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O’Neill’S Sour Grapes
He never grasped what it is to be Treasury secretary.


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Larry Kudlow

Those listening to former Treasury Secretary Paul O’Neill might think there’s no rational hand on the national economic tiller. But fear not. O’Neill’s recent attacks on President Bush and the formulation of U.S. economic policy amount to nothing more than a big plate of sour grapes.

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For two years in the Bush administration, O’Neill never agreed with supply-side tax cuts, the centerpiece of the president’s economic policy. He was a static-deficit bean counter, not a growth advocate. Capitol Hill sources say he was ineffectual in negotiations, leading to a weak tax bill in 2001. Instead of immediate tax-rate cuts for investors — who would have aided an economic rebound by investing more — we got a one-time tax rebate and some back-loaded tax breaks.

In a new book by Ron Suskind and in an interview on 60 Minutes, O’Neill throws brickbats at Bush. His premise in each case is the same, and highly flawed: O’Neill believes that he should have had the ultimate say on economic policy, and that any departure from this scheme risked economic ruin. Doesn’t he understand that George W. Bush, not Paul O’Neill, was elected president in 2000?

O’Neill complains that his first extended meeting with the president turned into a “monologue,” with Bush saying little. But O’Neill, the former CEO of Alcoa, was Bush’s third or fourth choice for the cabinet slot, picked only after Bush couldn’t find his Treasury secretary on Wall Street. Bush took O’Neill’s measure and listened for good ideas in their first meetings together. But O’Neill was never able to gain the president’s confidence. Almost from day one, rumors circulated that O’Neill would be fired.

O’Neill also alleges that Bush was disengaged from domestic policy. In a snarky, headline-grabbing remark about one cabinet meeting, he says the president was like “a blind man in a room full of deaf people.” This is a cabinet that includes Dick Cheney, Donald Rumsfeld, and Colin Powell. Yet O’Neill says these men were unable to get a clear picture of what their boss wanted and were unwilling to ask for clarification. Rubbish.

George W. Bush was elected on one of the clearest sets of domestic-policy promises in recent history: a large supply-side tax cut, a “No Child Left Behind” education bill, and a Medicare prescription-drug benefit. But O’Neill says he and other cabinet members had only “little more than hunches” when it came to what the president was thinking.

And then, on foreign policy, O’Neill gives us this: He’s shocked that there were contingency plans in place in early 2001 to displace Saddam Hussein. Of course, Clinton’s policy of regime change in Iraq had been around since 1998.

O’Neill was finally thrown overboard after he criticized a new tax-cut plan in a speech in November 2002. But it was precisely that tax cut, passed in May 2003 after O’Neill was gone, that featured real supply-side incentives aimed at investment. That historic tax cut jolted the economy and the stock market into strong recovery.

O’Neill never grasped what it is to be Treasury secretary. When he was not in Africa posing for TV cameras with rock singers, he was telling Americans not to listen to vote-hungry politicians — that he, instead, would give it to ‘em straight. He chose to be an iconoclast, and at times he resembled a gadfly.

A Treasury secretary doing his job right is not an iconoclast — he’s an icon. He is the public face of U.S. economic policy. His signature appears on the dollar bill. A major part of his job is to build confidence internationally that the U.S. government has the economic situation under control. Successful Treasury secretaries like Don Regan and Bob Rubin did this well.

O’Neill never had a full-scale debacle on his watch — the way James Baker did when his weak-dollar comment sparked a dollar plunge, which was followed immediately by the stock market crash of 1987. But O’Neill showed he was gaffe-prone in his first month as Treasury secretary: He told a German newspaper that the U.S. is “not pursuing, as it is often said, a policy of a strong dollar.” In his short time in Washington, O’Neill would gaffe again and again on the dollar. In fact, a Factiva search of “O’Neill” and “dollar” and “gaffe” comes up with 72 entries during his two years in office. Unsurprisingly, the dollar took its first large steps in declining against the euro on O’Neill’s watch.

Don’t pick from Paul O’Neill’s plate of sour grapes. The president’s supply-side policies will pay sweet dividends in the economy and the stock market for years to come.

— Larry Kudlow, NRO’s Economics Editor, is CEO of Kudlow & Co. and host with Jim Cramer of CNBC’s Kudlow & Cramer.



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