When President-elect Barack Obama selected Timothy Geithner to be his Treasury secretary in November 2008, the financial system was in full-blown crisis and the economy was in free fall. Given the urgency of the situation and his own inexperience in economic matters, Mr. Obama badly needed seasoned help, most prominently at the Treasury Department. In choosing Mr. Geithner, then the head of the Federal Reserve Bank of New York and a prominent player in the bailouts that year, Mr. Obama left no doubt that the job at hand was to revive the financial markets.
Michael Reynolds/European Pressphoto Agency
Treasury Secretary Timothy Geithner, who plans to leave his post.
Four years later, the financial crisis has dissipated and the president himself has become more sure-footed in economic policies and politics. But his choice of a Treasury secretary to replace Mr. Geithner, who has said he does not wish to stay for a second term, is still extraordinarily important. The economy, though no longer in extremis, is still weak; in the current quarter, growth is expected to slow to about 1 percent, not nearly enough to spur job creation and reduce unemployment.
This, in turn, presents a fundamentally different challenge for President Obama, and for the person he chooses. The task now is to revive growth and create jobs, and for that Mr. Obama needs a secretary who will champion and execute an agenda in which the interests of Wall Street give way, at long last, to the public need for broad and shared prosperity.
On budget issues, that means a secretary who can explain to the public — and sell to Congress — the need for lasting, substantial investment in infrastructure and education. In the near term, there must be a push for more safety-net spending, both to preserve and create jobs and to position the economy for stronger growth. The widespread notion that such spending is incompatible with a healthy budget is a triumph of bad politics over sound policy, and it will fall to the secretary to counter the calls for premature austerity with a strategy to couple needed spending with deficit reduction that takes hold as the economy recovers.
On tax reform, the next secretary must make the case for higher taxes, raised progressively from both the personal and corporate income tax, while fostering an overdue debate on new sources of revenue, including energy taxes, a financial transactions tax and a value-added tax. Comprehensive tax reform, which is vital for a strong economy, requires everything to be on the table, not rejected out of hand as politically infeasible.
On financial oversight, the next secretary must use his authority as head of the Financial Stability Oversight Council, a regulatory body established under the Dodd-Frank law, to ensure that rules to implement that law are written, especially those intended to restrict risky trading by banks. He or she must also grapple openly and honestly with the evidence that even more action will likely be needed to rein in the too-big-to-fail banks that have only gotten bigger since the financial crisis.
What unites those and other efforts is that in each case, the Treasury's main client would no longer be Wall Street. And that's as it should be. The bailouts and other resources lavished on the financial markets have helped to drive corporate profits as a share of the economy to their highest level since 1950, with profit growth in the financial sector significantly outpacing the gains at nonfinancial companies. At the same time, however, worker compensation as a share of the economy has fallen to its lowest level since 1955.
Seen in that light, the Treasury's No. 1 client, and the focus of its policies, must be the low- and middle-income working Americans who last saw any real income gains in the 1990s; the 12 million Americans who can't find work; the 8.2 million who can find only part-time jobs; the 12 million borrowers who are underwater on their mortgages.
That is not a call to populism. It is a matter of survival. The existential threat today is the grindingly slow economy — characterized by persistently high unemployment, stagnant wages, crushing debt and, as a result, consumer demand that is too weak to propel business investment. In developing and promoting economic policy in the next four years, President Obama and a new Treasury secretary must not mince words in asserting that such prolonged hardship, unaddressed, will end not with a rebound but with a permanently reduced standard of living in the United States — as well as a reduced standing for the United States in the world.
President Obama built his re-election campaign around restoring the middle class. But he always made it sound like a moral imperative, a matter of fairness rather than necessity. It is all of the above. Choosing a Treasury secretary who understands this, and directing that person to revive Main Street, will help the president turn promise into policy, and deliver the jobs and stability that Americans have been waiting for.
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