I have an affinity for Paul O’Neill, the former Treasury secretary who was canned in December of 2002 and became the centerpiece of Ron Suskind’s The Price of Loyalty.
O’Neill is clearly a talented, charismatic guy. He lifted himself up from humble beginnings, earned a degree in economics from Fresno State College and worked in government for 16 years, until President Ford lost to Jimmy Carter in 1976. With the help of some powerful contacts in Washington, he landed an executive position at International Paper and later at Alcoa, where as CEO he ran the company as its earnings increased from $1.1 million in 1987 to $1.5 billion in 2000.
He was just settling into retirement (as was his former colleague Don Rumsfeld) when he got a call from Dick Cheney, a friend he had worked with under Nixon and Ford and later recommended for secretary of the Department of Defense under the first President Bush.
A noted centrist, O’Neill was drafted along with Colin Powell, Christine Todd Whitman and Norman Mineta, to join a cabinet in an administration that had been voted into office by a slim margin and would need to form bi-partisan alliances in order to get anything accomplished.
There are many other reasons why O’Neill was tapped for the job. Besides his contacts with several members of the new cabinet, his vast government experience, his sharp business reputation, and his conservative-leaning economic philosophy, O’Neill was also a good friend of Fed Chairman Alan Greenspan – a bond that could help the White House sell its fiscal policies. As a kicker, he was also married to NBC’s Andrea Mitchell.
So what went wrong?
First of all, it appears that O’Neill was nominated for the wrong position. Suskind lists O’Neill’s “primary competencies” as education, Medicare and Social Security – all areas that would be within his sphere of influence at Treasury, but he would not be able to make them the full focus of his concentration. A good portion of the book, and most of O’Neill’s frustration with this White House experience, deals with his desire to take care of Social Security, as the first priority, while the President’s emphasis was on stimulus and tax cuts.
As Treasury Secretary, it was his duty to advise the President, but also to follow behind and enact the President’s policies, even if he disagreed with them, an act O’Neill couldn’t or wouldn’t perform. The central theme of Suskind’s book, loyalty, was also O’Neill’s greatest flaw as a member of Bush’s staff – he did not respect the President or see any need to work as a member of the team. Suskind quotes him as saying Presidents don’t naturally deserve deference from staff (95), and that all O’Neill’s years as “top man” and CEO made following the President’s leadership “harder to swallow than he’d expected.” (49) Suskind writes, “Bush expected O’Neill to be loyal, without question, to the President. The problem was that Bush hadn’t earned his loyalty.”
Second, O’Neill’s temperament was not suited for the job. Seemingly obsessed with his own ego, he prided himself with his ability to utter “straight talk,” negotiate as a maverick, and let the chips fall where they may. Early on in the book, he recounts one of his favorite ego-boosting stories, with the punch line spoken by one of his employees – “Paul, you have the balls of a daylight burglar.” (20) Unfortunately for O’Neill, “straight talk” isn’t always appropriate when you’re in charge of the world’s largest economy and the stock market is watching every move you make. Suskind writes that the secretary would need to learn how to hold his tongue, but “O’Neill just wasn’t sure he could do it.” (95) This revelation came just after one of his off-hand remarks caused the value of the dollar to drop (91), “the largest movement of the dollar in some time.” (93)
These two areas caused O’Neill to fall out of sync with the White House and created an environment of distrust, but O’Neill deserves a great deal of the blame for that. To begin, O’Neill withheld relevant information from Bush during his initial interview – the fact that he had counseled the first President Bush to break his no-tax pledge (12), which many believe led to the elder Bush’s defeat in 1992. Even worse, during the bargaining phase of the Bush tax cut in 2000, O’Neill made a “secret pact” with Greenspan to inject deficit “triggers” into the President’s bill, using any means necessary – that is, except for telling the President directly. Though he had multiple occasions to do so, the secretary only once hinted to Bush that he supported triggers, and several times before and afterward kept his secret plan in the shadows, declining to acknowledge his position before the President and other top officials (40, 41, 47, 49, 68, 87, 112, 133, 135, 162).
