Is James A. Baker III, the Treasury secretary-designate, an easy-money populist? "Anyone who suggests that is talking about a different Jim Baker than the one I know," says his mentor, Texas Commerce Bancshares boss Ben Love.
"He'd never have changed over from the Democratic Party to the Republican Party [about 20 years ago] if he believed [in easy money]," Love told me in a phone conversation from Houston.
To be sure, Baker, as White House chief of staff, kept up the pressure on Fed Chairman Paul A. Volcker to loosen up the monetary strings in 1984. But that was at a time that the Fed was allowing no growth in the money supply, and one didn't have to be an advocate of "easy money" to believe that the Fed was threatening to overstay its tight policy and strangle the economy to death.
"I hate to use the word 'pragmatic,'led negotiator. He'll work effectively with the Fed as well as Congress."
A significant but little-known clue to the Baker attitude on monetary policy is that when the question of Volcker's reappointment came up in 1983, Baker proposed to shift the job to former Ford economic adviser Alan Greenspan, whose views are no less orthodox than Volcker's. But no consensus developed for Greenspan or anyone else, and Volcker was continued. This delighted the business community, and ticked off rabid Reaganaut ideologues who were anxious to ride Volcker out of town.
There is every indication that the Baker Treasury will fit more into a traditional, mainstream Republican mold than does Donald T. Regan's miscellaneous mix of monetarists and supply- siders. Baker worries about the long- term effect of budget deficits, and has less faith than Regan in the ability of the economy to outgrow the red ink.
Says Jack Albertine of the well- placed business lobby, the American Business Conference: "Baker will bring an entrepreneurial business perspective to the Treasury. He's a very solid, strong fiscal conservative, very much at home in corporate board rooms. Remember, he was a Gerald Ford Republican before he was a Ronald Reagan Republican."
One of Donald Regan's problems at Treasury was that the financial community began to question his commitment to orthodox economics, accusing him of flip-flopping between the supply- side and monetarist advisers on his staff.
Neither of those ideologies will hold sway in the Baker Treasury. Moreover, a major change in tone and direction is also likely to result from the shift of Baker's White House aide, Richard Darman, to the post of deputy Treasury secretary. Darman, who shares Baker's conservative views, is expected to have a special influence on international financial policy, a role now filled by undersecretary Beryl Sprinkel, a prototypical monetarist. Relationships between the United States and the World Bank, which had deteriorated under Regan and Sprinkel, are likely to improve.
The international financial community will also find the Baker and Darman views on deficits and interest rates more compatible. No one on the White House staff was charmed by Regan's repeated insistence that there is no relationship between huge national budget deficits, on the one hand, and an overvalued dollar and high interest rates, on the other, because that gave the impression that the administration didn't care about the deficit problem.
In fact, perhaps a sign of the changing times is that Donald Regan, after all these months of debunking the deficit/interest rate relationship, told the wire services in an interview last Friday that the deficit is the nation's No. 1 economic problem and that, if we can get it down, "then interest rates will come down."
Although he is opposed to general tax increases to reduce the deficit, one tax that Baker may decide to push, speculates Wall Street analyst Sam Nakagama, is an oil import tax. "They like that in Texas, because oil prices are coming down sharply, and that's threatening the banking system," Nakagama said.
Within a few months, Baker's views will become known in much more detail. As chief of staff, he wisely kept a low public profile (while exercising great power). In the past four years, for example, Baker appeared only twice at the Washington breakfast sessions hosted by Christian Science Monitor correspondent Godfrey Sperling, against 16 such chatty bull sessions with Regan.
Those who know him expect no surprises. "He's both strong and compassionate, and that's an unusual combination," his executive assistant, Margaret Tutwiler, told Washington Post correspondent Lou Cannon. "He's Mr. Everything in Houston -- comes from one of the oldest families, successful lawyer, tons of money. That gives you a type of security that makes you a more powerful person because you don't need the job to be somebody back in your home town."