Treasury’s new man

AS RECENTLY AS LAST WEEK, the smart money in Washington and on Wall Street was betting against Henry M. Paulson Jr., Goldman Sachs’ chairman and chief executive, to replace John W. Snow as secretary of the Treasury. It wasn’t that the 60-year-old Paulson, a hyper-successful executive who once worked in the Nixon White House, wasn’t thought to be good enough for the job. Rather, it was that the job wasn’t thought to be good enough for Paulson.

The Treasury job has lost much of its stature in the Bush administration. There was no question that the likes of James A. Baker III and Robert E. Rubin -- to mention two men who have recently occupied the office first held by Alexander Hamilton -- were enormously influential in setting economic policy and in acting as stewards of the global economy. But Paul H. O’Neill and Snow, Bush’s two Treasury secretaries, were weak Cabinet members. They essentially acted as cheerleaders for a set of fiscal policies -- more tax cuts! more spending! -- set by White House political operatives. (O’Neill, alas, was fired for his uncontrollable candor, while Snow was so relentlessly on-message that few people ever believed he was being candid in the first place.)

No wonder Paulson reportedly balked at giving up his $38-million Wall Street paycheck for Snow’s pompoms. Our hope is that he finally took the job only after getting assurances that he will not be working for Karl Rove. It’s pretty clear that the White House (and the United States) need Paulson’s credibility far more than his resume needs the prestigious job.

Paulson has ably led one of Wall Street’s most successful firms. He’s known as a Republican stalwart -- but also as an ardent environmentalist. When Wall Street and corporate America came under fire for bubble-era scandals, Paulson spoke out in favor of stringent reform.

The U.S. economy is in relatively good shape, though the federal government’s irresponsible budgeting poses longer-term risks to the nation’s health (as Goldman Sachs’ own economists have noted). Paulson should start sounding some alarms on this front, but he probably won’t be able to dramatically alter the administration’s fiscal policies.

It is in the international arena where Paulson can have a more immediate impact. Paulson boasts that he has been to China some 70 times since 1990, and he will command the attention of global financial markets in a way Snow never did. It’s important to have a strong, influential internationalist at Treasury at a time when protectionism is on the rise at home and in many other countries. Paulson will be immensely helpful in dealing with such squabbles as the recent Dubai Ports controversy, and he can be counted on to be sensible in conducting negotiations with Beijing over the value of its currency.

Under President Clinton, Rubin and Lawrence H. Summers spent a great deal of time acting as global firefighters, containing the damage of any number of emerging-market meltdowns, from Mexico to Thailand. Bush will be fortunate to have in place a highly credible firefighter if and when another crisis arrives.

Unless, that is, financial markets soon determine that Rove is still running the show.