In an Uncertain World (25 page)

Leon agreed that it was a serious problem. Our opponents weren't going to view anything as an honest slip-up. I remember Pat Griffin, the White House legislative counsel, saying to me, in a not altogether joking way, that I might want to leave town for a while. In fact, our assertion was based on what Federal Reserve Board officials had initially told us and was probably right for practical purposes, although later the Fed's computer people said that, with sufficient notice, they might have been able to control who got paid. Thus, we may have somewhat overstated the case. In any event, there were no established legal criteria for prioritizing payments, so that actually having to do this would have been chaotic and rife with uncertainty, to say the least.

Neither of these relatively insubstantial mistakes became a public issue. If they had, the handling of the debt limit crisis and, in an environment in which my credibility was already being attacked, my position as Treasury Secretary might have been at serious risk. Or to put the matter differently, on such a highly charged, contentious issue, human error, which is inevitable, can readily be interpreted in the worst possible way and have a vastly disproportionate effect. The debt ceiling controversy remained highly unpleasant for several months. Our opponents continued to challenge my ethics and truthfulness. My concern was partly personal and partly professional. I didn't like having my integrity questioned with no justification. But the bigger concern was that if I came to be seen as not credible, it would be very difficult to function effectively as Treasury Secretary.

We continued to borrow from different trust funds, but by late January we had no more running room. Come March 1, we would not be able to send out $30 billion in checks due to Social Security recipients and military retirees. But before we got to that point, several things happened that reinforced our position and helped to bring the matter to a conclusion. Our opponents began to hear from some of their constituents in the financial community who didn't think a default—whether to retirees, contractors, or debt holders—was such a great idea. And then, fortuitously, Moody's, the bond-rating agency, issued a warning that the AAA status of federal government bonds could be at risk, which Standard & Poor's had done earlier. That made our expressions of concern about the consequences of a default more convincing—although some Republicans still didn't believe a default was imminent until Alan Greenspan told them privately that our projections were right.

The larger factor may have been a sea change in politics and public opinion. After the government shutdowns in November and December proved immensely unpopular, the idea of default became so politically charged that few people wanted to be associated with it any longer. A number of congressmen—including Charles Rangel (D-NY), Steny Hoyer (D-MD), Sandy Levin (D-MI), and Robert Matsui (D-CA)—had been actively making the case against default in the public domain. In addition, the media had become more focused on the consequences of default and had begun to examine the issue more critically. At some point, our opponents simply stopped fighting and, in a retreat with several stages, increased the debt limit. When all was over, I was surprised that the Republicans who had said such awful things about me didn't seem to retain any of their anger. I remember running into Gingrich a while after that and he said something about how they had been a little rough on me during the debt limit thing, but that's just how the game is played in Washington.

Gingrich was very friendly and so was I. But even after a few years in Washington, I couldn't relate to the idea that you shouldn't take it personally when someone calls you a liar and a thief. The propensity to convert policy and political disagreement into personalized assault can have consequences for decision making. Having some measure of psychological independence may have made it easier to make decisions that involved substantial risk. (Of course, financial independence may have also helped.) That my sense of self didn't come from my job meant that I could more readily take the chance of failing.

CHAPTER SEVEN

Talking Softly

I CONTINUED TO BE STRUCK by how different being at Treasury was from life in the White House. In many ways, heading a cabinet agency is like running a business, but someone who goes from the private sector to a cabinet position can easily be misled by the similarities and consequently fail to learn to deal with the differences. As a cabinet officer, you're the head of a large, hierarchically structured organization. As Bob Reich told me when I moved to Treasury, you get to “run your own show,” much as a private-sector CEO does. In both worlds, setting objectives, establishing effective accountability, and having capable people are crucially important.

But the two worlds are different enough that the analogy to corporate structure can prevent a former CEO from being effective in government. In a noticeable sense, you don't run your own show; the White House does. Goals, as I had already discovered, differ in government and the private sector. In business, the chief focus is on profitability. Government, by contrast, has no simple bottom line but rather a vast array of interests and priorities, many of which exist in a state of tension or conflict. For that reason, decision making in government is vastly more complex.

At Treasury, I also found a difference from business in terms of authority. Many former business executives feel great frustration when they discover the limits on their ability to act in government. I had not been accustomed to, nor did I expect, a corporate-style hierarchical structure. But even I was surprised at what limited power I had in my own building. The various bureaus and agencies that are part of the Treasury Department operate with considerable independence. Just because you are dissatisfied doesn't mean you can make changes. Even with respect to the Treasury Department proper, many familiar management tools were not available. A private-sector CEO has the power to hire and fire based on performance, to pay top managers large bonuses, and to promote capable people aggressively. At Treasury, I had the power to hire and fire fewer than 100 political appointees among the 160,000 people who worked under me. Others could be dismissed for gross incompetence, but the practical obstacles to doing so made it seldom worth the effort. In general, the quality and commitment of many career civil servants was a great positive surprise during my time in government—but the rules were rigid and needed bold overhaul.

