Rough Around the Edges
Why Does Paul O'Neill Make People So Hot Under the Collar?
By Rob Norton
Sunday, August 19, 2001; Page B01
Seven months into his reign as secretary of the Treasury, Paul O'Neill has already shown he can do one thing as well as any Cabinet officer in recent memory: put his foot in his mouth. Since he wasselected by George W. Bush in December, he's made aseries of gaffes, misstatements and apparently boneheaded remarks that have left some of Washington's cognoscenti gaping, smirking and not only asking each other "Where theheck is this guy from?", but also questioning whether he's up to the job -- or even whether he's a danger to the world economy.
O'Neill's most politically incorrect aphorism appeared in aMay interview with London's Financial Times. Discussing Social Security, he declared: "Able-bodied adults should save enough on a regular basis so that they can provide for their own retirement and, for that matter,for their health and medical needs." You could almost hear the collective gasp as Washington's pols and policy mavens realized that O'Neill had not just reached out and touched the third rail of American politics, but even seemed to be dancing on it.
The howls of outrage were loud -- and shrill. William Greider, national affairs correspondent for the leftist Nation magazine, referred to O'Neill as "Uncle Bonzo, flapping his gums with crank pronouncements on how the world ought to work. . . a stone-age Republican [with a] warped sensibility. . . ." Clinton administration labor secretary Robert Reich seized on O'Neill's remark as evidence of a long-range Bush administration plot to scuttle Social Security once and for all. Even Britain's Economist -- a conservative magazine, at least by European standards -- questioned whether the secretary might be "too much of a maverick" to provide the economic policy leadership that the rest of the world, in the Economist's view, so desperately needs.
All this has a somewhat familiar ring. If you wanted to make a movie of O'Neill's secretaryship so far, your model would be not "Mr. SmithGoes to Washington," but "Crocodile Dundee," the 1986 comedy in which a simple-hearted woodsman is zipped from the Australian outback into the fleshpots of midtown Manhattan. Paul O'Neill seems like just such a fish out of water: a plainspoken businessman whisked out of Pittsburgh to the august corridors of Washington, where he proceeds to appall the sophisticates with his loutish ways.
But don't, as the saying goes, believe everything you read in the papers. O'Neill's pronouncements may sound outrageous -- at least as reported -- but this Treasury secretary is hardly the weirdo he's been made out to be.
Take O'Neill's paean to self-reliance: The idea that able-bodied individuals should look after themselves first and to the government second is pretty common, at least among people of his generation (he was born in 1935). Social Security, in fact, hasn't replaced -- and was never intended to replace -- individual saving for retirement. And one of thebiggest and most chronic problems in this country, in the eyes of many economists, is our low national savings rate. Many respected academics have worried that Social Security policy over the last couple of decades has exacerbated that trend.
Besides, O'Neill wasn't calling for the dissolution of Social Security. In recent speeches, he's even vowed to put the system on a sounder financial footing and to preserve the benefits of all current retirees. What he does want to do is allow Americans to put part of their Social Security taxes into self-managed retirement accounts. This idea is favored not only by the Bush administration and the Republican Party, but also by a great many Democrats. In 1998, then-senators Daniel Patrick Moynihan and Robert Kerrey sponsored legislation that included just such a provision.
It isn't so much what O'Neill says. It's that, unlike the pols, he doesn't seem to know how to build cover for his ideas. His next-most-incendiary remarks involve his oft-stated desire to abolish the corporate income tax (he has referred to the current tax code, with characteristic hyperbole, as "9,500 pages of gibberish.") This idea has also been pounced upon by liberals as evidence of the secretary's radical propensities. Butthe idea of abolishing the corporate income tax is one that has lots of support among economists and other tax specialists -- not all of them conservatives.
Once again, there's more to the argument than survives in the sound bite. O'Neill and other critics of the corporate income taxwould still tax the income that corporations earn, they're just against collecting the taxes by imposing them on the corporations themselves. Since all income earned by corporations is ultimately paid in one way or another to the corporations' stockholders, customers, suppliers, officers and employees, tax theorists have argued that a better way to tax corporate income would be to collect the taxes entirely from the stockholders.
What O'Neill himself thinks about Social Security and corporate taxation is ultimately beside the point, anyway. The Treasury secretary doesn't set these policies, much less implement them. Any overhaul of Social Security or thorough rewriting of the tax code can only be accomplished by legislation and only after long national debate. Treasury could suggest it; the administration could propose it; but only Congress can enact it.
The biggest gaffe O'Neill has made on a substantive matter that does fall under his purview was an off-the-cuff remark about the U.S. dollar he made to a German newspaper in February. "We are not pursuing, asis often said, a policy of a strong dollar," O'Neill told the Frankfurter Allgemeine Zeitung. "In my opinion a strong dollar is the result of a strong economy." In the hothouse world of foreign-currency trading, this was taken as a departure from Treasury'spolicy, during the Clinton administration,of describing a strong dollar as being in the nation's best interest. It was also seen as a sign that the Bush administration would let the value of the dollar fall against foreign currencies. Although Treasury quickly issued a clarification("The secretary supports a strong dollar. There is no change in policy.")the dollar fell1 percent against the euro the next day. Since then, O'Neill has been at pains to assert his support for the strong-dollar policy.
