Tim Geithner’s Lead Negotiating Position on Fiscal Slope Should Cause Concern
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Matt Yglesias makes the astute observation that Jack Lew will be the next Treasury Secretary, and I agree. However, his reasoning for this overlooks one key detail:
Why? Well because the White House has decided that it wants the Treasury Secretary to be deeply involved with budget issues, and who better than a former OMB Director. What’s more, Obama has been working with Lew for a while now, likes him, and they’ve been working well together. All the other ideas kicking around involve bringing someone in from the outside who’d be taking over midstream and trying to establish a working relationship with the president and the Treasury team while simultaneously hammering out thorny bargains with House Republicans. It doesn’t really work.
The White House absolutely wants the Treasury Secretary to be deeply involved with budget issues. But we know this because they’ve already designated current Treasury Secretary Timothy Geithner in the lead negotiating role on the fiscal slope. So while Lew may have the resume, Geithner already has the job, and he has indicated he will not step down until the negotiation gets resolved somehow.
Which leads us to the question of why Timothy Geithner has any business leading a domestic fiscal policy negotiation. Here’s the curriculum vitae. Geithner spent close to 15 years in international monetary and financial policy at Treasury, and then went right to the New York Fed, a monetary policy position. While at Treasury he has primarily dealt with financial reform and financial market policy. He has never taken the lead on anything around taxes, social insurance, and his views on this subject, at least from his public comments, are completely pro forma.
What we know about Geithner, we know about his willingness to protect banks at all costs, and his unwillingness to use the tools to provide meaningful debt relief for ordinary families suffering from the collapse of the housing bubble. In fact, his presence as the lead on this negotiating team comes directly from Republican resistance to working with Jack Lew:
The move is part of the White House’s effort to leave behind the near-catastrophic failure of 2011 talks over raising the debt ceiling. Those negotiations were led by a team, including Jacob Lew, then White House budget chief and now chief of staff, with whom Republicans frequently clashed because they felt Mr. Lew wouldn’t agree to major changes to entitlement programs like Medicaid.
Geithner was picked for his ability as a “pragmatic deal-maker,” say unnamed aides. Lew was disfavored by Republicans because he actually knew the ins and outs of the federal budget. Geithner just hasn’t delved in at that level. Moreover, “pragmatic deal-maker” is a clear buzzword for someone willing to give up whatever possible just to reach a deal, as Robert Reich notes:
Geithner is indeed a protege of Bob Rubin, for whom he worked when Rubin was Treasury Secretary in the Clinton administration. Rubin then helped arranged for Geithner to become president of the New York Fed, and then pushed for him to become Obama’s Treasury Secretary [...]
During his tenure as Treasury Secretary, Geithner has followed in Rubin’s path — engineering a no-strings Wall Street bailout that didn’t require the Street to help stranded homeowners, didn’t demand the Street agree to a resurrection of the Glass-Steagall Act, and didn’t seek to cap the size of the biggest bank, which in the wake of the bailout have become much bigger.
If “pragmatic deal maker,” as the Journal describes Geithner, means someone who believes any deal with Republicans is better than no deal, and deficit reduction is more important than job creation, we could be in for a difficult December.
It’s not like there will be a dearth of actual policymaking experience in the discussion – Lew will be involved, along with Gene Sperling and Jason Furman and others. And ultimately, the President and senior leaders in Congress will make the decisions. But Geithner in the lead on these particular issues, when he hasn’t been for the whole of the first term, makes no sense unless you’re trying to reach a deal more than anything else. In addition, Geithner will have a bigger eye on the financial markets than anyone in the debate, and will view any buckling there as a far more powerful spur to reach a deal than anything.
Liberal groups, however, worry that Mr. Geithner is too eager to cut social programs in pursuit of a deal. He “has indicated repeatedly that he buys the fragile China-doll theory of financial markets; that if things are in any way uncertain then they can just implode and sink the economy,” said Dean Baker, a liberal economist and co-director of the Center for Economic and Policy Research. “That is probably not the sort of person that President Obama should have leading his negotiating team.”
Geithner happens to have immense power in this debate. He alone has the power to freeze withholding rates to avert any effect if the negotiations falter and tax rates go up for everyone in 2013. He alone has the power to mint a trillion-dollar coin and avoid the debt limit hostage negotiation, which leading Democrats said must be part of the final deal. So someone willing to play hardball from the perch of the Treasury Department would be a good ally in this negotiation. I don’t see why Tim Geithner would be that person.