December 10, 2002
The Economist Is Not Happy with Bush Personnel Changes

The Economist seems remarkably unhappy with the new Bush economic policy team. Why I am not sure: we don't yet know enough about how they are going to mesh with the White House to be able to make any assessment at all...


Economist.com: John Snow, a rail-company boss, is to replace Paul O’Neill as America’s treasury secretary. And William Donaldson, a former banker, has been chosen to head up the Securities and Exchange Commission. Neither man has the sort of profile that is likely to reassure the markets.

THE financial markets may have welcomed the forced departure of America’s two most senior economic officials on December 6th, but it seemed odd, to say the least, that the administration was not immediately able to announce their replacements. It appears that Paul O’Neill, the gaffe-prone treasury secretary, was so angry at being pushed out that he did not stick around to fit in with the White House’s timetable. The departure of Larry Lindsey as chairman of the National Economic Council (NEC) came shortly after Mr O’Neill’s curt resignation statement was made public.

On Monday, President George Bush confirmed that he had asked John Snow, the chairman of CSX, a railroad company, to be the new treasury secretary. (The appointment has to be confirmed by the Republican-controlled Congress.) Stephen Friedman, former co-chairman of Goldman Sachs with Robert Rubin, who went on to be treasury secretary in the Clinton administration, is tipped to take the chair at the NEC. Mr Friedman is now senior principal in the private-equity arm of Marsh & McLennan, a big insurance broker.

Mr Bush has also chosen William Donaldson, a former banker, to be head of the Securities and Exchange Commission following the resignation of Harvey Pitt last month. Mr Donaldson, 71, co-founded Donaldson, Lufkin & Jenrette, an investment bank that was later taken over by CSFB. He founded Yale's graduate school of management and served as its first dean. He was chairman of the New York Stock Exchange from 1990 to 1995 and chairman of Aetna, an insurer, until last year. Like Mr O'Neill, he is known for speaking his mind, which might not enhance confidence in fragile financial markets.

Mr Snow’s is the most surprising appointment—he himself admitted on December 6th that to be picked would be “the biggest surprise”. His name was not on most observers’ initial shortlists. And, after White House officials stressed that Mr Bush was looking for a successor to Mr O’Neill who would have the confidence of the markets, Mr Snow seems an unusual choice...


Bush's new brooms
Dec 10th 2002
From The Economist Global Agenda


John Snow, a rail-company boss, is to replace Paul O’Neill as America’s treasury secretary. And William Donaldson, a former banker, has been chosen to head up the Securities and Exchange Commission. Neither man has the sort of profile that is likely to reassure the markets

THE financial markets may have welcomed the forced departure of America’s two most senior economic officials on December 6th, but it seemed odd, to say the least, that the administration was not immediately able to announce their replacements. It appears that Paul O’Neill, the gaffe-prone treasury secretary, was so angry at being pushed out that he did not stick around to fit in with the White House’s timetable. The departure of Larry Lindsey as chairman of the National Economic Council (NEC) came shortly after Mr O’Neill’s curt resignation statement was made public.

On Monday, President George Bush confirmed that he had asked John Snow, the chairman of CSX, a railroad company, to be the new treasury secretary. (The appointment has to be confirmed by the Republican-controlled Congress.) Stephen Friedman, former co-chairman of Goldman Sachs with Robert Rubin, who went on to be treasury secretary in the Clinton administration, is tipped to take the chair at the NEC. Mr Friedman is now senior principal in the private-equity arm of Marsh & McLennan, a big insurance broker.

Mr Bush has also chosen William Donaldson, a former banker, to be head of the Securities and Exchange Commission following the resignation of Harvey Pitt last month. Mr Donaldson, 71, co-founded Donaldson, Lufkin & Jenrette, an investment bank that was later taken over by CSFB. He founded Yale's graduate school of management and served as its first dean. He was chairman of the New York Stock Exchange from 1990 to 1995 and chairman of Aetna, an insurer, until last year. Like Mr O'Neill, he is known for speaking his mind, which might not enhance confidence in fragile financial markets.

