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Rediff.com  » Business » Bush ousts O'Neill as bad economic news mounts

Bush ousts O'Neill as bad economic news mounts

December 07, 2002 13:30 IST

US President George W Bush pushed out Treasury Secretary Paul O'Neill and top economic adviser Lawrence Lindsey on Friday, launching the first shake-up of his administration to tackle the ailing economy before the 2004 election campaign.

O'Neill's resignation, in a curt letter, closed a two-year tenure marked by ill-timed comments and criticism of the former industrialist's ability to be the chief spokesman for the world's richest economy at a time when it is struggling.

It also came as the Bush administration is preparing a package of stimulus measures to boost activity, something the White House worried O'Neill might not have the clout to sell to lawmakers with whom he had crossed swords in the past. A new Congress will be seated in January and the stimulus package is a top priority for the Bush White House.

Less than an hour later Lindsey, the head of the White House's National Economic Council, also turned in his resignation in a move that was more widely anticipated than O'Neill's but nonetheless came as a stunning one-two punch.

Neither O'Neill nor Lindsey could be reached for comment.

White House officials indicated that replacements for O'Neill and Lindsey will be experts with closer ties to the nation's financial markets who are better able to smoothly communicate the nuances of policy to edgy market players.

In a possible sign the search already is well under way, Bush met privately last month with budget expert John Cogan who was an adviser in the 2000 presidential campaign.

And Vice President Dick Cheney has met, among others, former Federal Reserve official Wayne Angell to  seek his counsel on economic issues. Cogan and Angell potentially could be candidates for top jobs.

But late on Friday, administration sources said former Goldman Sachs Chairman Stephen Friedman was a likely replacement for Lindsey though a spokesperson for Friedman would neither confirm nor deny any contact with the administration.

O'Neill had expressed reservations about a stimulus package so large it could send the country back into huge deficits. That could have hastened his departure as the administration wants a strong voice before Capitol Hill lawmakers to press the case for measures to boost economic activity.

White House spokesman Ari Fleischer seemed to stress plans were afoot for a determined drive to pep up the economy.

"The president looks at the economy as a matter that is bigger than any one person, any one expert, and the president looks forward to working with the Congress to advance policies and plans that help with the economy growing even stronger," Fleischer told reporters.

With campaigns for the US presidency that stretch to a year or more before the voting, opposition Democrats on Friday already were using the resignations to stake out ground.

"When you're headed in the wrong direction, you don't just need new people in the deck chairs -- you need to change course," said Sen. Joseph Lieberman of Connecticut, a possible contender for the Democratic presidential nomination in 2004.

"For too long this administration has sat back passively as the economy stagnated and the middle class suffered, offering no economic growth plan," Lieberman added, sounding like someone already stumping for votes.

Bush's father, George H. Bush, lost the presidential election of 1992 in part because of perceptions that his economic stewardship was not forceful enough, making his son especially sensitive to the risk of history repeating itself.

In a fresh sign of the economy's current parlous condition, the government reported on Friday the national unemployment rate jumped in November to 6 per cent from 5.7 per cent a month earlier as another 40,000 Americans lost their jobs.

The employment news sent stock prices skidding. But they rallied after the resignations were announced, apparently in the belief this cleared the way for a more aggressive economic stimulus package in January and better coordination of policy.

By day's end, the Dow Jones Industrial Average had eked out a 22.49-point advance, ending at 8,645.77, and the Nasdaq composite index added 11.69 points at close at 1,422.44.

The resignations intensified a spotlight on the number of empty chairs in top policy jobs in the Bush administration at a critical time. The chairman of the Securities and Exchange Commission, Harvey Pitt, resigned under fire on congressional election night on Nov. 5 and has not yet been replaced.

An administration official said O'Neill quit "at the request of the White House," making him the first Bush cabinet official to leave. The former head of aluminum giant Alcoa Inc. seemed prone to making comments that made his job more awkward -- for example, telling traders he could learn their jobs in two weeks, ruffling feathers on sensitive Wall Street.

Republican sources said Cheney, who helped recruit O'Neill, also played a key role in the shake-up. Cheney informed O'Neill on Thursday that he had to go, said a Republican source with close ties to the administration.

O'Neill, who turned 67 on Wednesday, had been considered on relatively solid ground lately since he was leading the administration's effort to reform the nation's tax code.

He had a one-on-one meeting with Bush last week, immediately upon returning from a grueling 12-day trip to southwest Asia. The session was allegedly to talk about tax reform, though administration officials afterward declined to comment on the topics discussed.

O'Neill had always smarted at comparisons between himself and market-savvy former Treasury Secretary Robert Rubin, with whom he was frequently and unfavorably compared. But in the wake of his and Lindsey's resignation, financial market participants sounded more relieved than shocked.

"It does not come as a surprise that the administration would make significant changes in its economic team given that the group had not been able to inspire the kind of confidence among investors and consumers that is required to set effective economic policy," said Carl Tannenbaum, chief economist for LaSalle Bank in Chicago.

At the beginning of November, reports circulated that Lindsey headed the list for replacement on the Bush economic team, which Republican sources indicated could happen at any time.

In his letter to Bush, O'Neill simply offered thanks and gave no hint he was quitting at the White House's request.

"It has been a privilege to serve the Nation during these challenging times. I thank you for that opportunity," O'Neill said in a brief letter to Bush.

Treasury spokeswoman Michele Davis told reporters the resignation would become effective 'in the next few weeks.'

"As he told senior staff this morning, there are lots of other important things to do in life. Back in December of 2000, he was planning to retire and devote himself to improving health care and education in Pittsburgh. I'm sure he will return to those important projects," she said.

O'Neill was sworn in as the 72nd US treasury secretary on Jan. 20, 2001. His direct style of speaking raised eyebrows in Washington, but he was also often seen as refreshingly candid.

(Additional reporting by Caren Bohan, Steve Holland, Randy Mikkelsen, Adam Entous, Jonathan Nicholson)
Glenn Somerville in Washington