Bush Ousts O'Neill and a Top Adviser
Treasury Chief, Key Economic Aide Resign as Jobless Rate Hits 6 Percent
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Recruited to the Bush administration by Vice President Cheney, Lawrence B. Lindsey was chairman of the president's National Economic Council. (File Photo/ James A. Parcell -- The Washington Post)
By Mike Allen and Jonathan Weisman
Washington Post Staff Writers
Saturday, December 7, 2002; Page A01
President Bush forced out his Treasury secretary and his top economic adviser yesterday, an abrupt move that reflects heightened White House anxiety over the ailing economy.
Treasury Secretary Paul H. O'Neill and National Economic Council director Lawrence B. Lindsey resigned after Bush decided he needed stronger messengers to communicate with voters, investors and lawmakers as he headed into his reelection race, White House officials said. The officials said Bush plans no change in his fundamental economic policy, which will still emphasize tax cuts.
White House officials said Bush plans to announce their replacements soon, perhaps next week. The officials said the leading candidate to replace Lindsey is Stephen Friedman, a former chairman of the investment bank Goldman, Sachs & Co. O'Neill is likely to be replaced by a corporate executive and the two will be announced together in an effort to convey concern for "both Wall Street and Main Street," a senior aide said.
O'Neill, 67, is the first member of Bush's Cabinet to depart. It is unusual for Bush to push out a top aide, especially one like O'Neill, a former corporate chieftain who shared a gruff camaraderie with the president. O'Neill angrily wrote a three-sentence resignation letter to Bush saying, "I hereby resign my position as secretary of the treasury. It has been a privilege to serve the nation during these challenging times. I thank you for that opportunity."
Bush issued a statement that was just as terse. "My economic team has worked with me to craft and implement an economic agenda that helped to lead the nation out of recession and back into a period of growth. Both are highly talented and dedicated, and they have served my administration and our nation well," he said.
Lindsey, 48, issued a page-long letter full of praise for Bush and his policies. "But the time has come for me to devote myself to other pursuits," Lindsey said.
Sources said Bush had soured on the gaffe-prone O'Neill last May, after a series of statements had to be explained away, including one contradicting administration doctrine. The sources said Bush decided to get rid of Lindsey after the economist told the Wall Street Journal in mid-September that a war with Iraq could cost as much as $200 billion, at a time when Bush was not confirming he planned any such attack.
"That made it clear Larry just didn't get it," one official said.
Bush's aides said the president was dissatisfied with the ailing economy, which he often describes as "bumping along." Indeed, the Labor Department reported yesterday that the unemployment rate soared to 6 percent last month, matching the eight-year high reached in April.
O'Neill's problems additionally stemmed from his absence from the public stage at crucial moments for the economy. Bush's discontent with Lindsey was not over policy matters so much as his managerial skills. As director of the National Economic Council, Lindsey was expected to meld a range of economic policy opinions into a coherent package with a clear message.
"There was no specific piece of advice or comment or behavior that prompted the change," a senior official said. "It was the president's determination to move in a new direction and look forward as he reached the midpoint of his term."
Bush reached the decision after a meeting Wednesday with senior adviser Karl Rove, Chief of Staff Andrew H. Card Jr. and Deputy Chief of Staff Joshua B. Bolten. Friedman, Lindsey's likely replacement, once was Bolten's boss.
Vice President Cheney, who recruited O'Neill to join the administration, called him late Thursday afternoon "as an old friend," and suggested he "have a stiff drink," an aide said. Another aide added that after the conversation, O'Neill "came to his own conclusion to resign." Reportedly furious, O'Neill did so early yesterday, informed his senior staff at 8:38 a.m. and 20 minutes later left for his home near Pittsburgh.
The White House had planned to announce the resignations later, so officials were caught off-guard when O'Neill released his letter immediately.
Card tried to contact Lindsey at the same time Cheney called O'Neill but they did not immediately connect because the economist was snowed in at his Virginia home, aides said. Card reached him that night.
O'Neill, former chief executive of the aluminum giant Alcoa Corp., has an unvarnished style that rankled powerful lawmakers and executives on Wall Street complained that he insulted them. O'Neill and House Ways and Means Committee Chairman Bill Thomas (R-Calif.) no longer speak to each other, sources said.
