A Reality-Based Economic Policy?

Is this the beginning of the change for the Bush administration? Henry Paulson is not somebody who is going to passively watch economic policy made by political operatives in the White House. This could be very good news:

Bush taps Paulson for Treasury Secretary - Yahoo! News: WASHINGTON - Treasury Secretary

John Snow resigned Tuesday and President Bush nominated Goldman Sachs chief executive officer Henry M. Paulson Jr. as his replacement -- another chapter in the shake-up to revive Bush's troubled presidency.... Paulson, who also is chairman of Goldman Sachs, called the U.S. economy "truly a marvel, but we cannot take it for granted. We must take steps to maintain our competitive edge in the world."... Paulson has been both chairman and CEO of Goldman Sachs since May 1999. It is considered one of the premier financial firms on Wall Street and has sent a number of its top executives to high positions in Washington....

The Senate must confirm Paulson for the post. The Senate Banking Committee is expected to act swiftly on Paulson's nomination, a spokesman for the panel said, and a top Democrat said he would support the nominee. Sen. Chuck Schumer, D-N.Y., a member of the Senate Finance Committee, gave Paulson his backing after talking to him Tuesday. "His experience, intelligence and deep understanding of national and global economic issues make him the best pick America could have hoped for," Schumer said....

Paulson was known on Wall Street for his dedicated support of environmental causes. Earlier this year, he made a gift of $100 million in Goldman stock to a family foundation dedicated to conservation and environmental education. Even after that gift, Paulson has a net worth estimated at more than $500 million. Paulson, who was known to favor bird-watching in New York's Central Park to playing golf, is chairman of the Nature Conservancy and the chairman emeritus of the Peregrine Fund. Last year Goldman Sachs donated 680,000 acres in Chile to the Wildlife Conservation Society...

Comments

[Cranky Observer]

> Henry Paulson is not somebody who is
> going to passively watch economic policy
> made by political operatives in the White
> House.

Cheney and Rove have access to W daily if not hourly. How do you see anyone, no matter how self-confident he may be, bypassing that lock?

Cranky

[andrew]

A Reality-Based Economic Policy?

Brad, clearly you've lost it. I don't know much about Paulson. I'm glad you think he's a good guy. But reality-based economics from this administration? Please.

[im1dc]

The appointment of Paulsen, a Rubin and Corzine clone, means Wall Street capital will be protected and enhanced, i.e., Large multinational US Corporations come first and USA consumers/Electorate come last.

No change.

No strong US $ policy anytime soon backed by the US Treasury.

The holders of the US$ know that and are selling the US$ fast and furious this morning.

It is currently DOWN 1.11 points to barely 84 cents.

Way to go Bush43.

So DeLong, what's so good about everything costing more and a weaker US$ that buys less?

I'm sure you can find something--'on the other hand'--you know.

[Walt]

Wasn't Rubin a big supporter of the strong dollar policy?

[Tyrone Slothrop]

I had the same thought when I saw that Paulson was the nominee. And Paulson has some connection to Josh Bolten, which surely helps.

On the other hand, how many people have lent their good name to the Bush Administration, only to be used and then discarded?

[andres]

im1dc: Look I've never been a fan of the Wall Street establishment either, but one has to admit that the current course taken by the Bushies is leading to a long-term financial disaster in which a whole bunch of innocent bystanders might suffer the consequences, even if it delegitimizes the Republicans/tax cut supply-siders.

Even a small glimmer of hope that the Bush adm. is changing course (6 years(!) late) is not something to sneeze at. As for the $, it is unavoidable that the $ will have to get weaker still if the US is to reduce its huge current account deficits while avoiding a hard landing (i.e. either sudden and massive $ depreciation, stock market crash, or recession-inducing high interest rates).

All of that assumes, of course, that there is an actual change of course and Paulson is not another Bush/Cheney mouthpies. Don't get your hopes up.

[Jonathan King]

Tyrone Slothrop writes:
> On the other hand, how many people have lent their good name
> to the Bush Administration, only to be used and then discarded?

Yes, that was my first thought, too. But then I thought a little bit harder. Paulson is the Chair and CEO of Goldman Sachs. He's not the ex-CEO of some odd little transportation firm, or an aluminum maker. Nope, he's been sent directly from the Street to play the role of Jeremiah and go medieval on the Administration if that should be necessary. The timing is interesting here. Bush just signed the extension to the capital gains tax cut (which I'm sure the Street was happy with), but I'm guessing that this is now the last tax cut you'll see the Bush administration try to push through. The rest of 2006 is pretty much irrelevant now, but after the midterm elections, I think this move signals that Wall Street is going to teach Bush some extreme fiscal discipline. I don't know the back story, but I'm guessing that the Financial sector basically has basically told Bush: it's our guy for sure, or we really and truly will take every last marble home. If we can do what needs to be done between now and 2008, we'll even support your brother for the presidency. If we don't get what you want, well, our people can work just fine with any number of people from the other party.

