Tuesday, October 21, 2008

Obama’s Treasury-Ready Men

There’s a huge multi-thousand word article in this morning's Wall Street Journal on Paul Volcker, the former Fed chairman who conquered inflation during the Reagan years and has become a key financial advisor to Sen. Obama. Articles like this fan the flames of speculation that Volcker could be Obama’s secretary of the Treasury, despite his 81-year-old senior-citizen status. But Volcker is a vigorous 81 and I think he could handle the job.

Of course, Volcker has a great reputation as a deficit-cutter and a strong-dollar man. What’s more, as a long time financial advisor who was president of the New York Fed, undersecretary of the Treasury, and of course Fed chairman, Volcker’s money knowledge would gain bipartisan support to solve the financial crisis, which will surely spill over into next year. Volcker would attract bipartisan support because of his superb reputation. He is not a supply-sider, nor did he agree with the Reagan tax cuts in the 1980s while he was Fed chairman. But he did work well with the Gipper. Reagan’s supply-side tax cuts along with Volcker’s tight money to slay inflation produced a strong economic recovery and proved all naysayers wrong.

Volcker will unfortunately agree with Obama that the top tax rate can be raised. Not good. But he’s very good on tighter spending and King Dollar. And he does have vast knowledge of the intricacies of world credit markets.

I’m sure the Obama campaign is encouraging the Volcker speculation, since Mr. Volcker brings gravitas and experience to Obama.

The other likely candidate for Treasury under an Obama administration is Lawrence Summers, the proven protégé who was Treasury secretary during Clinton’s last year and before that undersecretary. Summers also would be a strong player, with wide knowledge of our financial problems. He’s also for a stable dollar. And noteworthy is his long-held criticism of Fannie and Freddie. Like Volcker, Summers would agree to lifting the top tax rate; he is no supply-sider. But also like Volcker, he is a moderate-to-conservative Democrat who would be well received by Wall Street and investors.