- The Washington Times - Wednesday, July 24, 2002

The stock market sell-off is the first real domestic challenge to President Bush's leadership. So far, he has not handled it well. In particular, his speech before the New York Stock Exchange on July 9 was ill-conceived and badly received.

The immediate fall in the stock market cannot be attributed to any other cause. While I think Mr. Bush's effort was well-intentioned, it was not very well thought through and appeared to have been written by his political advisers, with little input from his economists.

Of course, Mr. Bush deserves to know what the political implications of his actions may be, but he also needs to be advised on the economic implications as well. It appears the latter is not as good as it should be, because his economic advisers are speaking to him through a cacophony of multiple voices. On the other hand, Mr. Bush's political advice comes through clearly and distinctly from Karl Rove.

In the long run, what is good for the economy is good for both the stock market and a president's political standing. Bill Clinton is the best possible proof of that. Year after year, he survived political scandals that would have destroyed most of his predecessors. He did so, in large part, because people were willing to overlook them as long as the economy was strong and their financial wealth was increasing.

As I see it, there are two structural problems with Mr. Bush's economic-policy operation. First is that he mistakenly retained the Clinton administration's system, which is built around the National Economic Council. This organization was created by Mr. Clinton to mirror the National Security Council.

However, the difference in nature between economic policy and national security makes any comparison invalid. The result has been to diminish the influence of those organizations traditionally given primary responsibility for economic policy the Treasury Department, the Council of Economic Advisers and the Office of Management and Budget.

Secondly, Mr. Bush has a personnel problem. Treasury Secretary Paul O'Neill increasingly appears ill-suited to the job, and NEC Director Larry Lindsey tends to muddle the advice Mr. Bush receives from his other economic advisers. Mr. Lindsey should play a purely coordinating role, but instead often tries to drive policy himself. The result is that there is insufficient coordination, making Mr. Bush's economic operation too weak structurally to deal with current economic problems.

Fortunately for Mr. Bush, the opportunity to make some positive changes may soon present itself. There are continuing reports that OMB Director Mitch Daniels will soon leave to pursue a political career in his home state of Indiana. There are also reports that Mr. O'Neill has tired of the Treasury job, evidenced by the many foreign junkets he seems to spend most of his time on lately.

Should Mr. Daniels leave and Mr. O'Neill be nudged out, Mr. Bush would have a tremendous opportunity to reorganize his economic operation in ways that would greatly improve it. By moving Mr. Lindsey over to OMB, he would greatly increase the authority of this important agency and remove the NEC as an impediment to the clear flow of economic advice. As it is, the NEC simply gets in the way of Treasury and CEA, but cannot be ignored because Mr. Lindsey is Mr. Bush's most trusted economic adviser. At OMB, he will be in a much better position to use his talents and could revive an agency that has been somewhat moribund since Richard Darman was director in the first Bush administration.

If Mr. O'Neill moves on, Mr. Bush should name Alan Greenspan as his replacement. As Treasury secretary, Mr. Greenspan would immediately raise the stature of the administration's economic team to that on the foreign policy and defense side. I believe that this is a move guaranteed to raise the stock market by several hundred points immediately.

With Mr. Greenspan at Treasury and Mr. Lindsey at OMB, I believe Mr. Bush would have a much better economic policy structure than he has now. Not only would it strengthen the advice he gets from these two important agencies, but it would allow people like CEA Chairman Glenn Hubbard to come out from under Mr. Lindsey's shadow within the White House. Without Mr. Lindsey at the NEC, that agency's influence would naturally diminish and no longer muddle the economic-policy structure.

This may not be the perfect fix, but it is one I hope Mr. Bush seriously considers. The longer he waits, the more his economic problems are likely to mount and eventually become political problems as well.

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