A Good Nomination

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Wednesday, May 31, 2006

WHEN PRESIDENT Bush made his first two selections for Treasury secretary, he picked old-economy chief executives: Paul H. O'Neill came from the aluminum giant Alcoa Inc., and John W. Snow came from CSX Corp., a rail firm. Yesterday Mr. Bush announced a nomination of a different sort: Henry M. Paulson Jr., the chief executive of Goldman Sachs, arguably the preeminent investment bank on Wall Street. The choice signals the administration's awareness that its credibility on Wall Street has been a weak point. Having presided over the growth of a trade deficit that carries with it the risk of a sudden market correction, the administration recognizes that it will need high-caliber leadership if a financial crisis strikes -- and that the absence of a credible crisis-response team has been especially troubling since the departure of Alan Greenspan from the Federal Reserve. Mr. Paulson, who has presided over a doubling of Goldman's revenue since he took its helm eight years ago, has financial credibility in abundance. He is a welcome addition to a faltering administration.

He is not likely to change the administration's policy, however. In some fields that's a good thing. During Mr. Snow's tenure, the administration did its best to defend free trade and globalization. It tried in vain to contain the protectionist uproar over the Dubai Ports World deal. It succeeded better than could be expected in managing economic tensions with China, tamping down protectionist sentiment in Congress while doing its best to nudge Beijing toward reform of its predatory currency policy and respect for U.S. intellectual property. Mr. Paulson describes himself as an avid believer in globalization, and he will no doubt continue Mr. Snow's policies.

The same is true, unfortunately, on tax policy. Mr. Paulson has told interviewers in the past that he is concerned about the budget deficit, but he has argued that it can be addressed by restraining spending rather than by undoing tax cuts. In an interview with Charlie Rose of PBS two years ago, Mr. Paulson was challenged to name examples of spending programs he would cut; his sweeping response was that "there are very few programs that are so indispensable that they can't be cut." In announcing Mr. Paulson's nomination, Mr. Bush went out of his way to kill speculation that the choice might signal any waning of tax-cutting zeal. "One of Hank's most important responsibilities will be to build on this success by working with Congress to maintain a pro-growth, low-tax environment," the president said pointedly.

We hope that someone of Mr. Paulson's stature will not merely act as a mouthpiece for dead-end budget policies. It's possible to believe in tax cuts and yet accept that they can be pressed beyond the point of affordability; it's possible to support pro-growth tax reform without embracing the sort of cuts that exacerbate the inequality that comes with globalization. In that same appearance on "The Charlie Rose Show," Mr. Paulson declared that "one of the huge advantages of this country is when there's a problem we shine a light on it, we move quickly to fix it." The nation's fiscal position as it heads into the retirement of the baby boom generation is surely one such problem.


© 2006 The Washington Post Company

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