George W. Bush's economic-team replacements are looking stranger and stranger. For starters, this was the rare case where the Bush team dropped the ball politically. Treasury Secretary Paul O'Neill got dumped before there was a new man in place. O'Neill had irritated the Bushies because he is a plainspoken fellow rather than a loyalist. One of the things he had spoken plainly about was his skepticism on the need for a big new tax cut. In addition, O'Neill, former CEO of Alcoa, was seen as a liability because he never really gained the confidence of Wall Street in a year when financial markets weretumbling.
Every few months, O'Neill was in the habit of asking his sponsor, Vice President Dick Cheney, if he still enjoyed the confidence of the White House. As recently as last month, Cheney provided that assurance. Then, last week, Cheney informed O'Neill that the administration planned to make a change early in the new year but that it wanted O'Neill to stay on a few weeks until a successor could be found. O'Neill went home, got angry and wrote his public resignation. That caught the White House totally off guard, as it had no replacement to name.
Bush's handlers then decided to make a clean sweep of it, which meant firing Larry Lindsey, too. Lindsey, head of the National Economic Council, was an academic not exactly cut out for the job, but he was a loyalist who had crafted the crown jewel of Bush's domestic program, the $1.35 trillion tax cut.
What happened next was even stranger. To succeed O'Neill, Bush turned to another industrialist with no Wall Street credentials, railroad executive John Snow. Snow is also a leader of the Business Roundtable who in the recent past has expressed public doubts about the need for a big economic stimulus.
Snow is an unfortunate symbol. As head of CSX, he enjoyed a sweetheart stock deal of the kind coming under Securities and Exchange Commission scrutiny. In 1996, CSX lent Snow $25.4 million to buy stock. Snow put up $7 million of his own money as a down payment. When CSX stock later tanked, the company generously forgave the loan and returned Snow's $7 million down payment -- not exactly a deal available to the average unlucky shareholder. What a perfect nominee for the Enron era. Ironically, Snow supervised a recent Conference Board report on corporate governance.
To replace Lindsey, the White House recruited another executive also skeptical of Bush's economic plan. Stephen Friedman, a former co-chairman of Goldman Sachs, at least has the Wall Street credentials. What's more, he's a very big time Republican fundraiser. But Friedman is a leader of the Concord Coalition, the bipartisan lobby of fiscal conservatives who equate budget deficits with sin. So if Bush is actually taking his economic advice from his new economic team, its counsel will be to forget plans for a new tax cut. Small chance that advice will be heeded.
The Wall Street Journal, temple of the supply side, found the choices more than a little odd. Snow, the Journal opined in its lead editorial, seemed a carbon copy of O'Neill -- "a successful old-line industry CEO who moonlights at the Business Roundtable and worked in the Ford Administration . . . Mr. Snow hasn't stood out as a populist promoter of investor capitalism." In the Journal's op-ed slot, Richard W. Rahn, one of the inventors of supply-side economics, put the best possible spin on the odd new appointments, writing, "I am told that during the vetting process, the White House became convinced that Mr. Friedman understood growth to be the key to reducing deficits, and that the right tax cuts increase growth." Translation: The guy isn't quite as bad for the tax-cutting crowd as, say, Ted Kennedy, but he knows his marching orders.
Two bits of good news here: The Bushies had a very hard time, on short notice, finding people of stature who support the administration's latest round of budget-busting tax cuts for the rich. They had to settle instead for ones who agreed to keep mum about their actual views. And even the mighty Karl Rove occasionally messes up.
More, please.
Robert Kuttner is co-editor of the Prospect.
