By David Cho and Alec MacGillis
Washington Post Staff Writers
Thursday, November 27, 2008

Barack Obama's appointment yesterday of former Federal Reserve chairman Paul A. Volcker to the growing team advising him on the nation's deepening financial crisis only heightens a central leadership challenge the president-elect will face: how to manage a stable packed with big brains and bigger personalities -- and how to make decisions when those high-powered experts disagree.

Volcker, as chairman of Obama's new Economic Recovery Advisory Board, will join New York Federal Reserve Bank President Timothy F. Geithner, who will lead the Treasury Department, and former Treasury secretary Lawrence H. Summers, who will run the White House's National Economic Council. The appointment of Volcker, who led the fight to rejuvenate the U.S. economy after the stagflation of the 1970s, is part of Obama's effort to seek "the best minds in America" to deal with the current crisis, as the president-elect put it this week.

Obama's tendency to surround himself with well-credentialed people accustomed to being in charge will also test his crisis-management skills, according to economists, historians and former White House officials. Obama, they say, must make sure that his surplus of smarts does not become too much of a good thing, as advisers leading agencies with overlapping mandates battle for the president's ear and for influence over policy.

"You wouldn't want to gather anything less than the best people you can find, even though stars have egos that are somewhat outsized and those egos might make it difficult to work together," said Peter J. Wallison, a Reagan White House counsel and now a director at the American Enterprise Institute.

But he said Obama must create clear lines of authority to avoid rattling the financial markets. "This is a management problem, and I hope Obama, who has never had an executive position, understands the confusion that will occur unless he designates a specific spokesperson," he said. "I've been in too many administrations and seen how things can get out of control."

Obama's favored approach as a senator -- bringing as many smart people as possible into the room and letting them hash out issues -- could prove less workable when urgent executive decisions must be made. The challenge could be acute, given that at least one team member, Summers, is well known for a depth of thinking matched by self-confidence in asserting his views.

The stakes could hardly be greater, as the new team faces the worst national financial mess in decades. Even slight nuances in policy statements could lead to further market turmoil. Over the past two weeks, for example, Treasury Secretary Henry M. Paulson Jr. made statements that many market players interpreted as meaning that any future bailouts would be left to the next administration. Traders began to sell off shares in some of the nation's biggest financial institutions, and Treasury officials later scrambled to clarify Paulson's remarks.

The new board -- which will include labor, business and academic voices -- is charged with providing "candid and unsparing" advice on how to jump-start the economy, Obama said. "The reality is that sometimes policymaking in Washington can become too insular," he said. "The walls of the echo chamber can sometimes keep out fresh voices and new ways of thinking."

Nevertheless, Washington insiders say that Summers is poised to dominate Obama's economic team as the head of the National Economic Council, even though the Treasury secretary traditionally has been viewed as most influential. Summers will work in the White House, with easy access to the Oval Office, whereas Geithner may have to go through more formal channels to get an audience with Obama. And any disagreements between the two could become awkward: Though Summers has served as a mentor to Geithner, Obama passed him up in favor of Geithner for Treasury.

R. Glenn Hubbard, the dean of Columbia University's Graduate School of Business and the former head of President Bush's Council of Economic Advisers, said Obama's ability to manage these relationships will be critical. "How effective a White House adviser is depends entirely on the president," he said. "The fact that Obama has been so good at choosing a lineup may suggest that he's going to be very good at managing this team."

The creation of the Economic Recovery Advisory Board means that five separate Washington entities will tackle the crisis. The four others are the Treasury Department; the National Economic Council, which coordinates policy across various agencies; the Council of Economic Advisers, a three-member internal think tank headed by economist Christina D. Romer of the University of California at Berkeley; and the Federal Reserve. Others who will figure prominently will be Austan Goolsbee, who was Obama's top economic adviser during the campaign and will sit on the Council of Economic Advisers and the new panel; Peter R. Orszag, who will be Obama's budget director; and Jason Furman, a campaign adviser who will be in the White House.

Paulson sought to avoid confusion about his role. When he accepted the Treasury post in 2006, he received assurances from Bush that he would be the lead spokesman on economic matters. Over Paulson's term, the White House hardly interfered, even when he worked with Geithner and Federal Reserve Chairman Ben S. Bernanke to craft some of the most extensive government interventions in history.

In an Obama administration, key decisions will be slowed down with more minds debating each move. And Geithner is unlikely to receive the same unbridled authority as Paulson, with Summers sitting at the president's ear.

Volcker, 81, meanwhile, adds an elder statesman to Obama's team, but his position is not expected to carry as much weight as the NEC or CEA in the White House. A Democrat who was appointed Fed chairman in 1979 by President Jimmy Carter and reappointed in 1983 by President Ronald Reagan, Volcker has long been credited with stamping out the era's high inflation. He may provide Obama with alternate views, as the only leader within the new team who was not a disciple of Robert E. Rubin, President Bill Clinton's Treasury secretary.

"Not only does this get Volcker -- who the markets love -- inside the tent, it allows for discussions to take place without agency [and] department politics," said Stan Collender, a federal budget expert and the managing director of Qorvis Communications, a public relations firm. "It also rents some of Volcker's credibility until the president-elect can further establish some of his own."

Obama's collection of intellectual firepower is drawing comparisons to John F. Kennedy's "the best and the brightest" and the "brain trust" of academics assembled by Franklin D. Roosevelt. But some see a more recent parallel: Bush's national security team. Vice President Cheney, Donald H. Rumsfeld, Colin L. Powell and Condoleezza Rice also formed a high-octane nucleus, only to see rifts emerge over the Iraq war.

Andrew H. Card Jr., Bush's first chief of staff, rejected the notion that the Bush team had suffered from a clash of heavyweights, saying the team had been hit by unforeseen challenges, notably the attacks of Sept. 11, 2001, and that the Bush Cabinet has shaped up as relatively stable. "I'm impressed with the team [Obama] is attracting, but I don't think it's significantly better than teams" of the past, he said.

James P. Pfiffner, a George Mason University professor and author of "The Strategic Presidency," said Obama might manage the team more skillfully than Bush because he is a better listener. "It's important for the president to have a broad range of alternative perspectives, but he has to be strong enough not to be threatened by people that he doesn't agree with," he said.

Some liberal observers worry that Obama's team will suffer from too little disagreement, given that so much of the team is linked with Rubin, who pushed for financial deregulation in the 1990s. These critics also acknowledge Summers's expertise but say he pushed for deregulation as Treasury secretary, expressed few concerns about the housing and asset bubbles, and only recently has adopted a more aggressive stance on income inequality.

Robert Kuttner, co-founder of the American Prospect magazine, said he hoped that Obama would assert his own instincts. "Where's the diversity on the economic team? It's not only all from the same small club, but from the club that brought us the deregulation that has a lot to do with the economic collapse," he said. "He's going to have to be bolder than many of his advisers if he wants to not fail."