WASHINGTON -- When it became clear that industrialist Paul O'Neill was George W. Bush's December surprise as Secretary of the Treasury, grizzled conservative activists immediately remembered him as a doggedly liberal civil servant battling them a quarter-century ago. But what's vastly more disturbing about this peculiar selection by the president-elect is that the big players in the greater arena of global finance had never heard of him.
O'Neill was on no outsider's list of possibilities for Bush's most important Cabinet post. Financiers question whether a CEO from the old economy truly understands the intricate market structure of the new economy. Nor is it clear from his record that he is capable of orchestrating fiscal and monetary policy to preserve the U.S. economy. Certainly, it will take more than the embarrassing flattery lavished on Federal Reserve Chairman Alan Greenspan by O'Neill in his public statement last week.
Why Paul O'Neill? The easy answer is that vice president-elect Dick Cheney, running the transition for Bush, was O'Neill's old colleague from Ford administration days and pushed him through quickly with little internal debate. But this selection follows a Republican pattern over the past 50 years of selecting unqualified successors to Alexander Hamilton for this vital post. O'Neill by all accounts is much smarter than most of such predecessors, but at age 65 he confronts a steep learning curve.
O'Neill rose from the obscurity of the federal civil service (where his career began during the Kennedy administration) to become associate director at the Office of Management and Budget (OMB) during the Nixon administration. By ruining Richard Nixon's plan to eviscerate the Great Society's anti-poverty program and establishing the independent Legal Services Corp., he won a running battle against Nixon's political appointees. The conservative weekly Human Events could not mention O'Neill without the adjective "liberal."
When Gerald Ford succeeded Nixon, O'Neill became OMB's deputy director (to the horror of Human Events) and was playing with the big boys. He became a pal of Cheney (White House chief of staff), Greenspan (chairman of the Council of Economic Advisers) and William Seidman (economic coordinator). So awesome was his command of governmental details that Seidman today still calls him a "genius."
O'Neill prospered in the private sector as a masterful CEO who drove up Alcoa's stock prices. In 1988, he wanted to be the senior George Bush's Secretary of Defense and turned down the Pentagon deputy's post. He backed President Bush's politically and economically disastrous tax increase of 1990 and lobbied for energy taxes, urging a comprehensive carbon tax on President Clinton. "That was a long time ago," an adviser to the president-elect told me, guaranteeing that O'Neill will be on board for the Bush tax cuts.
The bigger problem is whether the man from Alcoa has any notion of global monetary deflation or what to do about it. His debut, while being introduced last week, was not impressive. On the advice of Bush aides, the main point he made was his friendship with Chairman Greenspan.
Following the example set by the Clinton administration, O'Neill said he would leave monetary policy to the Federal Reserve. But there is no law or American tradition that says the elected representatives of the people should have nothing to do with the value of their money. Given the widespread view that Greenspan's Fed last Tuesday should have cut interest rates, something more than fawning admiration is needed from the Secretary of the Treasury.
Bush's own aides appreciate how dangerous the current economic situation is and how a serious recession may beckon, thanks to deflation. There is nothing in Paul O'Neill's background or record to suggest that he is prepared to preside over the necessary combination of reduced taxes and lower interest rates.
"I can't imagine Paul O'Neill figuring any of it out fast enough to do Bush any good," says consultant Jude Wanniski. Another consultant, who disagrees with Wanniski about most everything (and does not want to be quoted by name), agrees that O'Neill has a lot to learn. That may not be an insurmountable barrier if he is as smart as he is supposed to be. The question is who will do the teaching.