Last week, there was a minor tempest in a teapot in Republican
circles. A group of tax-cutters led by Steve Moore of the Club for Growth
tried to torpedo the appointment of former Goldman Sachs executive Stephen
Friedman as director of the White House's National Economic Council. Despite
the anti-Friedman campaign, however, President Bush made the appointment on
The case against Friedman rested mainly on his affiliation and
support for the Concord Coalition. This group has been around for some
years, lobbying for fiscal responsibility. While there is nothing
objectionable about that, in practice the coalition has been much stronger
in its denunciation of tax cuts than spending increases. Indeed, one almost
never hears anything about the group except when it attacks Republicans for
wanting to cut taxes.
To people like Moore, Friedman's affiliation with the Concord
Coalition sent an ominous signal that President Bush was appointing a fox to
guard the henhouse. They feared that Friedman would become some sort of
anti-tax-cut mole inside the White House, undermining the president's tax
plans from within.
The Moore group saw Friedman as the reincarnation of Richard
Darman. Conservatives have long believed that Darman undermined President
Reagan's tax-cutting efforts while serving as deputy chief of staff in the
Reagan White House. Later, as director of the Office of Management and
Budget, he effectively destroyed President George H.W. Bush's re-election
effort by talking him into supporting a politically disastrous tax increase
Although he shares his father's name and half his genes, I think
that the current President Bush is not the sort to be talked into anything
he doesn't want to do. He is not going to make his father's mistake.
So why did President Bush appoint someone obsessed with
balancing the budget as a key economic adviser? Does this send a signal that
he is backing down on plans for another tax cut next year?
The short answer is "no." All indications are that President
Bush has signed off on the outlines of a $300 billion tax cut next year.
Details are expected shortly after Jan. 1. Therefore, Friedman is not being
brought into the White House to develop a tax plan or debate the merits of
one. Rather, he is being brought on board to sell a tax plan the president
is already committed to.
So why bring in a tax-cut critic to sell a tax cut? The answer
is that with the federal budget already in deficit, getting another big tax
cut through Congress will be a tough sell, even with a slow economy. The
main attack will in fact come from Friedman's old pals at the Concord
Coalition and others like them. They will say that deficit reduction is more
important than tax cuts and better for the economy. And many on the
Republican side of the aisle will agree with them.
Given the thin Republican majorities in the House and Senate,
and the certainty of overwhelming Democratic opposition, Bush cannot afford
to lose a single Republican vote. One can therefore argue that Friedman is
uniquely qualified to calm the fears of the nervous nellies who worry so
about the budget deficit. He is one of them, speaks their language and has
credibility with them. Thus he may be more successful in corralling votes
from the balanced budget-types than a died-in-the-wool tax-cutter like Larry
Lindsey, whom Friedman is replacing.
Furthermore, as a Wall Street veteran, Friedman will be an
important emissary to the bond traders who lie awake at nights worrying
about yield curves, the money supply, Congressional Budget Office forecasts
and other such minutia. Again, he is one of them and will be far better at
convincing markets not to be overly concerned about a larger deficit, when
slow growth is a much bigger problem.
I have no idea whether Friedman will in fact turn out to be a
good salesman. But I am certain that he has not joined the White House staff
to argue with Bush about matters the president has already made up his mind
about. After all, if Bush was willing to dismiss Lindsey, one of his most
loyal staffers, just for being a poor salesman, then I don't think that Bush
will hesitate for more than a moment to get rid of Friedman if he feels that
he is not with the program.