In today’s style
over substance economy, the job of Treasury Secretary has devolved into a
pitch man for the government’s economic disinformation campaign.
To qualify, an aspiring Secretary must have the credibility and rhetorical
skill to simultaneously instill enough confidence
creditors for them to keep lending, and in American consumers, to encourage
them to keep borrowing and spending. It should be obvious to all that
the very idea that the U.S.
economy needs a spokesman indicates just how weak it really is. If our economy really were sound, it
would speak for itself. It would
not need a professional promoter to talk it up.
Nonetheless, with his nomination
of Goldman Sachs CEO Robert Paulson, it appears that President Bush hopes to
recreate the Greenspan/Rubin mystique.
The idea is that by combining another Wall Street heavyweight with a
well respected Fed Chairman, enough misplaced
confidence can be instilled to maintain the illusion of American
prosperity until after the next election. Since Wall Street specializes in the
art of applying lipstick to all manner of financial pigs, Paulson may be uniquely
qualified to tart up the biggest pig of them all.
However, while the strategy
worked for Rubin/Greenspan, Paulson/Bernanke are in a much tighter spot. In the first place, while years of
credibility earned Greenspan the nickname “The Maestro” in
the 1990's, Bernanke is still untested and thus remains
an unknown quantity. And while
Rubin succeeded the widely respected Lloyd Bentsen, Paulson replaces a highly
controversial John Snow.
Furthermore, Rubin had spent two years working alongside Bentsen
in the Clinton
administration prior to his appointment as Treasury Secretary. For these reasons, the creditability
baton may not pass as seamlessly from Snow to Paulson as it did from
Bentsen to Rubin.
In the second place,
circumstances have changed dramatically.
The pig is a lot fatter, smellier, and snorts much louder, making its
true character that much harder to make-over. When Rubin was in office, the new era
mentality was firmly entrenched, and the world could not get enough of U.S.
financial assets. Back then,
there was no war on terror, and the U.S.
was not nation-building in Iraq. In addition, we had the whole world
bamboozled with the delusion that the U.S. was actually in the process
of paying off the national debt, with projected budget surpluses as far as
the eye could see. Finally, the
“strong dollar policy,” in reality no more tangible than the
Loch Ness Monster, was repeatedly sighted and widely accepted.
Even if Paulson tried to
resurrect the mythical strong dollar policy, would anyone buy it? If a pot-smoking, class ditching, party
hardy college student claimed to have a "straight A policy" would
he automatically make the dean's list?
Straight A’s, like a strong currency, is an admirable goal, but
it can not be achieved without hard work and sacrifice. In the case of a student, it means
studying and not partying. For a
nation, a strong currency requires savings and production, not debt and
consumption. It also requires a
central bank willing to limit currency and credit creation. We may have been able to con the world
that such was the case in the roaring 1990’s but there is little chance
of us pulling that con off again today.
In a discussion aired on
CNBC concerning Paulson’s nomination, the commentators lamented the
fact that the President’s poll numbers on the economy were very low
despite the seemingly glowing economic statistics. They concluded that this resulted from
the ineffective communication skills of John Snow, and pondered whether
Paulson would be more persuasive.
Of course it never dawned on the commentators that the problem was not
with the messenger but the message, and that it was not the voters but the
statistics that were mistaken. As
government numbers underestimate the true rate of inflation, they are rendered
meaningless as inflation merely disguises a weakening economy with the
trappings of growth. Paulson had
better have some state-of-the-art gadgets in his utility belt if he hopes to
scale this public relations wall-of-worry.
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