Lowered Expectations

Treasury Secretary Measures Success In Increments

The deal was hailed as a breakthrough, the first real collaboration between President Bush and congressional Democrats. But after months of painstaking negotiations, Treasury Secretary Henry M. Paulson Jr. and other administration officials had won agreement on just two small international trade pacts. They were still working on two others, and critical trade issues remained unresolved.

Still, standing with Democratic leaders at a Capitol Hill news conference two weeks ago, Paulson savored his first tangible political victory. "People in the private sector," he mused, have no idea "how difficult these things are."

Paulson should know.

Bristling with optimism and ambition, the hard-charging financier agreed a year ago to leave Goldman Sachs, one of Wall Street's most influential investment banks, to take a neglected Cabinet post in the lame-duck Bush administration. Since then, hope for Paulson's top priority -- saving federal health and retirement programs from insolvency -- has faded, and progress on other fronts, such as trade and relations with China, has come harder and proven less dramatic than he had hoped.

Where Paulson once spoke confidently about finding "workable solutions" to intractable problems that have tied Washington in knots, he now acknowledges that his tenure at Treasury is likely to produce mostly incremental advances on trade, energy, corporate regulation and market competitiveness. Today, as he wraps up his second meeting in a "strategic economic dialogue" with top Chinese officials, he expects no substantial movement on the most important topic: China's currency, which many American economists consider undervalued.

Paulson is starting to entertain the idea that success will be measured in part by how much he influences the next administration.

"When I came here, some of the things I thought were low-hanging fruit -- turns out I didn't find much low-hanging fruit," he said in an interview. "Some issues are very complicated because they're in and of themselves complicated. But some that aren't even that complicated are very complicated politically."

Even as Paulson comes to terms with Washington's realities, lawmakers in both parties, current and former administration officials, and other observers say they have been impressed with his performance. His stature as former chairman and chief executive at Goldman Sachs has restored credibility to the Treasury and eased anxiety about the department's ability to manage a financial crisis. And he has promoted sensible policies within the administration, they said, such as balancing the federal budget and limiting tax deductions for the most expensive health-insurance plans.

But Paulson's most important accomplishment, they said, has been opening lines of communication with distrustful Democrats, who have little reason to cooperate with an outgoing Republican president weakened by an unpopular war.

"This administration had hurt themselves by appearing to not take Democrats seriously," said Gene Sperling, who was top economic aide to President Bill Clinton and is advising Sen. Hillary Rodham Clinton's presidential campaign. "When Paulson started meeting with key Democrats and treating their concerns with some respect, it was a breath of fresh air and it helped open things up."

Sen. Charles E. Schumer (D-N.Y.), who has known Paulson for years, described him as having "almost a kidlike enthusiasm for the jobs he tackles."

"You don't feel he's very political," Schumer said. "He is one of the Cabinet officers who I think Democrats feel comfortable talking to."