Fantasy League for Economic Policy Wonks
Mitt Romney says the first day of his presidency would be exceptionally busy. The former Massachusetts governor has promised to overturn two of his predecessor’s landmark legislative achievements, the Affordable Healthcare Act and the Dodd-Frank financial reform bill; he would approve the Keystone energy pipeline from Canada, introduce sweeping tax cuts and brand China a currency manipulator.
President Barack Obama cannot promise instant action, but he is equally ambitious. In his second term, he says he will impose the “Buffett rule” to ensure the rich pay more tax, cut tax rates for middle class families, stop the “war on women,” prevent a rollback of environmental protection, reform immigration laws and, not to be outdone by his Republican challenger, crack down on China.
But here’s one thing neither camp will actually say out loud: they won’t have the luxury of choosing their first big legislative priority. In all likelihood, it will be dictated to them. Election pledges will take a backseat to the so-called “fiscal cliff.” Some $450 billion of tax increases and about $1 trillion of spending cuts kick in come January 2013. If the post-Nov. 6 election session of Congress does anything, it is likely to delay the start date, throwing the issue right into the lap of the new president.
“Whether it’s done now or in the lame-duck session, Congress is going to have to extend it, say 100 days or so, at least enough time to get it done,” says Larry Fink, chief executive of BlackRock, the fund manager overseeing $12 trillion of assets, who is also one of Wall Street’s most influential Democrats. “And it’s going to be the big priority for whoever gets to be president,” he told Breakingviews over the summer.
So the first challenge for the next administration will be to find a way to reduce government and entitlement spending and reform the tax code. The task is Herculean, thanks to gridlock on Capitol Hill. But a president who manages to bring the parties together will be in a better position to fulfill his other campaign pledges. Moreover, putting the United States on a stable long-term financial trajectory, and taking the prospect of a European-style debt crisis off the table, is the stuff from which legacies are made.
The president, whether he is on his final term with a solid mandate from the electorate or is a technocratic leader with a budget wonk as vice president, must build up an economic dream team. Nothing less will convince a polarized legislature, where House members and a third of the Senate have been newly elected, of the need to sacrifice.
The trick is to combine number-crunching whizzbangery with reach-across-the-aisle legislative prowess. To that end, the Breakingviews Economic Dream Team Machine allows anyone to choose a Delta Force of suitable people to run the U.S. Department of Treasury, the White House National Economic Council and the Federal Reserve, along with a “wildcard” position, which could be the leader of, say, the White House Office of Management and Budget, chief of staff or even a Budget Czar.
“A dream team would combine academic and policy experience with people from industry who understand the cycles of business,” Jon Huntsman, the former Utah governor who served as Obama’s ambassador to China and challenged Romney for the Republican nomination, said in an interview. “The most important thing we can do right off the bat is a big deal on taxes and spending because our national security depends on our fiscal stability.”
Of course, the United States has other economic challenges. At home, the 8.1 percent unemployment rate is much too high. Internationally, the country should seek out a better equilibrium with a new Chinese leadership, expand and strengthen global trade pacts and implement financial reforms in ways that ensure stability for the global banking system without disadvantaging American capital markets. But while those issues are important, they will be tackled more easily once the budget uncertainty is removed.
As the Economic Dream Team Machine shows, both sides have many potential corporate executives, veteran politicians and government officials from whom to choose. But neither candidate needs to rely solely on his own party. In fact, it would be wise for whoever wins the election in November to choose a bridge-builder from the other side of the aisle. Either candidate could, for instance, try to lure New York Mayor Michael Bloomberg to take on the role of Budget Czar or some other temporary economic position. Similarly, Romney could tap Democrat Erskine Bowles, co-chair of the National Commission on Fiscal Responsibility and Reform, the group created two years ago by the president to look at fiscal matters, to encourage bipartisanship.
Either way, the Treasury secretary is the key position. In the role since Obama took office, Timothy Geithner has been involved—like his predecessor Henry Paulson—in everything from budget talks to cooling the financial crisis to new regulation to challenges in Europe and China.
Another critical post is the director of the National Economic Council, a White House function created in 1993 by President Bill Clinton to coordinate economic policymaking. Under Obama, Larry Summers and then Gene Sperling held the position as the U.S. leader’s closest adviser on all things economic. The ideal candidate for either job would be a strong dealmaker to tango with Congress. No matter who wins the White House, neither party will have unchecked control, and negotiation is inevitable.
In addition, the next president will have the opportunity in 2014 to renominate Ben Bernanke as chairman of the Federal Reserve. Obama has shown support for the incumbent Republican, first appointed by President George W. Bush, while Romney has said he would seek to replace Bernanke. Though the Fed chief would not be involved in hammering out fiscal and budgetary policy, monetary affairs play an unquestionable role in the economy and the position offers a bully pulpit for influencing legislative policy.
Other key economic White House jobs could include the director of the OMB; chairman of the President’s Council of Economic Advisers, effectively a brain trust of economists; the Commerce Secretary and, potentially, the president’s own chief of staff.
Part II: Who should get the jobs?
Given Obama’s current standing in the polls, it makes sense to start with the Democrats. At Treasury, Geithner has said he will not stick around. Among current West Wing employees, Chief of Staff Jacob Lew tops the list. Obama clearly trusts Lew, having promoted him from running State Department operations to OMB director and then to the highest-ranking executive office post. His budget and deal-making chops, plus brief tenure at Citigroup, give him a multifaceted background suitable to the job.
