Paulson needs to get Bush to put a lid on spending


The last man who went from being head of Goldman Sachs to Treasury secretary helped set the stage for a balanced budget, low interest rates and an economic boom.

But Henry M. Paulson Jr., the Goldman Sachs chairman and CEO nominated yesterday to replace John W. Snow at Treasury, is unlikely to leave such a legacy.

Yes, he has the smarts, integrity and independence of his 1990s predecessor, Robert E. Rubin. But the timing is all wrong.

The Bush administration is too weak and distracted, too long in the tooth and too deep in the hole. It should have picked somebody such as Paulson for Treasury in 2001 and given him a say in policy, before five years of fiscal mismanagement produced the current wreck.

The best we can hope for from Paulson is to point out unpleasant truths and set a stage for possible budget-deficit repair - the No. 1 financial problem - in the next administration.

Paulson has a record of honest, even courageous public judgments on corporations, economics and the national welfare.

"In my lifetime, American business has never been under such scrutiny," Paulson said in a June 2002 speech, six months after the Enron scandal broke and a few weeks before WorldCom's collapse. "To be blunt, much of it is deserved."

He went on to provide cogent analysis of corporate misdeeds, long before the scandals reached their peak. He also endorsed reforms that were later adopted, such as requiring executives to certify financial statements, improving disclosure of executive stock transactions and barring accounting firms from doing auditing and consulting work for the same client.

Paulson has spoken in the past of the need for spending restraint in Washington. He correctly said - two years ago on the Charlie Rose Show - that the budget deficit is a bigger risk than the trade deficit. If he can use his perch at Treasury to similarly influence the debate on these items as well as on the dollar and free trade, even if it doesn't lead to significant policy changes, he will have done the country a favor.

Few expected an executive of his caliber to take the job.

"Why no Wall Street CEO wants to be the new Treasury secretary," read a headline in Slate last month. The New York Times ran a piece Saturday saying Paulson wasn't interested, "in part because neither Mr. Snow nor his predecessor, Paul H. O'Neill, had any substantial role in shaping economic policy."

The fact that three days later Paulson was the nominee suggests he got the White House to promise that he'll be a player.

But nobody's really a player in this administration anymore. There are too many distractions for significant policy initiatives: Iraq, energy prices, the aftermath of the housing boom and now volatile stock markets. Republicans may lose control of at least one branch of Congress after November, further undercutting the administration's power.

If Paulson emerges as a prominent force, it likely would be the result of some financial crisis he is called on to solve. This would hark back to Time magazine's portrayal of Rubin and then his successor as Treasury secretary, Larry Summers, along with Fed Chairman Alan Greenspan as "the committee to save the world" after turmoil in emerging markets in 1999.

But a financial crisis would itself be another distraction, a brushfire diverting resources from long-term policy fixes. Paulson's main policy directive from the White House probably will be making President Bush's 2001 and 2003 tax cuts permanent.

But aren't the tax cuts a big factor in the budget deficit? Yes, but only part. The other part is large-scale spending by Congress and acquiescence by Bush. This is where Paulson can make his mark, or at least let his voice be heard.

Like Rubin, Paulson is rich, independent and forthright. Like Rubin he has nothing to lose by speaking out. Indeed, his biggest risk is to stay passive, to be just another political myrmidon in an administration that has been full of them.

Let's hope he's loud and clear with the "cut spending" message. It's one that both aisles of Congress need to hear. And if he wants to speak out for protecting the environment, the political cause he is best known for, so much the better.

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