David Rubenstein and Private Equity, Part II

During a recent Institute for Education/INFO forum, David Rubenstein, co-founder of the Carlyle Group, discussed both the economy and bananas — often in the same sentence. Rubenstein himself is quite humble and self-deprecating for a man on Forbes’s Top 400 Wealthiest People list, and much more sober than expected when diagnosing the economy.

Rubenstein first quoted Hollywood producer Bo Goldman, saying that “nobody here knows anything” when discussing economic issues. He also related a story about Alfred Kahn, an adviser to Jimmy Carter, who used the “R word” (recession) during the 1980 campaign before being asked to stop. Kahn acquiesced and instead began saying, “We are approaching a banana,” since no reporter would write that in his or her column. Somewhat like the chastened Kahn, Rubenstein was hesitant to use the “R word.”

Media today are very biased towards getting tag words for their headlines, and not very focused on what is ultimately important to people. An economic downturn certainly affects millions of people negatively, whether or not it is a bona fide recession. The important thing from a public relations point of view is the name that is given to the downturn when the stories hit the newsstands.

Avoiding the “R” word is not the only example of this selective naming (Frank Luntz might call it framing) — just about everything is named in strategic ways. For example, the recent tax rebates given out are called a “stimulus package” rather than a “debt increaser.” We call the increase in troops a “surge” in Iraq, while in Vietnam it was an “escalation,” a much less pleasing name for a similar thing.

Calling something a “banana” rather than a “recession” is more than just a political tool, it is also astute factualness because, as Rubenstein explained, it is rather difficult to know when a recession is actually happening. It often takes a year or more after a recession has ended before the National Bureau of Economic Analysis can diagnose a downturn as a recession. Recessions are not necessarily just the simple definition we learn in school of “two consecutive quarters of negative growth,” and it is very difficult to know when we are in one.

All that Rubenstein would concede was that we may be in or approaching a “banana.” He does not think that the downturn — whatever you call it — has ended yet, and believes that banks need another year or two to realize all their losses and remove the debt from their balance sheets. Furthermore, Rubenstein believes that who ultimately wins the presidential race will have little effect on the downturn. Whoever the next commander in chief is, he or she will be locked into a “budgetary straitjacket” and unable to change the outcome much.

Finally, Rubenstein expressed confidence in the American economy over the long term. Economic downturns are natural, like a baby before sleep who may cry when tired, but once he falls asleep everything is wonderful again. Regrettably, we are suffering the pain now, but soon the economy will turn around and lots of irresponsible lending practices will have been ousted in the process. As a country, we just need to wait for this “banana” to split.

Kathy Kemper is founder and CEO of the Institute for Education, a nonprofit foundation that recognizes and promotes leadership and civility locally, nationally and in the world community.