Throughout the ordeal, O’Neill presents himself as the only reasonable, “honest broker” in a sea of “ideologues,” or what he called a “blind man in a room full of deaf people” (149). At several points, Suskind offers the reader a romanticized glimpse of O’Neill at work, brilliantly leaping from one economic indicator to the next, like Tarzan and so many swinging vines. It was a “race across the country’s top twenty industries in forty minutes,” until it was “almost possible to feel the American economy.” (38-39) “O’Neill felt he had constructed an analytical tool to help discern [economic] reality” (237), and he was so proud of his model that he framed a note from another official after successfully predicting 2001’s forth-quarter GDP growth, only off by 0.3%, to Glenn Hubbard’s 2.5% margin (237). But O’Neill’s next three predictions missed by 1% (qualified by Suskind as “still close”), 1.3% and 0.9%, respectively (277); Hubbard’s successive predictions are not offered.
Whether or not all his predictions could be classified as “close,” there is no getting around the fact that O’Neill was widely off the mark in estimating the expected budget surplus in 2000. According to Suskind, he saw a huge surplus and thought it would be larger than predicted (53). O’Neill was so certain of the surplus that he crafted a detailed plan to use the funds to fix Social Security (140, 152-153). O’Neill of all people should have known that the surplus would never pan out.
O’Neill also seems to have been mistaken about the effect federal budget deficits have on inflation, and thus on the economy. Presumably speaking for O’Neill, Suskind writes, “In the late nineties, the federal budgets came into balance and then showed surplus. Interest rates dropped and it became clear, year by year, that receding federal deficits were a prime reason… A balanced budget means that the government won’t be out borrowing billions and, thereby, driving up interest rates.” (14) And again, “inflation was driven by fiscal profligacy and deficits” (268).
But, as the data-driven O’Neill character presented in Suskind’s book might point out, that ideological theory doesn’t stand up to the facts. Economist Don Luskin writes,
historical evidence simply doesn’t bear out any such relationship between deficits and interest rates — indeed, the data prove the opposite. When annual changes in debt are regressed against annual changes in interest rates, the result is a negative correlation
…
Between the years 1958 and 1974, rates rose while debt plummeted. Between 1974 and 1982, rates soared while debt barely changed at all. Between 1982 and 1993, rates collapsed while debt soared. After 1993, during the Clinton years, while debt fell sharply — and again, since the Bush years began in 2001, a period of climbing federal debt — interest rates continued lower, moving in the same direction they’d been moving since 1982.
On the other hand, there are plenty of episodes in the book where O’Neill’s more favorable qualities shine, and some passages in which O’Neill argues on the conservative side.
These would include his criticism of President Clinton’s socialist health care plan (which would do “irreparable harm” to the nation – 23), his verbal scuffle with liberal Senator (and former Klu Klux Clan member) Robert Byrd (”I don’t concede to you the high moral ground of not knowing what life is like in the ditch” – 214), support for free trade and against steel tariffs (free trade is “one of the greatest victories of the last decade” – 218, 219), and a stirring speech he gave after 9/11: “Striking at a symbol of our market system is a pathetic act of an evil mind that fails to understand that the genius of our system is in the hearts and minds of the people – not in the buildings we work in.” (182)
There are other interesting gems, too:
– O’Neill takes credit for the immediate tax rebate plan (137)
– He was instrumental in tracking the terrorists’ financial network as part of the war on terror (180)
– Suskind (unintentionally) provides a concise and powerful argument in favor of Bush’s greater Mid-East policy, in light of the failure of the Clinton peace plan (71-86)
– O’Neill was one of two administration officials who got a call from Enron’s Ken Lay; both he and Don Evans declined Lay’s request for a bailout (206)
Other than for the Suskind book, O’Neill is likely to be remembered most for the Africa trip he made with U2’s Bono.