[anne]

Sweet Andres is thinking we will be turning back to Bill Clinton's tax structure and leaving Iraq, though whether before or after the coming election is not clear :) We are however saved, saved fiscally speaking at the least. [I really must make better use of confession.]

[anne]

http://www.calvorn.com/gallery/photo.php?photo=6565&u=99|10|...

American Redstart in Flight
New York City--Central Park, The Pool.

Watch for birds, Andres :)

[andres]

Thanks, anne. I'd rather watch for flying pigs, but until then birds will have to do :-)

[Ginger Yellow]

"Cheney and Rove have access to W daily if not hourly. How do you see anyone, no matter how self-confident he may be, bypassing that lock?"

I don't get the impression that Cheney cares all that much about economic policy beyond a general inclination toward pro-big business policies. Foreign policy and energy is his bag. Likewise Rove only cares in so much as it effects campaigns. Most of the economic policy of this administration - the tax cuts, running huge deficits, social security privatisation, extension of both defence and non-defence spending - comes from Bush as much as anyone, if you ask me. I've no idea if this appointment means a real change in approach, but I don't think Cheney's been the problem so far.

[Robert Waldmann]

Looks like they are so desperate for a treasury secretary who adds rather than removes credibility that they have resorting to scraping the top of the barrel.

Of course, Paulson won't get Rubin's Job without fighting for it. He will have to threaten to resign, then Bush will have to decide.

It would help if Rove were on trial.

[pgl]

Will Paulson get Bush to raise tax rates? I doubt it. Will he convince Bush to find hard for large spending reductions? I doubt it. So what's going to be the big change?

[anne]

Oh, actually I like Henry Paulson and would immediately support the nomination, but arguing for substantive policy change will be difficult enough in the Administration and there is Congress besides. Fiscal policy change in this Administration presents the political traps of reversing tax cuts or cutting military spending for other spending cuts can be of no special account.

[Peter]

>Henry Paulson is not somebody who is going to passively watch economic policy made by political operatives in the White House.

Yes he is. He may not have been. But he is now. His appointment is a non-event.

[me]

I fail to see how this guy will be anymore successful than the other economic midgets Bush has had pimping for him. They all wind up with tarnished reputations while Bush continues his march behind the pied piper of voodoo economics.

[howard]

where i'd like to be a fly on the wall is at paulson's first cabinet meeting: here's a guy used to smart people speaking their minds. instead, he is entering the inner circle of sycophancy. should be quite the culture shock.

meanwhile, even if paulson only elevates bush's economic policy-making to a D from its current F, that would be progress, and i for one will be happy for it....

[save the rustbelt]

The transfer of wealth from Main Street to Wall Street will continue unabated.

[Charles]

They must be getting desperate if they're actually bringing in sane people.

___________

Andres, if disaster could discredit punk supply side economics, one would think that Reagan-Bush would have done. Since it's a religious cult, nothing will persuade any of them.

[cactus]

Jonathan King,

"Nope, he's been sent directly from the Street to play the role of Jeremiah and go medieval on the Administration if that should be necessary." The Street is not picking Paulson, GW is. He isn't going to work for the Street, he is going to work for GW. If the Street is happy with him but GW is not, Paulson will be marginalized or fired. If GW is happy with him but the Street is not, Paulson stays. Thus, he isn't being sent on some role by the Street - he is being brought on board because GW sees some benefit to projecting some image to the Street. Nothing more.

[dale]

"Fiscal policy change in this Administration presents the political traps of reversing tax cuts or cutting military spending for other spending cuts can be of no special account."

Rather, fiscal policy change in this administration will manufacture the political traps of cutting more into social programs, undermining retirement security and health care.

[anon]

Treasury Secretaries in this administration are expected to serve as public cheerleaders for the wonderfulness of GW Bush's economy. That's all.

Paulson may try to change that role, but he is unlikely to succeed in light of the current grumblings by the White House that the public just "doesn't get it" about how wonderful the economy is.

[james o'neill]

rove is running 2006 congressional campaign on theme of "the economy", new treasury secretary from wall street and bush has not renounced his desire open new markets for the financial services folks like privatizing social security and health savings accounts

wonder what the next step is?

[Sourdes Menées]

He will be gelded or ejected by the snakehandlers within three months. In the event of a financial crisis it will be too late to purge him, and contagion is likely to be looming by the time the Fed stops raising rates. So I expect a near-term test of his subservience. Hazing will begin at once. If he crawls, he will be retained. In the absence of an immediate high-profile ceremonial abasement, we must conclude that Paulson will be gone too soon to save our asses. Swashbucklers will get vega-positive. Others will be content to dump their remaining risky assets such as dollars. I will be hiding under the bed.

[kharris]

Jonathan K,

What cactus said. How does the Street "send" a guy who has personal wealth worth $500 million to do its bidding? How does an employee of the president "go medieval" on a guy who never has to run for office again, but who has the power to put serious dents in Wall Street interests to the final day of his term? Take all their marbles home? You mean investments in Treasury debt? Don't primary dealers have a substantial obligation to take down auctions? Or do you mean campaign contributions? There has always been plenty of money to go around on Wall Street.

