Hardly a Rout in the War on Recession

The contrast could not be more striking: When it comes to waging the global campaign against terrorism, the Bush War Cabinet, led by Defense Secretary Donald H. Rumsfeld, has been as on-target as a smart bomb. But can the same be said of Bush's economic team--a seemingly leaderless bunch whose titular commander is Treasury Secretary Paul H. O'Neill?

While Bush's economic aides pushed hard for the President's $1.35 trillion tax cut, they have been less successful battling the recession. The Administration has failed to speak with a single, reassuring voice on the slump. It was unable to muscle a stimulus package through Congress, often stepping on Capitol Hill toes. And it has sparked confusion about international economic policy by vowing to end big bailouts--then handing billions to Turkey and Argentina before saying no mas when Argentina asked for more. Says a top outside counselor to the White House: "The challenge for Bush in 2002 is to make the domestic and economic team look half as good as his war team was in '01."

True, the econo-crew has had significant successes. Besides an enormous victory on the tax cut, which pumped $38 billion into a sagging economy, it helped get financial markets reopened less than a week after September 11. And it has clamped down on a web of terrorist financial networks.

The troika--Treasury's O'Neill, top White House economic aide Lawrence B. Lindsey, and Council of Economic Advisers Chairman R. Glenn Hubbard--are astute analysts and strong personalities. But no one has emerged as first among equals.

Bush's advisers defend their performance, insisting their first year has been successful. And they say many of their earlier clashes have been resolved. "The reporting about how the team works is way behind the power curve," says O'Neill, "We're coming along." Adds Lindsey: "Criticism is part of the game. We've done pretty well."

O'Neill, the former CEO of Alcoa Inc., wins high marks for coordinating the campaign against terrorist financing. Still, he has embarrassed the Administration with blunt comments on everything from the health of the dollar to the state of Congress. Many of those remarks, such as calling an ill-fated House stimulus plan "show business," were refreshingly candid and accurate. But Washington insiders and Wall Street--accustomed to obfuscation by public figures--don't know what to make of O'Neill. Says Michael Mussa, a former economist in the Reagan White House: "He has this penchant for saying the right thing at the wrong time. In a job where what you say is an important part of the impact you have, it has been a problem."

Nowhere is that more true than when it comes to the dollar. On Jan. 23, O'Neill tried to signal Treasury's discomfort with Japan's attempts to talk down the yen. But his comments instead convinced traders that the U.S. would wink at a rising yen and falling dollar. O'Neill just shrugs at the criticism of his candor. "I don't know how to stop telling the truth," he says. "I know it is really offensive to people in this town."

In fact, he has become a lightning rod for the Right. Commentators have called for his head, and some GOP lawmakers want him dumped. While Senator Charles E. Grassley (R-Iowa), the senior Republican on the Senate Finance Committee, is a fan, plenty of his colleagues are less charitable. "The private view is that he talks too much and gives away too much to the Democrats too early," says Grassley.

White House sources, however, insist that O'Neill still enjoys Bush's trust and his job is safe. What's more, the nation is in a recession, and there is no obvious choice to replace him. Also, O'Neill deflects conservative criticism from Bush.

Lindsey, who was Bush's economic policy tutor during the campaign, still has the President's ear. He's highly respected on Wall Street and has good connections with the world's money mavens. But he is seen as a weak manager. And because he aggressively promotes his own agenda of supply-side tax cuts and tax breaks for the poor, he can't act as an honest broker of ideas.

Lindsey, too, has stumbled with recent public comments--including his description of the collapse of Enron Corp. as a "tribute to American capitalism." Says one Administration official: "Larry is kind of spontaneous."

Hubbard, the least-known of the troika, is highly regarded as an academic economist. His skill in tax and financial matters is considered a strong asset. And he has quietly asserted influence on issues ranging from Social Security reform to international economics. But he hasn't been an effective public advocate. And he lacks the clout to broker disputes between the other principals.

There are compelling reasons why the economic crew may never measure up to the national-security team. While September 11 galvanized the Administration and nation around a single goal--protecting America--there is no such focus when it comes to the economic challenges. Says Goldman, Sachs International. Vice-Chairman Robert D. Hormats: "Bush is Commander-in-Chief of the military, not the economy."

In addition, until recent days, the President has been far more engaged in the war than in domestic economics. And the Pentagon has enjoyed a relatively free hand, largely immune from the pressures of both Congress and Bush's powerful political commissars, Karl Rove and Karen Hughes.

With the U.S. struggling with recession and rising unemployment, and with congressional elections looming, Bush needs to seize control of the economic agenda if he is to maintain strong support among voters. That means his economic team will have to prove that it can be as effective bolstering the economy as the Administration has been in battling terrorism.

By Howard Gleckman and Rich Miller, with Lee Walczak, in Washington

— With assistance by Lee Walczak

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