While the rock star, and Suskind, are busy presenting an indictment of US foreign aid, O’Neill is deftly calculating the amount of waste at current levels – money that is not getting to the people who need it most – and working out a plan to make a real difference in the lives of people in developing nations. They are beneficiaries of billions in aid, and yet they still don’t have water and electricity. In the best example, O’Neill explains how water can be made available in Ghana for $25 million, rather than the $2 billion a consulting firm estimated (254).
O’Neill’s charisma and energy allowed him to make these fresh calculations on the fly and maintain a conservative approach even while Bono tried to shame the government into committing a larger, blanket sum.
Bono makes his point, repeated by Suskind, by offering the statistic that the United States gives less than 0.1 percent of its GDP in foreign aid to developing nations, less than half of the 0.2 percent average given by 20 other wealthy nations.
Is America really that stingy?
If Germany, the wealthiest European nation and the fifth wealthiest nation overall, gave 0.2 percent of its GDP in foreign aid, that would be $4.32 billion. In comparison, if the United States gives 0.1 percent of its GDP (actually $9.9 billion), that is $5.58 billion or 129 percent more dollars than Germany gives.
Even stopping there, the United States is the most generous country on Earth, but there are other elements to consider. According to USAID, the United States gives a total of $56.2 billion in aid (not just $9.9 billion), when you factor in other U.S. government assistance, private assistance, foundations, corporate giving, private volunteering, university donations and church funds.
If you add just our private donations, which make up 60% of America’s total foreign aid, to the amount the United States gives in development and other government assistance, the total is $52 billion or 1200 percent more dollars than Germany’s government contributes. Any way you compare the data, except for one, it is clear that Americans give substantially more aid to developing nations than any other country in the world. Of course, that exception is the one Bono and Suskind offer.
In an ideal world, O’Neill would instead be remembered for his bold Social Security plan, the one that eventually put him at odds with President Bush.
Using the expected budget surplus, O’Neill and Greenspan came up with a plan to fix Social Security for older citizens and offer fully-privatized accounts to every worker younger than 37 (140). Under the plan, which was also championed by Bob Kerrey (recently of 9-11 commission fame), Senator McCain, and the late Patrick Moynihan, a person vested in a private Social Security account at 18 would have $1 million in assets by age 65 (152-153). But even without the surplus materializing, there is plenty that could have been done to help make the program solvent, and private.
This plan was to be O’Neill’s lasting gift to the country. Suskind writes, “O’Neill, who had come to Washington dreaming of reforming Social Security left feeling confused and deflated.” (153)
Why did O’Neill allow Suskind to write the book? It wasn’t for the money, that’s for sure. In part, it was to air his frustrations with the White House: that it was too politically driven, that he was being used to push through a partisan agenda, and that the President did not “show his mind.” More than that, I think it was probably an effort to rehabilitate his reputation and assuage his oversized ego. Or it could be that O’Neill is addicted to helping destroy Bush presidencies, as he did the first time around.
Ironically, in the “red meat frezny” that followed the book’s publication, there was no mention of O’Neill’s plan for private Social Security accounts, as partisans of a different stripe used the book to pursue their own political agenda.
Ray Suarez of PBS’s News Hour asked Suskind, “Paul O’Neill himself comes off as somebody who could be politically accident-prone, is that fair to say?”
Suskind responded, “Right…”
Near the end of the book, O’Neill reflects,
“Sitting there, I thought about how I expected to find a bigger market for the truth, but it didn’t turn out to be right. Even friends in the media were more interested in small conflicts than in what was right or wrong, more interested in the push and shove of personalities rather than in the real conflict over ideologies that was going on inside the administration.” (314)
I wonder if he thinks the same thing about his current situation, now that his story has been exploited by Suskind and he’s been used up by the liberal crowd, which has since moved on to bigger and better tell-alls by Clarke, Blix, Woodward, and Wilson.