Not So Dynamic Duo

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 in America's 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 Henry 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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