WASHINGTON—When President Bush nominated Wall Street titan Henry Paulson last week to be his next treasury secretary, there was universal praise for the rock star of investment banking. This week, as Paulson did his meet-and-greet on Capitol Hill, analysts are pondering why he accepted a post that Bush has rendered impotent.
Traditionally, a treasury secretary's powers touch on virtually everything important to the U.S. and global economies, from trade, debt and taxes to Social Security and the minting of money. Men who've held the job in decades past seemed larger than life and kept a firm hand on the tiller of national economic policy.
President Reagan had James Baker III, whose 1985 Plaza Accord coordinated global currency values and trimmed a mammoth U.S. trade deficit. President Clinton leaned heavily on Robert Rubin, who like Paulson once headed investment bank Goldman Sachs & Co. and like Baker took the lead in averting global financial crises, his from Mexico, Asia and Russia.
Bush's two terms, to date, have been markedly different. His first two treasury secretaries were men firmly rooted in the old economy, wary of Wall Street and unbridled financial markets. Paul O'Neill headed aluminum giant Alcoa and the departing John Snow ran railroad power CSX. They took on the cheerleader role usually reserved for the commerce secretary, while the White House set economic policy and managed day-to-day decisions.
"I don't remember ever seeing that happen before. The White House played a role, but I don't think you would ever find a period where day-to-day" decisions were made by the White House, said Barry Bosworth, a senior fellow at the Brookings Institution, a center-left research center.
Bosworth served President Carter as the director of the Council on Wage and Price Stability, and in nearly four decades in Washington he's seen many treasury secretaries come and go. Never, he said, has he seen an administration in which the post has carried so little weight.
Why then would Paulson, a hard-charging investment banker and workaholic, take a job that's become largely symbolic? Snow was sent out to absorb body blows during the debate over Social Security privatization, and he could never quite convince Americans that their economy is as healthy as the numbers suggest.
Donald Evans, Bush's commerce secretary from 2001 to 2005 and reportedly on the president's short list of potential treasury candidates, thinks Paulson sees a chance to be the spokesman for addressing the longer-term liabilities that jeopardize America's financial future.
"I think Hank, as well as anybody in the world, does have a real-time understanding of the state of the economy. ... He has a very real-time understanding of what the real challenges are and what the real dangers are to the economy as we look into the future," said Evans, who's now president of the Financial Services Forum, a trade association for the financial sector. "He can articulate those issues with a tremendous amount of credibility. He's got the credibility of someone that lives it and sees it in a very real way."
Sen. Charles Grassley, R-Iowa, agreed.
"I believe he was selected to be more of a spokesman," said Grassley, the chairman of the influential Senate Finance Committee, which must approve Paulson's nomination.
Grassley, who met Paulson on Monday, said the two men discussed tax restructuring and the need to address anticipated shortfalls in Social Security and Medicare funding. They also talked about China and whether the Asian powerhouse is manipulating its currency to boost its exports at the expense of American and other exporters. Treasury has refused to label China a currency manipulator, angering many Democrats and Republicans alike.
"I think he'll be helpful to us in those areas," Grassley said.
Paulson could make his biggest splash in foreign policy. The showdown with Iran over its efforts to develop nuclear power is nearing a crucial stage, in which steps may be taken to put pressure on Iran's economy.
"A key intellectual challenge for the Bush economic team at the moment is how to devise economic sanctions toward Iran (that work). ... That kind of difficult intellectual question requires innovative thinking of the kind Goldman Sachs is famous for," said Kevin Hassett, the director of economic policy studies for the American Enterprise Institute, a conservative research center.
Paulson's greatest value, however, may be as an insurance policy.
As Bush's administration nears lame-duck status, few expect the president to push for any significant economic-policy changes. Paulson's credibility in global financial circles then becomes the political equivalent of a rainy day fund, something of great value should the stock market drop precipitously or some financial crisis emerges on a global scale.
"If there were a crisis, he's very well suited to take the leadership and make the adjustments," Bosworth said.
(c) 2006, Knight Ridder/Tribune Information Services.
PHOTOS (from KRT Photo Service, 202-383-6099): PAULSON
GRAPHIC (from KRT Graphics, 202-383-6064): 20060530 TREASURY bio
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