There’s no perfect résumé for a U.S. Treasury secretary, no must-have qualification other than having the confidence of the U.S. president. In recent decades the federal government’s financial boss has been a banker, a politician, a political operator, an academic, and a CEO. But America in 2013 faces a particularly broad portfolio of problems and challenges: a stagnant post–Great Recession economy, a still Too Big to Fail banking sector, a rising China, a fragile euro zone currency union — and, oh, and a financially unsustainable welfare state.
If there was ever a time when Treasury needed a fox — to use the famous Isaiah Berlin metaphor — at 1500 Pennsylvania Avenue, it might be right now. Instead, we’re getting a hedgehog, Jack Lew, the current White House chief of staff. After President Obama announced Lew as his choice to replace Timothy Geithner, political analyst Greg Valliere of Potomac Research said: “He’s a budget wonk. Does he have any experience with international financial leaders, any knowledge of global economic issues, any real understanding of monetary policy, any real grasp of business issues? Just wondering.”
Lew knows one big thing, the budget. And by all accounts, especially those from John Boehner’s negotiating team, he knows it, hedgehog-style, inside and out. He’ll be a tough opponent in the debt-ceiling and sequestration talks. Assuming he’s confirmed, that is. In the upcoming conformation hearings, the Senate needs to grill Lew on all things fiscal, not only on the budget’s nuts and bolts, but also on how Washington’s tax and spending decisions affect economic growth. And senators should push him out of his comfort zone and press him to answer the broader economic questions that Obama avoided answering in his first term and during the presidential election. Here are some that senators should consider asking:
1. “Mr. Lew, much of the president’s first term was spent dealing with, first, the Great Recession and financial crisis, and then their aftermath. To avoid a repeat of these economic catastrophes, it’s important to fully understand their causes. In the past, the president and vice president have suggested that Bush-administration policies were to blame. As Mr. Biden declared at the Democratic National Convention, ‘[The recession] came from [Republicans’] voting to put two wars on a credit card, to at the same time put a prescription-drug benefit on the credit card, a trillion-dollar tax cut for the very wealthy.’ Does that explanation sound right to you? And do you realize that after the Great Depression, economists first blamed banks and speculation and greed but later realized it was Fed policy? Might that analysis hold some explanatory power again today?”
2. “Mr. Lew, in their research on financial crises and sovereign debt, economists Kenneth Rogoff and Carmen Reinhart have found that high levels of debt are bad for economic growth. To be specific, when a country’s debt level exceeds 90 percent of its gross domestic product, it reduces the country’s economic potential. The president’s most recent budget would stabilize publicly held debt at around 76 percent of GDP through 2022. But, according to Rogoff, when you take into account unfunded federal liabilities and state debt, U.S. debt equals around 120 percent of GDP — which is easily in the danger zone. Is it enough to merely stabilize publicly held debt, or should we begin reducing it as soon as possible?”
3. “Mr. Lew, the recent agreement to avoid the fiscal cliff raised tax rates to where they were during the Clinton administration and, by some measures, even above those levels. At what point would a further rise in marginal tax rates harm economic growth? Research from economist Peter Diamond, whom the president tried, unsuccessfully, to appoint to the Federal Reserve, suggests that the optimal tax rate on top earners should be nearly double what it is today, in order to generate as much revenue as possible. How high is too high?”
4. “Mr. Lew, during his tenure at Treasury, Mr. Geithner was dismissive of the long-term budget plan fashioned by House budget chairman Paul Ryan and his fellow House Republicans. In fact, it was about this time last year that Mr. Geithner pointedly told Mr. Ryan during a Capitol Hill hearing: ‘We’re not coming before you to say we have a definitive solution to that long-term [debt] problem. What we do know is we don’t like yours.’ Will this president ever submit a comprehensive plan to reform Social Security, Medicare, and Medicaid? Or, in the absence of a comprehensive plan, will the president specify exactly how high taxes will need to go to finance future government spending on entitlements — and who will bear that burden?”
These are hardly easy questions, and many do not have an obvious right or wrong answer. But Americans deserve to know how the Obama administration 2.0 is approaching them and what problem-solving steps it is considering. And if the president won’t tell us, maybe Jack Lew will.
— James Pethokoukis, a columnist, blogs for the American Enterprise Institute.