Henry Paulson’s nomination to replace John Snow as U.S. Treasury secretary doesn’t signal any basic change in the Bush administration’s fiscal policies. That’s unfortunate, because without a fundamental shift in President Bush’s “borrow-borrow, spend-spend” mantra, Paulson can’t confront the twin deficits – budget and trade – that threaten America’s continuing prosperity.
As chief executive of the Goldman Sachs investment banking firm, Paulson follows a well-worn path to public service. White House Chief of Staff Joshua Bolten came from Goldman Sachs, as did Robert Rubin, President Bill Clinton’s longest-serving Treasury chief.
Sen. Charles Schumer, D-N.Y., hailed the choice of Paulson, saying: “His experience, intelligence and deep understanding of national and global economic issues make him the best pick America could have hoped for.”
We agree. But it’s worth noting that the outgoing Snow, who ran the CSX Corp. railroad before taking over the Treasury helm from former ALCOA chief Paul O’Neill, had those qualities as well. Unlike O’Neill, who bucked some of Bush’s initiatives, Snow stumped loyally for such dubious causes as partial privatization of Social Security. But despite his cheerleading, Snow never won the confidence of White House insiders.
Paulson’s strong environmental record does bring a welcome tinge of green to the Bush administration. He is chairman of the board of The Nature Conservancy, and in April donated $100 million to a charitable foundation he created for environmental causes. He still owns stock worth more than $500 million.
But for all his ability, Paulson will face two huge problems if confirmed:
Trade: The U.S. trade deficit swelled to a record $726 billion last year.
The national debt is now nearly $8.4 trillion, with this year’s federal deficit pegged at at least $370 billion.
Paulson, who has visited China more than 70 times since 1990, will probably continue Snow’s efforts to persuade China to let its currency, the yuan, float more in line with market forces. A more expensive yuan could be expected to trim Chinese trade surpluses a bit – but it’s hard to press the Chinese too hard on that front when the U.S. is counting on China to help finance the mountainous U.S. budget deficits. Without some change in the Bush administration’s reckless tax and spending policies, Paulson will fight the coming trade battles with one hand tied behind his back.