Lindsey, a former Federal Reserve governor, was at loggerheads with O'Neill as the administration devised a package of tax cuts that is to be a centerpiece of Bush's legislative agenda next year. O'Neill resisted new tax cuts. Bush blamed Lindsey for many of the administration's economic missteps in recent months and even complained privately about his failure to exercise physically, aides said.
The departures have caused Bush to postpone the announcement of his tax cut package, which had been planned for mid-December, to January to allow the new team to work on it, officials said. Ironically, Lindsey had won many of the internal battles over the shape of the package, which is certain to include the removal of the expiration dates on the 10-year, $1.35 trillion tax cut enacted last year, and is likely to include elimination of the tax on dividends. Aides said Bush was given a menu of options last week and has made no decisions.
Although rumors about a shake-up on the economic team had swirled practically since Bush's inauguration, the timing stunned O'Neill and Lindsey, their aides said.
A senior administration official said the announcement about the shake-up was moved up after a reporter asked White House officials about Friedman on Thursday.
Since the GOP electoral successes in November, O'Neill and Lindsey appeared to be solidifying their holds on their jobs. O'Neill was planning an ambitious push for fundamental tax reform, while Lindsey was shaping a stimulus package that was set to be released as early as next week.
If O'Neill was pushed, it did not take much of a shove, one Treasury official said. O'Neill made it clear this summer that he was growing tired of the infighting and skulduggery that characterized policymaking in Washington. He had spent virtually all of the summer and fall traveling outside the capital, either domestically or internationally.
"He hated the politics of this city," the official said.
"As he told senior staff this morning, there are lots of other important things to do in life," said Treasury spokeswoman Michele Davis. "Back in December of 2000, he was planning to retire and devote himself to improving health care and education in Pittsburgh. I'm sure he will return to those important projects."
As recently as September, Lindsey had been making discreet inquiries on Wall Street about possible new jobs. But sources close to Lindsey say he did not take much stock in a rash of news stories just prior to the Nov. 5 elections that predicted he would soon be forced out. After conservative columnist Robert Novak suggested last month that Lindsey was on his way out, Lindsey asked Card whether he should be concerned. Card assured him his job was secure, sources said.
Deputy Treasury Secretary Kenneth W. Dam also told officials yesterday that he was likely to leave, sources said.
Democrats pounced on the resignations, calling the shake-up evidence that the Bush economic agenda has been a disaster. "Firing its economic team is an overdue admission by the Bush administration that its economic policies have failed," said Senate Majority Leader Thomas A. Daschle (D-S.D.).
Even Republicans offered tepid praise for the departing officials, and encouraged the president to redouble his efforts to get the economy back on track. O'Neill and Lindsey "did an outstanding job and made significant contributions to our country," said Senate Minority Leader Trent Lott (R-Miss.). "The White House now has the opportunity to build a new team that will focus on economic growth and creating American jobs."
O'Neill had angered Republican leaders, especially conservatives, who saw him as contemptuous of their policies and an impediment to further tax cuts. House Republicans never forgave O'Neill for dismissing their broad 2001 stimulus package as "show business."
Wall Street leaders and some business executives welcomed the news as well. "Secretary O'Neill was a very bad communicator, couldn't sell a policy at all," said Vincent Farrell, chairman of the investment advisory firm Spears, Benzak, Solomon & Farrell. "And you might as well clear the decks of Lindsey as well."
Business leaders and politicians expressed surprise that successors were not immediately named. Sources close to the administration said the Treasury secretary position might go to Commerce Secretary Donald L. Evans in an even broader shake-up that would move Council of Economic Advisers Chairman R. Glenn Hubbard to Treasury to be Evans's deputy, Friedman to the NEC, and N. Gregory Mankiw, a Harvard University economist, to chair the CEA.
Conservatives are pushing strong tax cut advocates, including former senator Phil Gramm (R-Tex.), retiring House Majority Leader Richard K. Armey (R-Tex.), and former Ways and Means Committee chairman Bill Archer (R-Tex.).
But Wall Street leaders are pushing one of their own. Candidates include New York Stock Exchange President Richard A. Grasso, Charles Schwab, former Federal Reserve governor Wayne Angell, and Henry M. Paulson Jr., who now heads Goldman Sachs.
Staff writer David Von Drehle contributed to this report.
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