Inreality, though, Treasury's "dollar policy" has alwaysconsisted more of rhetoric than of substance. The Treasury does not control the foreign exchange value of the dollar; that is set in the foreign exchange market by traders conducting billions of dollars worth of transactions every day -- and its determinants are such fundamental factors as national interest rates, economic growth rates and monetary policy. Short of major changes in economic policy that affect these fundamentals, nearly all economists agree that the Treasury can only influence the value of the dollar in the short run, by buying or selling currencies by the billions. That said, the foreign exchange markets are so easily spooked that rhetoric is important, and O'Neill seems to have learned that the U.S. Treasury secretary had better think before he speaks, because the world's speculators are listening.
O'Neill's problems with his critics are essentially political. It's not that he's some kind of libertarian government-hater in the Reaganite mold. He served as a computer systems analyst with the U.S. Veterans Administration from 1961 to 1966, and then with the Office of Management and Budget, where hewas deputy director from 1974 to 1977.
Nor is he an ideologue. Economic labels such as supply-sider, Keynesian and classicist don't really apply. O'Neill's views of economics and policy reflect standard Republican Party values: self-reliance, self-restraint, fiscal rectitude, a fondness for the status quo. Except for the supply-side departures of the Reagan years, those tenets of Republicanism haven't changed much since the Eisenhower era in which O'Neill came of age. William Greider may see this as "stone-age Republicanism," but whatever one's personal opinion, it is also the philosophy of a sizable portion of the electorate, especially the partthat voted for George W. Bush.
The key to understanding O'Neill is to recognize that at his core he's a professional manager. After his years as a Washington bureaucrat, he went into private industry, first to International Paper, in 1977, where he ultimately rose to become chief executive officer, and later to Alcoa, where he led a very successful turnaround of the aluminum giant as CEO from 1987 to 1999. Like most successful executives, O'Neill is extroverted, impatient with small talk and results-oriented. Lots of big-shot CEOs are a little rough around the edges. Many of them are jerks. Few are deep thinkers. Very few survive very long unless they can get things done.
Whether O'Neill's tenure at Treasury turns out as successfully as Crocodile Dundee's adventures in the Big Apple is very much an open question. O'Neill certainly isn't shaping up to be the dominant voice of the administration on economic policy, as was his immediate predecessor, Lawrence Summers. But that's a tough act to follow. Summers was the Einsteinof the Clinton administration -- one of the leading economists of his generation, the youngest person ever to become a tenured Harvard professor.
How well O'Neill succeeds in his own right will depend on a couple of things. First, he should know by now that irony, sarcasm and wit can be as dangerous in Washington as knives in a prison yard, and that Treasury secretaries shouldn't think out loud when they're talking to newspaper reporters. If he can't learn to keep his lips buttoned and continues his gaffe-prone ways, he risks being branded permanently as a buffoon.
More substantively, O'Neill will be judged by the team he assembles, and here he's doing pretty well. His newly installed deputy secretary, Kenneth Dam, has undeniable gravitas -- he's on leave of absence from the University of Chicago Law School and has a resume replete with high-profile government jobs, including deputy secretary of state in the Reagan administration. O'Neill's undersecretary for international affairs is John Taylor, a former Stanford professor and member of the Council of Economic Advisers in the first Bush administration, who is considered one of the nation's leading monetary economists.
What will ultimately determine O'Neill's success is how well he harnesses his managerial expertise to produce policy results. Here, there are reasons to think he could succeed. One of O'Neill's firstpolitical mistakes came during his confirmation hearings, when he downplayed -- to the administration's chagrin -- the likelihood that the Bush tax cuts would do much to goose the economy in the short term.
Thattransgression was widely noted, but O'Neill's subsequent work to get the tax bill enacted received less attention. Just after Bush picked him for the Treasury spot, O'Neill reportedly looked at a bulletin board covered with legislative timelines for the proposed tax cut. The target for completion was August, at the earliest. (The conventional wisdom back then was that a tax cut was unlikely to be completed before September or October.) O'Neill remarked: "Why are we letting [these] solutions . . . be determined by these artificial timelines?"
With O'Neill at the center of the White House's fast-track drive, the tax cut zipped through Congress with almost unprecedentedspeed, and was signed into law on June 7. Ironically, the very fact that the tax cut was accomplished so quickly increases the chances that it will have a significant short-term impact on the economy, thus disproving O'Neill's own early pessimism.
If he can continue to atone for his early missteps by producing policy results like that, he may yet wind up winning Washington over. Remember that Crocodile Dundee was so successful that he went on to appear in two sequels. |
