The Magazine

Merger and Acquisition

The Bush administration lands a heavyweight for treasury secretary.

Jun 12, 2006, Vol. 11, No. 37 • By IRWIN M. STELZER
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Then there is the environment, a policy area in which the Bush administration is in something of a time warp. No honest person can with certainty assert that global warming is a threat. But any responsible person can see that the evidence is sufficient to suggest that it might be, and that some action to contain emissions of greenhouse gases is an insurance policy worth having. Paulson is Wall Street's greenest titan, chairman of the Nature Conservancy, a bird-watcher, an advocate of a greenhouse gas emissions trading system for the United States and of mandatory curbs on emissions if voluntary action proves inadequate. At Goldman, he allocated $1 billion for investment in renewable energy and energy-saving projects. He is likely to make his voice heard in an administration that is said to be ready to move from its justifiable opposition to the Kyoto treaty to more positive proposals for emissions reduction.

We can't, of course, note the coming of Paulson without commenting on the notion that treasury secretaries who hail from Wall Street favor a strong dollar policy, since they are concerned with preserving the value of the dollar-denominated assets of their clients. Paulson is different: He is on record as favoring a gradual decline in the greenback. Besides, it is the market, not men--not even men of Paulson's skill and stature--that sets exchange rates. So long as America continues to run a trade deficit that is now on the order of 7 percent of GDP, the dollar will weaken. Not suddenly, but steadily. It is only if Paulson can bring the Chinese around to the administration's view as to what constitutes fair trade that he will be able to add to the dollar's strength. And that won't happen soon, and certainly not in a single bound.

Finally, Paulson can be counted on to steady the president's hand as he reaches for his veto pen when the next wasteful spending bill hits his desk. So far, Bush has vetoed not even a single bill, no matter how profligate. Paulson is likely to change that and bring some fiscal discipline to administration policy. That should cheer those of the president's core supporters who are muttering about Lyndon Baines Bush.

There's more. But you get the idea. An administration not noted for the quality of its economic team now has one that would be difficult to improve upon. Paulson will speak to power from a position of power, for a Paulson resignation would be a wound from which the administration could not recover. Not a bad change in the structure of power in the Bush administration.

Irwin M. Stelzer is a contributing editor to The Weekly Standard, director of economic policy studies at the Hudson Institute, and a columnist for the Sunday Times (London).