Furthermore, most structural departmental reorganization couldn't be done on my own, but required legislation. Even closing an inefficient IRS field office would mean a time-consuming and often unsuccessful discussion with that state's congressional delegation to avoid creating damaging political ill will. Luckily, as Roger Altman told me before I arrived, the organizational structure of the Treasury Department, which had been in place for many years, was basically sound.

The biggest difference in both process and authority is the organizational complexity involved in making major Executive Branch policy decisions. In the private sector, a CEO has more or less free rein. In a presidential administration, everything revolves around the White House and almost every major policy decision is brought into the White House, often through an extensive interagency process. Moreover, most significant decisions made at the cabinet level are reexamined at the White House not only for substance but for their “message” and political dimensions. As a cabinet secretary, you wear two hats at the same time—one as head of your agency, the other as part of an administration in which everything revolves around the President. And to be successful in the cabinet, you have to be skillful at working within the White House process on issues that affect you. The White House staff may have great and even decisive influence on policy decisions you think you should be making. Sometimes the cabinet agencies and White House work in harmony, sometimes they operate in ignorance of what the others are doing, and sometimes they go to war with one another.

Presidents have dealt with this problem in various ways. The National Security Council was created in 1947 to coordinate the different bodies involved in foreign policy. To deal with domestic and economic issues, Presidents have tried various approaches. Richard Nixon proposed having four cabinet supersecretaries, organized around subject areas, but never got to implement the idea. Some Presidents have tried to coordinate through lead cabinet members, but often not successfully. And President Clinton, as I discussed earlier, created the National Economic Council.

Clinton's Health and Human Services Secretary, Donna Shalala, had it right when she told me that the position of a cabinet secretary is, in a sense, schizophrenic. You're the boss in your own building—albeit with less authority than you'd have in the private sector. But when you come to the White House and sit around the table, you may have less influence than a thirty-some-year-old staff person, despite your august title and the trappings that go with being a cabinet member. For some, it's hard to keep these two roles straight, and the complexities can create considerable stress and tension. Longtime officials at the Treasury Department sometimes recalled one of my predecessors, who was notorious for threatening to resign every few days after blowups with the White House.

When I moved to Treasury, I had the advantage of having already developed a sense of the relationship between the cabinet agencies and the White House from the other side of the fence. Working at the NEC for two years, I had gotten to know the thirty-year-old staff people, respected their experience in policy and politics, and thought of them as colleagues. I also understood how the Clinton administration really functioned, including the importance of the daily early-morning staff meeting in the Roosevelt Room and the smaller meeting-after-the-meeting in the chief of staff's office. That's where the administration's agenda was set and all sorts of decisions about the interplay of policy and politics, including congressional strategy and media strategy, were made. I never relished showing up for work at 7:30 in the morning. But after my move to Treasury, I told Leon Panetta that I'd like to keep coming to the daily staff meetings because Treasury was involved in so many issues. Leon said okay, although no other cabinet members attended, other than those located in the White House complex.

Many of Clinton's cabinet secretaries were fully effective without being part of the daily White House process. But for me, attending those meetings addressed the “schizophrenia” problem and kept me in the thick of everything going on in the Clinton administration. Erskine Bowles, who succeeded Leon as chief of staff in 1996, agreed that I could keep coming. Having run the Small Business Administration during Clinton's first term, Erskine understood the problem of isolation inside the departments very well. He once said to me, “If you're running an agency, you feel like you're on the moon.” Erskine has accomplished many things in his career, none of them more important, in my view, than moving the morning meeting to 7:45.

Becoming Treasury Secretary also enormously increased my activity on Capitol Hill. At the NEC, I had had some involvement with Congress, but only at Treasury did it become a part of my daily life. The first of those interactions was my confirmation hearing. Linda Robertson, then Treasury's deputy assistant secretary for public affairs, was the quarterback of this effort. She and her colleagues used this preparatory process to bring me up to speed on all of the many aspects of Treasury, to introduce me to the key people, and to discuss questions that might arise. At the hearing itself, before the Senate Finance Committee, both New York senators, Alfonse D'Amato and Daniel Patrick Moynihan, joined me at the table to make the formal introductions, and then I was on my own. On the one hand, I didn't anticipate any great difficulties; on the other hand, it was always possible that some senators might use the hearing—and me—as a vehicle for attacking the administration. And, since White House staff does not testify before Congress unless required to in some investigation, this was my first hearing as a public official and it was being nationally televised on C-SPAN. I felt some natural unease, but I remember feeling buttressed by thinking of my younger son, Philip, who was sitting right behind me, and his sense of perspective and wry, ironic view of life.

