President Barack Obama needs a new Treasury secretary. Timothy Geithner has made clear that he intends to leave. Furthermore, it is time to bring some fresh thinking to two vital issues: fiscal policy and financial-sector oversight.
On fiscal policy, the need is obvious. The framers of the Constitution took great care to divide powers within our government. We can act decisively only when one party controls all branches, or when we agree that there is a grave national emergency. Whatever spin you want to put on the election, the American people voted in a Democratic president, a Democratic Senate and a Republican House. Divided we remain.
A new Treasury secretary must help the president navigate a series of difficult decisions on fiscal policy -- and find a broader compromise that puts our national debt onto a more sustainable path.
House Speaker John Boehner indicated last week that new revenue could be on the table, meaning that taxes could go up. Given that a huge part of our fiscal mess is due to the erosion of revenue since 2000, this is a potential opening that must be seized and worked effectively by the administration, assuming that Boehner’s offer is genuine and that he can deliver the votes for a deal.
But the Treasury secretary also has to worry about the other major cause of our economic malaise: a financial sector that is prone to blowing itself up. Under the Dodd-Frank financial reform legislation, the secretary, as chairman of the Financial Stability Oversight Council, is at the center of all policy regarding banks and other financial institutions. There may be reason to wish for a different arrangement, but the chances of legislative changes over the next two years are essentially zero.
So who would be capable of negotiating with House Republicans and cajoling them into accepting sensible changes to our tax code, including strengthening revenue? This person also needs to be able to stand up to Wall Street -- and roll his or her eyes when a lobbyist claims that a financial product or market is “too complex” for government officials to understand.
I have five suggestions, none of whom would be on Obama’s shortlist but all of whom deserve careful consideration.
John Reed, former co-chief executive officer of Citigroup Inc., has become a prominent critic of Wall Street.
In February 2010, he testified in favor of the Volcker rule before the Senate Banking Committee and hit the ball out of the park. If you want a succinct, informed and sensible assessment of modern finance, read his testimony. (Or watch his more recent interview with Bill Moyers, in which he ruefully describes his role in ending the Glass-Steagall Act to make possible the merger of Citicorp and Travelers Inc.)
Reed commands a great deal of respect on Capitol Hill. He is capable of negotiating with leading Republicans in the Senate and in the House. I don’t know exactly what he would prefer in terms of raising taxes, but that is a broad strategic decision to be made by the president as well as a detailed tactical point that has to be worked out in discussions. (Disclosure: Reed is chairman of the MIT Corporation, the governing body of the university where I teach.)
Of all the presidential candidates of this campaign, former Utah Governor Jon Huntsman was the only one to speak directly and clearly about what it would take to make the financial sector safer, including the need to press big banks to break up. Just read his financial reform plan.
Huntsman also has good ideas on the need to increase growth as the best and most painless way to stabilize debt relative to the size of the economy. His tax reform record as governor is strong. At the same time, he is exactly the kind of pragmatist who can help Republicans understand the need to bolster our revenue base.
If you prefer a Democrat, I would turn to Bill Bradley. The former New Jersey senator was the co-sponsor of the Bradley- Gephardt bill that led to the Tax Reform Act of 1986. As one of the lead negotiators of that measure, he knows more about achieving historic tax reform than almost anybody. President Ronald Reagan’s willingness to raise taxes is always a good place to start any fiscal discussion with Republicans.
We have a pressing national emergency: Since 2000, we cut revenue dramatically without addressing spending. Bradley is the kind of reasonable person who can help work out how to bring the two closer to balance. (Disclosure: Bradley kindly provided a blurb endorsing “White House Burning,” my recent book with James Kwak.)
In addition, I have complete confidence that Bradley would have no trouble standing up to powerful players on Wall Street.
I also strongly recommend two people who held government posts during the first Obama administration.
Sheila Bair, former head of the Federal Deposit Insurance Corp., should be everyone’s first choice to lead the Financial Stability Oversight Council. No one is as clear-thinking and as compelling on financial-sector issues. Her command of detail amazes experts. She is a Republican who worked for Senator Bob Dole during the tax-reform moment of the 1980s. This year, she endorsed Massachusetts’ Elizabeth Warren for Senate, making the point that Warren is exactly the kind of person who can work across the aisle. (Another disclosure: I’m a member of the Systemic Risk Council, a private group created by Bair to watch over financial reform issues; this is an unpaid position.)
Gary Gensler, the chairman of the Commodity Futures Trading Commission, would also be a very strong pick. In his current job, he has stood up to special interests, despite his previous career as a partner at Goldman Sachs Group Inc. (GS) He worked at Treasury in the 1990s and has a command of all relevant fiscal details. No one has a better understanding of how derivatives can destabilize markets.
(Simon Johnson, a professor at the MIT Sloan School of Management as well as a senior fellow at the Peterson Institute for International Economics, is co-author of “White House Burning: The Founding Fathers, Our National Debt, and Why It Matters to You.” The opinions expressed are his own.)
Today’s highlights: the editors on re-examining the cost of federal flood insurance and on ending the opacity at the European Central Bank; Mark Buchanan on the limits to economic growth; William D. Cohan on Obama’s next economic team; Noah Feldman on how same-sex marriage and marijuana votes can influence the Supreme Court; Albert R. Hunt on Obama’s ideal fiscal-cliff point man; Colin Woodard on the regional philosophies behind Obama’s and Romney’s supporters.
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