Mr Snow’s is the most surprising appointment—he himself admitted on December 6th that to be picked would be “the biggest surprise”. His name was not on most observers’ initial shortlists. And, after White House officials stressed that Mr Bush was looking for a successor to Mr O’Neill who would have the confidence of the markets, Mr Snow seems an unusual choice. Although Mr Bush praised him, saying that he had “excelled as a business leader, an expert on economic policy, an academic and as a public servant”, he is not the senior financier or economist that the markets were hoping for.

To be fair to Mr Snow, he has had a certain amount of economics training and some government experience. The 63-year-old holds a doctorate in economics and served in the transport department under former president, Gerald Ford, in the mid-1970s. More recently, as chairman of Business Roundtable, a lobby group for big companies, he has been a regular in Washington. He is best known as an advocate of balanced budgets and good corporate governance. Unusually among senior businessmen, he favours treating stock options as an expense on company balance sheets. His management style is said to be consensual.

However, Mr Snow’s own business record is mixed. Unlike Mr O’Neill, who was credited with having turned around Alcoa, an aluminium company, before joining the administration, Mr Snow’s CSX is not a shining example of corporate efficiency. Its acquisition of part of Conrail, a rival, has not proceeded smoothly. And it has the worst operating ratios among North American rail companies.

Officials have been keen to stress that the new appointments do not signal a change to the administration's economic agenda, in particular to its strong-dollar policy. Rather, Mr Snow will be expected to act as a salesman for White House economic policy, something that Messrs O’Neill and Lindsey were unable or unwilling to do—Mr O’Neill disagreed with the introduction of tariffs on steel imports, for instance. The administration’s agenda is increasingly being set by Karl Rove, the president’s political strategist, and Josh Bolten, the deputy chief of staff. The priority is to push Mr Bush’s economic-stimulus package through Congress. Mr Bush explicitly said that Mr Snow would be “a key advocate of my administration's agenda for growth, new jobs and a wider and more international trade.”

The stimulus package, which will be unveiled next month, is expected to cost $250 billion-300 billion over ten years. It consists largely of tax cuts, rather than spending increases. Tax cuts already announced under a first stimulus proposal are expected to be accelerated. The double taxation of corporate dividends, long a bugbear of conservative economists, may well be scrapped. The hope is that this would give the stockmarket and business investment a boost. The administration is hoping to pay in part for the tax cuts by making savings in the troubled Medicare programme, for instance by encouraging price competition in prescription drugs. However, changes to such programmes are a political minefield, and could leave the administration open to charges that it is cutting taxes for the rich while cutting benefits for the poor.

The one area where Mr Snow might, like his predecessor, run into trouble is the deficit to which the stimulus package may give rise. After acting as cheerleader for the first stimulus package, worth a whopping $1.35 trillion in tax cuts, Mr O’Neill developed doubts about whether a second one was necessary. After all, the Organisation for Economic Co-operation and Development, the rich countries’ think-tank, reckons that America’s budget deficit will rise from 0.5% of GDP last year to 3.1% this year. That will hardly sit easily with an advocate of balanced budgets. Mr Snow, like Mr O’Neill, may end up losing that battle. Mr Bush is haunted by his father’s election defeat in 1992, caused by recession. He is determined not to repeat the mistake. And if that means a giant economic-stimulus package, then so be it.

Posted by DeLong at December 10, 2002 11:16 PM | Trackback

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Three very poor picks.

Snow first. He's an old-boy industrialist CEO dinosaur. Yes, he has a doctorate in economics, but he's most definitely NOT a capital markets professional, which is what's really needed in the Treasury Post.

Donaldson. Long, long career (cause he started so young), generally well-liked but hasn't really been a "do-er" for quite a while. Was controversial as pick for head of NYSE because observers thought he didn't have the "fire in the belly" to accomplish much there, and the observers were right. Not a good choice for SEC, either, and he's even older and more lethargic today than when running the NYSE. Last, the corporate credibility problems came groping up out of the mainstream financial and accounting muck. And who's more mainstream than Donaldson? Taking on the problem head-on and fixing it should have been the responsiblity of a sharp, young, quasi-financial-outsider.

Last, Friedman was co-head of Goldman Sachs with Rubin, but he's not as smart as Rubin, he's not as smooth as Rubin and he has a bigger ego than God. WHO PICKED HIM?