To neutralize accusations Obama has insufficiently reached out to the private sector, Wall Street holds some plausible picks, including BlackRock’s Fink; Roger Altman, the founder of investment bank Evercore; and Blackstone President Tony James. Though the financial industry remains controversial, all three men have emerged from the crisis with their reputations intact and are seen as capable of receiving congressional confirmation.
Bloomberg LP Chief Executive Daniel Doctoroff, who served as deputy mayor of New York City under Bloomberg, would offer “all the benefits of Bloomberg without Mike Bloomberg,” according to one former Treasury staffer. Other plausible candidates are Honeywell chief David Cote, who served on the president’s deficit and job creation commissions, and Google Chairman Eric Schmidt. More inspired would be Facebook Chief Operating Officer Sheryl Sandberg, who is close to Geithner and served as chief of staff to Larry Summers when he ran the Treasury under Clinton. However, the social network’s terrifically botched initial public offering - and some $130 million of unvested stock awards - could keep her in Silicon Valley a while longer.
The drawback shared by most of these potential Democratic business candidates to run the Treasury would be a lack of legislative experience, if the president envisions one of them leading his efforts to strike a grand budget, tax and entitlement compromise through Congress. That could make them more suitable for other economic leadership roles.
The best Treasury candidate, though, would be Bowles, who is already working with members of Congress to craft legislation that would delay the start of the fiscal cliff and set the framework for a larger bipartisan compromise. He calls it his “Cialis plan.” “When the time is right, we’ll be ready,” he told Breakingviews. Talk of enmity between Bowles and Obama over the handling of the National Commission on Fiscal Responsibility and Reform’s proposals could be an obstacle, but not an insurmountable one.
With Bowles, Warner or Lew at Treasury, an Obama 2.0 economic team would need rounding out with business and international experience, of which the administration - despite criticisms it has given the cold shoulder to business - has a surprisingly ample number of potential candidates. To win them over, however, the president would need to assure them of greater influence than previous executives who have made the jump, such as former JPMorgan banker William Daley. The former chief of staff clashed with some of the president’s inner circle of advisers.
Romney has already made budget issues and entitlement reform a centerpiece of his campaign by picking House budget committee chair Paul Ryan as his running mate. Ryan’s experience on the Hill might give his administration a leg up in working with Congress on a big fiscal deal, though the Wisconsin representative’s draconian budgetary approach has won him little comity across the aisle.
Either way, with Ryan on the ticket Romney is more likely to choose a Treasury secretary versed in other priorities like financial stability and job creation. That’s something he will find more readily in the corporate world than in government or academia, even though the tenures of industry chieftains John Snow and Paul O’Neill under Bush were widely considered to have been lackluster. “An understanding of the private sector is important,” said former Hewlett-Packard CEO Carly Fiorina, who has been advising the Romney campaign on economic matters. “I think an academic is not the right résumé.”
Apart from Fiorina herself, Samuel Palmisano, who recently stepped down as IBM chairman, might fit the bill. So would New York Deputy Mayor Bob Steel, who is also a former Wachovia CEO and Goldman Sachs partner. Two of Silicon Valley’s most prominent Republicans, HP boss Meg Whitman and Cisco Chairman John Chambers, have said they’re not inclined to take administration jobs, though both have spoken publicly about the need for fiscal reform. “If we don’t deal with the fiscal cliff and don’t deal with predictability on taxes for both citizens and business, with the rest of the world in a struggling state, this is really bad for us,” Chambers told Reuters last week.
Though not wholly a product of Corporate America, former Fed Governor Kevin Warsh would perhaps make the best all-around candidate for the job. Warsh was one of the chief firefighters during the 2008 financial crisis, alongside Geithner, Bernanke and Paulson, earning him respect from members of his own party, Democrats and the capital markets. The former Morgan Stanley banker is also close to Ryan, who taught him to shoot handguns. But Warsh tells friends he is enjoying private life, teaching at Stanford, giving speeches and helping billionaire Stanley Druckenmiller manage his considerable fortune.
David McCormick, who served as undersecretary for international affairs under Paulson, might be a sleeper candidate for a Romney economic squadron. The West Point graduate and Gulf War veteran is currently co-CEO of Bridgewater Associates, the massive Connecticut hedge fund led by cultish founder Ray Dalio. McCormick has served as president of a public company, Ariba; worked as a McKinsey consultant and been the CEO of a Wall Street trading venture.
Corporate bias aside, there would undoubtedly be a place for academics and experienced government officials on a Team Romney. After all, his top economic adviser is Columbia Business School Dean Glenn Hubbard, who has worked at Treasury and chaired Bush’s Council of Economic Advisers. Though he lacks the legislative nous key to bargaining a sweeping fiscal deal, he has devoted much of his work to budgetary issues. Similarly, former World Bank boss Robert Zoellick has international gravitas and finance experience, but is considered by some Republicans to be difficult to work with.
Rob Portman, who made Romney’s vice presidential short list, would bridge the parliamentary gap. The Ohio senator is a former congressman, was director of OMB and served as U.S. trade representative. Still, some combination of corporate experience with Zoellick or Hubbard at Treasury or the NEC - and with Ryan leading the charge on the Hill - might offset the shortcomings of any individual candidates.
The other academic in the frame for an important role following a Romney victory would be John Taylor, the Stanford economist who developed the eponymous rule on how central banks should set monetary policy in response to changes in inflation, output and employment. Though Taylor served as undersecretary of the Treasury for international affairs under Bush, and as an economic adviser to George H.W. Bush, Gerald Ford and Jimmy Carter, he is considered more likely to accept a job as Bernanke’s replacement.
(Rob Cox is Americas editor and Dan Indiviglio is Washington columnist for Breakingviews, the global financial commentary service of Thomson Reuters)