Challenges await Bush’s new economic team

After the recent resignations of three members of his economic team, President George W. Bush this week named two of their successors. Bush requested that Lawrence Lindsey, the chief White House economic advisor, and Paul O’Neill, the secretary of the treasury, resign last week because of concerns his administration was not effective at quickening the nation’s economic recovery. Harvey Pitt, the chairman of the Securities and Exchange Commission, resigned under the smokescreen of election night in November. Bush has named Pitt’s successor, as well as O’Neill’s, although there is only speculation about who he will choose to replace Lindsey. The president’s new team is facing a daunting task, as they will assume the onus to quickly improve an unstable economy before the 2004 presidential election.

Bush has named the chairman of railroad giant CSX, John W. Snow, to replace O’Neill as secretary of the treasury. A lawyer with a doctorate in economics, Snow has been CSX’s chairman since 1991. He also served alongside Vice President Dick Cheney in the Ford administration as the assistant secretary of transportation. In the mid 1990s, he served as the chairman of the Business Roundtable, which represents chief executives of the nation’s largest corporations in Washington. As secretary of the treasury, Snow will be responsible for the administration’s positions on international economic issues, but he has little international experience, and he will inherit a policy of hostility toward international bailouts of developing nations.

Snow’s performance at CSX, however, is questionable enough to warrant concern. In 1991, CSX’s sales totaled $8.6 billion, although after a decade as the corporation’s chief executive, its total sales slipped by $500 million. During the same period, the company’s profits also fell nearly $100 million, from $382 million to $293 million. However, Snow’s compensation only increased during this time. In 1991, he received $1.6 million in pay, while in 2002, his salary was $10.1 million. Snow was also involved in a corporate loan deal of dubious company value. In 1996, CSX approved a subsidized loan to Snow for $25.4 million in order for him to purchase company stock. Four years later, after the value of the stock had decreased significantly, CSX forgave the loan and requested the return of the stock. Snow is currently the third-highest paid chief executive of the 37 largest transportation companies, even though CSX’s stock value has only increased half as much as that of similarly-sized companies.

To replace the outgoing Pitt as chairman of the Securities and Exchange Commission, Bush named William H. Donaldson. Another former Ford administration executive, Donaldson also worked in the Nixon administration and was chief executive of the New York Stock Exchange from 1990-95. He also served as chairman of the insurance giant Aetna. Donaldson has been a close friend to the Bush family for many decades, as he attended Yale with George W. Bush’s uncle, Jonathan Bush, and was first employed on Wall Street by Herbert Walker, the uncle of George H. Bush.

Bush, however, has delayed the expected nomination of former Goldman Sachs Chairman Stephen Friedman to replace White House economic advisor Lindsey. Friedman is considered by many conservatives to be an opponent of deficits and therefore unfriendly to further tax cuts. Stephen Moore, director of the Club for Growth, accuses him of being “hypersensitive” about budget deficits, which would further increase with more tax cuts. Freidman has been associated with the Concord Coalition, which advocates budgetary discipline.

Bush’s new economic team will assume sole responsibility for the nation’s economic recovery, as the Federal Reserve Board has set interest rates so low they can be reduced only another 1.25 percent. These three will have to sell to the American public the value of Bush’s agenda to accelerate the timetable of last year’s $1.35 trillion tax cut, reduce taxes on stock dividends to return investors to the market and ease corporate write-offs of new investments. Many economists agree that tax cuts will have a negligible effect in the near term, and the most effective way to restore investor confidence is to return liability for stock performance to boards of directors, not to reduce the taxes on stock dividends. The three new members of Bush’s economic team are confronting a formidable challenge.