Archive for May 31st, 2006

The Thinker

A hint of desperation in the Paulson nomination

Yesterday the Bush Administration announced the long expected resignation of Treasury Secretary John Snow. The very same day President Bush nominated Wall Street financier Henry M. Paulson, Jr. as his third Treasury Secretary. Paulson is currently the head of the well-respected (and profitable) Goldman Sachs Group.

Paulson is very well qualified, as well as highly respected on Wall Street. This is good news because next to the chairman of the Federal Reserve, the Treasury Secretary wields the most influence in the financial community on United States fiscal matters. With stocks up, but faltering, the value of the U.S. dollar sinking, and with overseas markets skittish, the Bush Administration clearly needs a Treasury Secretary in which the financial community will have confidence. In this sense, Paulson is an excellent choice.

Generally when the White House comes offering a cabinet level position, you do not say no. Apparently, Paulson had to be courted aggressively by the Bush Administration. He spurned a number of interview requests before finally agreeing to meet with the President. Before accepting the position, Paulson required strict assurances that he would have the operational authority that he needed.

While it is clear that on fiscal matters, Bush and Paulson largely agree, what struck me from news reports is how Paulson vigorously disagreed with Bush on other matters. In addition to his full time work for Goldman Sachs, Paulson was the chairman of the Nature Conservancy. The Nature Conservancy’s mission is to buy land to keep it from ever being developed. I contribute to this charity through payroll deductions, and consider it one of the best uses of my charitable contribution. Paulson may be a wealthy Wall Street financier but he is also an ardent environmentalist. He and his wife also have given nearly a million dollars to a political organization affiliated with the League of Conservation Voters. This organization has regularly taken the Bush Administration to task for its anti environmental efforts. Clearly, Paulson has walked the environmentalist walk, not just talked it.

Perhaps most peculiarly, while the chairman of the Nature Conservancy, the Conservancy came out strongly in favor of the United States adhering to the Kyoto Protocol to cut greenhouse gas emissions:

The Kyoto Protocol is a key first step to help slow the onslaught of global warming and benefit conservation efforts…Until the United States passes its own limits on global warming emissions, innovative companies based here will lose out on opportunities to sell reduced emission credits to companies complying with the Kyoto Protocol overseas. Additionally, without enacting our own emission limits, U.S. companies will lose ground to their competitors in Europe, Canada, Japan, and other countries participating in the Protocol who are developing clean technologies.

Even Goldman Sachs under Paulson took a position on climate change. It promoted an “Environmental Policy Framework” that required governments to take urgent action to address climate change:

[C]limate change is one of the most significant environmental challenges of the 21st century and is linked to other important issues such as economic growth and development… Goldman Sachs is very concerned by the threat to our natural environment, to humans and to the economy presented by climate change and believes that it requires the urgent attention of and action by governments, business, consumers and civil society to curb greenhouse gas emissions.

In his position as Treasury Secretary, at best Paulson will have marginal influence on U.S. environmental policy. Nevertheless, those into reading political tealeaves might want to sit up and take note of this nomination. To date, the Bush Administration has not been accommodating to anyone working for it who is unfriendly to its positions. In fact, Bush’s first Treasury Secretary Paul O’Neill was ushered out in 2002 largely for telling the American people some unpleasant fiscal truths: either sharp tax increases or dramatic benefit cuts would be needed to meet to pay out Social Security and Medicare benefits to promised to future retirees. He was eased out the door. Replacing him with John Snow however turned out to be a mixed blessing. While Snow faithfully towed the party line, Wall Street did not buy into growth through unending deficit spending. They wanted a policy maker, not a toady.

Paulson is unlikely to be this politically incorrect on basic Bush fiscal doctrine. However, he does have the savvy to realize that he had to have the authority to set his own policy without being countermanded by the White House. On this matter, for the first time, Bush has relented. Paulson’s sharp disagreements with the Bush Administration on environmental matters suggest that new White House Chief of Staff Josh Bolten may be testing the waters of moderation. He may realize that in order for the Bush Administration to have any successes in its last three years, it will be necessary for the Administration to moderate its stances.

Paulson may be an olive leaf to the country that Bush is grudgingly willing to moderate his excessive conservative tendencies and embrace more mainstream behavior. This approach likely will not do much to improve his poll numbers, but it certainly could not hurt. It does suggest perhaps a hint of desperation from an otherwise buttoned down, stiffed lipped administration.

 

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