Most people in this country don’t understand how robust the U.S. economy is, that it grows as fast as many much younger countries’, and that it creates countless jobs and a tremendous amount of wealth. While we have our faults—we borrow too much, we don’t save enough, we are energy gluttons and shopaholics—our economy is still the envy of most nations.
Yet who cares? Who even knows? Certainly not the electorate.
The disconnect between the reality of strong growth and wealth creation and the domestic perception of our economy is staggering. Most Americans probably think we are teetering on recession, not putting up the best numbers we’ve had in years. People think George W. Bush is a stumblebum, not just for the business in Iraq but for business in America.
Hank Paulson, the new Treasury secretary, is going to change that. The former chief executive officer of Goldman Sachs is going to make a difference, on any number of levels, but the most important is that he can communicate the one good story that President Bush really has to talk about: the economy.
When I try to pin down why Bush has failed so utterly in trying to make the case that he’s responsible for superb job and GDP growth, I always come back to Treasury for an explanation. The Treasury secretary is both the point man for strategy to create growth and stability and the nation’s chief economic pitchman. It’s his job to shape economic policy and to sell that policy to investors. John Snow, the man whom Paulson replaces, was seemingly silent as an operator, and terrible as a promoter. Paul O’Neill, Snow’s predecessor, had ideas but couldn’t get himself heard, inside or outside of Washington.
Paulson, on the other hand, can operate and sell. First, let’s look at the operator side of the equation. At Goldman, Paulson won a reputation as a major son of a bitch, one of the meanest, most ruthless people who has ever worked there (full disclosure: I worked at Goldman in the eighties, and was a large hedge-fund client of the firm’s during the Paulson era). Paulson also was known to be singularly effective. During his seven-year tenure as CEO and chairman at the premier investment house, he built untold wealth, helped take the company public, and forced it to become international in scope, a move that assured its dominance for years to come. He also effectively outmaneuvered everyone to become Goldman’s sole leader, including former Goldman co-chairman turned New Jersey governor Jon Corzine, whom Paulson brought down on his way to the top.
At Treasury, Paulson is facing massive budget and trade deficits, a Chinese government that refuses to make its goods more expensive, and a neophyte Fed chairman who has displayed few street smarts so far (I said our economy is good, but it’s far from perfect). I think Paulson can jawbone the dollar higher, persuade our trading partners to play more fairly, and demand a more balanced budget from the president (even Ronald Reagan agreed with that in the end). Whatever policy positions Paulson takes, it’s certain he won’t be another Snow, and the odds are good that he won’t get O’Neill’d either. Paulson is constitutionally incapable of having his voice go unheard, and he’s a better fighter than O’Neill. Besides, Bush is weaker now than he’s ever been.
Now let’s take the sales side of the equation. Paulson has a unique ability to convince the world that the U.S. economy doesn’t, in fact, stink. Not that Paulson will be a Pied Piper, but he can convince investors, on Wall Street and abroad, that our economy is strong and headed in the right direction. His credibility with investors and sense of imperiousness will ease fears about our budget and trade deficits and the weak dollar, all of which will shore up confidence in our economy and draw billions in investment. O’Neill and Snow were Main Streeters; they never controlled investable capital. The guys around the globe who determine whether money is coming here or going to Dubai or Germany or Brazil will take Paulson’s call. They couldn’t have cared less about Snow’s call.
Paulson should also be able to stare down the Chinese, a trading partner that never showed Snow much respect but has done more business with Paulson’s firm than just about any company on Earth. The guy has visited China 70 times. You can’t underestimate the importance of his Chinese relationships; that country holds the key to our lower interest rates, because it takes dollars it receives from selling merchandise here and recycles them into our Treasury bonds. Any sign that the Chinese would put that money elsewhere could spike our 5 percent rates to 7 percent in a heartbeat.
People wonder why Paulson would want the job. For one, it’s in the culture of Goldman. From the moment you get there, you’re expected to participate actively in politics and charity. Bob Rubin, the last Goldman head turned Treasury secretary (and—ahem!—the man who gets more credit than anyone outside of Alan Greenspan for presiding over the longest economic expansion in U.S. history), was always asking me how was I giving back. Bill Gruver, my boss, and now a professor at Bucknell, constantly emphasized that I needed to spend time in the community. These people talked about a public life where you showed that you understood how this country allowed you to get rich, and you’d better show the country some thanks. You were graded at Goldman not just by your returns, but by what you returned. If you thought only about the money, sooner or later you’d be stopped in your advancement. You’d have to be naïve not to look at ego and maybe even a little rich-guy guilt as factors. But Paulson, like the long line of Goldman public servants who came before him—Rubin, Corzine, John Whitehead, Stephen Friedman—doesn’t need this job. He isn’t some retired or pushed-out exec. He took the job, I believe, because he wants to do right by the country. That gives him another advantage: If he doesn’t like the way things go down, he can simply walk away.
The guys around the globe who say where the money goes will take Paulson’s call. They couldn’t have cared less about Snow’s call.
Almost immediately after Paulson’s announcement, the catcalls began: He’s a representative of the disgraced overpaid CEO class and he’s too much of an insider. The stock market greeted his appointment with one of the worst days on record. I think that’s all nonsense. After the brittle, amateurish O’Neill and the faceless, ineffectual Snow, we could use an insider with gravitas and street savvy. No one’s quarreling with Goldman’s financial success under Paulson’s watch, and the stock market’s decline has to do with an inane Federal Reserve’s insistence on taking interest rates too high once again—not with this appointment. Could Paulson be like Bob Rubin or Larry Summers, both of whom seemed worthy of Alexander Hamilton’s mantle? Obviously, it’s not clear yet, but I’d bet on favorable comparisons with the past two chiefs.
James J. Cramer is co-founder of TheStreet.com. He often buys and sells securities that are the subject of his columns and articles, both before and after they are published, and the positions he takes may change at any time.
E-mail: [email protected].