[Jim S]

I'm fascinated that none of the commenters have noted Paulson's single best qualification for the position from the viewpoint of the Bush administration. He is a Bush Ranger. A loyal fundraiser for the political campaigns of Dubya. Now what was that about having credibility?

[liberal]

Good point, Jim S.

More generally, I don't see where the evidence is that Wall St. is in favor of fiscal sanity, unless it's the kind bought by cutting entitlements paid for with regressive payroll taxes, yet not cutting those same taxes.

The fiscal insanity of the Republicans was evident by 2004 (and that's being generous). Is there any evidence that, by and large, Wall St. money started moving to the Dems? I rather doubt it.

Fact is, like a lot of wealthy folks, they probably think taxes have to be raised and spending cut, but are hoping that their taxes aren't raised and the spending that benefits them isn't cut.

[Ralph]

Don Evans, former Commerce Secy in Bush's first term, made an ominous comment on Fox news about the Paulson appointment. When asked by Neil Cavuto (Your World with Cavuto) why he thought Bush decided on a Wall Street heavyweight for Treasury Secretary, Evans said he thought it was because Paulson could make a big pitch for entitlements reform like social security. Apparently Wall Street and the Bush cabinet have not given up on social security reform despite the big defeat handed to SS reform by the Democrats in 2005.

[Jonathan King]

kharris writes:
>
> Jonathan K,
>
> What cactus said. How does the Street "send" a guy
> who has personal wealth worth $500 million to do
> its bidding?

My remote vision cannot see within that smoke-filled room. :-) More seriously, there was no question that Bush and Company have been trying to find a new Treasury Secretary for over a year now, and had no takers. Nobody on the Street thought they would be better of taking what *should* be one of the most powerful government positions out there. Similarly, there are dozens of vacancies in Treasury as well. Interest rates are heading up, the deficit is a disaster, and my assumption (after the obvious initial bout of cynicism, which I can see you taken and which I will accept is the way to bet) was that at least one really powerful person on the Street had decided that the US really did need a serious economic policy. Obviously a Republican policy, since Paulson is a Republican, but more than just cheer-leading.

The fact that Paulson has half a billion or so makes it, to my mind, really unlikely that he'd take a position that has made his two predecessors bang their heads against the wall. So I was guessing he signed up for the policy position and not the cheer-leading vacancy, the spin of today notwithstanding.

> How does an employee of the president "go
> medieval" on a guy who never has to run for office
> again, but who has the power to put serious dents in
> Wall Street interests to the final day of his term?

I'm not so sure that Bush really has the power you are currently granting him. I think it's interesting that the one big piece of economic legislation that's come through since he was re-elected was the cap gains tax break extension, which was the #1 wishlist item of the Street. Similarly, Bush found himself having to nominate Ben Bernanke to head up the Fed, which I don't see as a move that Bush personally had much to do with.

> Take all their marbles home? You mean investments
> in Treasury debt?

Nope, I mean giving money to the GOP in 2006 and 2008. Even a return to the more 50-50ish split of the pre-1994 era would be a disaster for Republicans

[snip]

> Or do you mean campaign contributions? There has
> always been plenty of money to go around on Wall
> Street.

Yup, I did mean campaign contributions. There's always lot of money going around on Wall Street, but I find the 1992 scenario quite interesting. Clinton won for a number of reasons, but having Bob Rubin get the Street to put serious money behind him did not hurt. Obviously, Paulson is not going to be fund-raising for Hillary or Gore or any Democrat, but I suspect that he sees some really bad scenarios for Republicans coming up unless they can fix some of the damage that GWB has managed to do.

Now, having defended my non-cynical position of this morning, I should point out that this appointment really might have something to do with getting Social Security "reform" passed. Ouch.

[Guy Bradley]

Seems to me there is a simple explanation for Paulson's move: he's looking to do a Corzine and get into politics, and this is a way to accelerate the process. I'd bet that he doesn't expect to be able to achieve anything substantive (in a lame-duck administration, and especially one that has policy-wise painted itself into a corner like this one?), and he reckons it is late enough in the game so that he won't be blamed for anything. On the plus side, he gets plenty of opportunities to appear in front of cameras and a massive boost to his name recognition. Seems like a smart, safe play to me.

[andres]

Hmmm. The campaign contributions are definitely important, but they don't completely clear up the puzzle: Bush could always have chosen another financial non-entity like Snow who has made big contributions to the campaign.

I tend to lean closer to Jonathan King's interpretation: Wall Street insisted that this time the Treasury nominee would meet with their full approval. And _if_ Paulson has been given a job by the Street, it is not so much to get medieval on the White House as it is to apply the thumbscrews to Congress. Some of these screws might be on the necessary side (reduced earmarking), but it is also possible that Medicare is on the amputation block. I doubt that the estate tax repeal will be touched--too much bad press from AEI- and HF-types and not quite enough revenue for the effort.

On the other hand, Guy could be right in describing Paulson's choice as simply claiming his dues for contributions and campaign support in Wall Street while finding a backdoor entry into politics. We will see.