So, count them up: they've given us O'Neill, Pitt, KISSINGER, Snow, Friedman and Donaldson. Old school dinosaurs, each and every one. Who will they trot out next, Don Regan?

Posted by: Anarchus on December 11, 2002 06:33 AM

Don Regan?

Warming up in the bullpen.

Posted by: Chuck Nolan on December 11, 2002 08:53 AM

Calling Snow an "industrialist" misses the distinction between playing baseball and trading baseball cards. Not an auspicious pick, not a policy center of gravity, probably chosen for CEO-like looks, voice, body language and voice ... the suit from central casting. Cross your fingers and hope he'll surprise the heck out of us.

Donaldson seems a good pick. Good he's been in the mainstream, good he doesn't have much to prove on his own account, good he's not a major figure in the recent unpleasantness. He can hire young aggressive players. What kind of chemistry with E. Spitzer? Who next for Audit board?

Friedman isn't even the pick yet, he's fading, isn't he? What was I saying earlier about a thin bench? Gravitas doesn't grow on trees.

Posted by: RonK, Seattle on December 11, 2002 09:29 AM

I don't like snow much. I don't ski. But this guy seems like maybe he could be a change of direction.
"The budget deficit puts a hole in the pocket of every American, every day of their lives," Mr. Snow declared in 1995, when he was chairman of the Business Roundtable and when the budget deficit was about the same size as it is now.
{snip}
Separate from the tax issue, Mr. Snow emerged this year as an outspoken critic of what he called excessive compensation for corporate executives and poor corporate governance.
http://www.nytimes.com/2002/12/10/politics/10SNOW.html

Posted by: Bruce Ferguson on December 11, 2002 10:37 AM

John Snow will not be an independent policy maker, rather a seller of policy formed by Republican conservatives who have been anxiously waiting for opportunities to discard or at least limit the income and wealth effects of "New Deal" programs. This is a highly conservative Administration, and Congressional leadership is highly conservative. No one who is not of like mind will have an active roll in policy design.

Finally, Republicans control the White House and Congree. Conservative Republicans, not like your parents Republicans. Conservatism is here folks.

Posted by: on December 11, 2002 10:56 AM

Good grief.

John Snow is a Republican.
This is a Republican Administration, a very conservative Administration.
Congress is controlled by a very conservative Republican caucus.

There is no chance John Snow will do any more than cheer lead the policy initiatives of conservatives who have waitied for years and years for such political dominance. Policy will be aimed at limiting as many of the "New Deal" economic programs as possible and John Snow will happily cheer along.

Posted by: on December 11, 2002 11:47 AM

>>Last, Friedman was co-head of Goldman Sachs with Rubin, but he's not as smart as Rubin, he's not as smooth as Rubin and he has a bigger ego than God. WHO PICKED HIM?<<

Well, clearly there are some people who like him, and some people who are thinking "Rubin was a great success, this guy is like Rubin, so he'll be a great success."

And he may be: to be able to keep the partners of Goldman Sachs running in harness has to give one intraoffice political knife-fighting-in-the-dark skills of an extraordinary high order. He's almost surely not Rubin, but who is? According to all accounts (including mine) Rubin is unique, a one-boss-in-a-century kind of guy. Thus even somebody who is not-Rubin-but-within-shouting-distance may prove good enough.

Nevertheless, were I Friedman I would not take the job: Karl Rove and his people are already telling the press that Friedman's job is not to make policy but to sell policy already made. The White House mess privileges are not worth it if the price is being bossed around by deputy assistant press secretaries.

Posted by: Brad DeLong on December 11, 2002 12:46 PM

CBS has been reporting that Congressional conservatives are asking for a hold on Stephen Friedman's appointment till they are sure he supports tax cuts strongly enough. Why ever should we think an advisor will be appointed for the sake of advice?

Robert Rubin was truly a wonderful Secretary of Treasury.

Posted by: on December 11, 2002 01:06 PM

Looking at the tired retreads from the past whose names keep coming up, am I the only one who is reminded of the Brezhnev era?

Posted by: Maynard Handley on December 11, 2002 10:31 PM
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