Committees that oversaw Treasury's budget could direct departmental management and might, in some instances, try to affect policy positions as well. And, of course, virtually all major policy decisions were subject to congressional approval, or at the least to congressional inquiry and hearings. And beyond the question of oversight, members of Congress tried to exercise influence over how we ran the agency and the scope of my job. I remember Trent Lott (R-MS), who was then the Senate majority whip, asking me to come to his Senate office that first year. When I got there, he told me that, as Treasury Secretary, I shouldn't be delving into social programs and the like. My job was worrying about the dollar and interest rates. I didn't know quite what to say, so I disagreed respectfully.

For all these reasons, one's relations with key members and congressional committees are key to being effective and require a great deal of time and thought. In testifying before Congress, my approach was to apply what I'd learned about client relationships at Goldman Sachs: be well prepared, responsive to their concerns, and highly respectful. The master at the art was Alan Greenspan. Alan would doff his cap in the direction of a question, even if, on occasion, it was somewhat off the mark. “That's an interesting observation you make, Senator, about the earth being flat,” he'd say. “If I might, let me rephrase the question.” Alan would then ask himself a completely different question and answer it with such complexity and finely calibrated nuance that the questioner faced a choice between nodding intelligently and acknowledging his own confusion. I must say that testifying next to the chairman, I was sometimes completely baffled myself.

Alan would then ask the House member or senator, “Does that respond to your question?”

And the interrogator would invariably say, “Yes, it does.”

In many other instances, of course, congressional testimony meant a real dialogue—and sometimes disagreement—on serious issues, but even those exchanges were best conducted with a highly respectful tone toward the interlocutor.

Press relations also took on a different dimension after I became Secretary. Before moving across the street from the White House, I never thought about how much of a role the media plays in the daily life of the Secretary of the Treasury. As head of the NEC, I could speak for the administration, but I wasn't the point person. As Treasury Secretary, even though many others comment on economic matters, I was the administration's principal spokesperson on the economy. I was expected to represent the President's budgets, his tax proposals, and his views about any sort of economic crisis, problem, or event. I also represented the U.S. government at international summit meetings, such as the regular gatherings of finance ministers from various groupings of countries—the G-7, G-10, G-20, and so on. Because of this formal role, anything I said that had implications for financial markets could cause them to respond swiftly and powerfully. The markets might also react to comments by the NEC chairman or various other administration officials, but ordinarily not nearly to the same degree.

To avoid moving markets, I had to be consistent and highly disciplined in not only what I said but precisely how I said it. The most sensitive area was exchange rate policy. Because of Treasury's ability to buy and sell currencies for the purpose of affecting exchange rates, the markets would respond to almost anything I said that seemed to make intervention more or less likely. Affecting exchange rates unintentionally would make me look undisciplined and unsophisticated. My credibility, with respect to our currency, could be especially critical if at some subsequent time we had a weak dollar and faced the possibility of a dollar crisis.

My substantive view was that economic fundamentals determine exchange rate levels over time, and that we should focus our attention on strengthening U.S. economic policy and performance, not on influencing the level of the currency. I also believed that a strong U.S. dollar was very much in the national interest. This was different from the question of whether our exchange rate was overvalued, though people often had difficulty recognizing that distinction. My rhetorical position thus always adhered unvaryingly to that policy, both because that was substantially right and to maintain confidence in the currency.

A strong currency means that American consumers and businesses can buy imported goods and services more cheaply and that inflation and interest rates will tend to be lower. It also puts pressure on American industry to increase productivity and competitiveness. These benefits can feed on themselves as foreign capital flows in more readily because of greater confidence in our currency. A weak dollar would have the contrary effects. A strong dollar does make imports cheaper—and therefore more attractive—in the United States, and American exports more expensive overseas, tending to increase the current account deficit. However, that is a problem with many underlying causes, including the gap between savings and investment in the United States.

In my view, the sensible way to deal with the risks that can come with a large and sustained trade gap is not to promote a weak dollar as an instrument of trade policy, which, in addition to its other drawbacks, could set off competitive devaluations. Instead, we should act to increase savings in the United States, especially by improving the government's fiscal position, and to increase productivity to make American goods more competitive. At times, though, the dollar may trade for an extended period at a high degree of overvaluation relative to the fundamentals. An overvalued exchange rate that makes goods and services less competitive in world markets than warranted by comparative efficiency results in undesirable dislocations and will likely not be sustainable. Whether to try to correct this, and how to frame such action, is a very difficult judgment.