do with decisions I’ve made or been part of. And even more consequential than my choices themselves is my overall approach to decision-making, one I’ve developed and honed over more than six decades.
Throughout that time, I’ve been part of many teams facing immense challenges. Yet I believe the challenges that face my children’s and grandchildren’s generations — from climate change and nuclear proliferation to income inequality and the rise of authoritarianism at home and abroad — will be far greater than those my generation was forced to confront. The need for a sound decision-making approach in the face of uncertainty has always been great, but it is now greater than ever before.
At the heart of my own approach is “probabilistic thinking,” the idea that nothing is 100 percent certain and that everything is therefore a matter of probabilities. Whether my choices would affect a few people or millions of people, my preferred tool for applying probabilistic thinking has always been the same: a simple yellow legal pad. On my yellow pad (or more recently, my iPad), I’ll list possible outcomes in one column, and then my best estimates of the probabilities associated with those outcomes in another.
My goal has never been to quantify every aspect of every decision; that would be impossible. Instead, my yellow pad has become both metaphor and means, a way of applying a questioning mind-set and incorporating probabilistic thinking into the real world. There are, of course, decisions throughout my life that looking back I should have made differently. But the yellow pad has served me well, allowing me to think in disciplined ways about risks, probabilities, costs and benefits, and substantially increasing my odds of making the best possible choice. What’s more, I believe the yellow-pad approach can be beneficial for everyone.
For example, applying probabilistic thinking to real-world events changes the way one thinks about risk. Too often, decision makers trying to anticipate a risk focus on a single potential outcome, or perhaps a small handful of outcomes. Probabilistic thinkers, on the other hand, recognize that risk is a wide range of possibilities.
Consider the standoff over the debt ceiling currently taking place in Washington. While many leaders are appropriately concerned about the risks, I fear that other leaders — and the markets — have grown complacent. The United States has always found a way to honor its debts in the past, including during the serious debt-ceiling standoff that occurred when I was secretary of the Treasury. Even the lawmakers threatening it today seem to view default as unimaginable. I myself view default as highly unlikely.
But highly unlikely is not the same thing as impossible. In the short term, government, business leaders and investors should make their decisions taking into account the small but real risk that debt-limit brinkmanship can lead to severe economic consequences. In the long term, policymakers must recognize that even if the risk associated with any one debt-ceiling standoff is low, allowing repeated standoffs will drive the cumulative risk ever higher.
To me, this probabilistic assessment of risk seems reason enough to eliminate the debt limit entirely, and to allow lawmakers to debate priorities during the budget process — including fiscal discipline, which I believe is critical to our economic success — without reneging on the full faith and credit of the United States to meet commitments already made.
Those who employ a yellow-pad approach and incorporate probabilistic thinking into their decision-making also tend to be more aware of and open to trade-offs. One can and should have principles and priorities. But principles and priorities often conflict, and it is important to have an effective approach to decision-making when they do.
For example, I remain deeply concerned about the long-term trajectory of our debt to G.D.P. ratio. Yet during the Covid crisis, I publicly supported the $1.9 trillion rescue plan proposed by President Biden and backed by all but one congressional Democrat. Someone with a more absolutist mind-set might see these two positions as mutually exclusive. But I examined the likely costs, did the same with the likely benefits, and then made a judgment that the latter outweighed the former. Performing that kind of analysis — one that doesn’t shy away from nuance and complexity — is an essential element of sound decision-making.
Employing the yellow pad also helps one learn the right lessons from the past. Here, the mistake people too often make is to judge a prior decision solely based on the outcome that occurred. Outcomes do matter. But they’re not all that matters.
One common way in which outcomes can be deceiving involves pursuing a course of action with a high potential benefit but a low chance of success. This is what happened during the Clinton administration when the Russian economy fell into crisis and we had to decide whether to support it. We concluded that intervention was unlikely to work. But we also concluded that, in the unlikely event an intervention did work, it would be so beneficial to our efforts to foster political reform in Russia (something that was at the time a realistic possibility) that it was worth trying despite the low odds of success. As it turned out, the higher probability outcome occurred, and we had to abandon our intervention.
A few years later, at the end of my term, the incoming Treasury secretary from a new administration said this proved that the United States and the International Monetary Fund made the wrong call regarding Russia. I remember being frustrated, not by the fact that a new administration disagreed with the previous one but by the argument the incoming secretary employed: that our efforts had not proved successful, so therefore we had been wrong to try. (When asked why he approved of our economic intervention in Mexico, which was similar to that in Russia, he again pointed to outcomes: “What I liked about it is that it worked.”) Evaluating decisions solely based on outcomes rather than also analyzing the judgments that led to the decision and took place before those outcomes occurred can cause leaders to learn the wrong lessons going forward.
There is no secret that will allow us to overcome the most dangerous and difficult challenges we face. There is, however, a pressing need for leaders of today and tomorrow to make the best possible decisions in an uncertain world. To borrow the spirit of Mrs. Collins’s question, what we will become — as individuals, as a country, and even as a planet — is likely to depend on it.
Robert E. Rubin was the U.S. Treasury secretary from 1995-99 and is the author of “The Yellow Pad” and “In an Uncertain World.”
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