Jack Lew's Experience May Not Bode Well for Business: Op-Ed

Politics & the Treasury

Priors matter.

And those of Treasury Secretary nominee Jack Lew do not bode well for either the business community or, ironically, the White House.

I have covered, with varying degrees of intensity, seven treasury secretaries since Lloyd Bentsen in the early 1990s. Thinking about the prior experience of each, one theme emerges: they all had in their resumes a substantial prior experience that suggested to markets that they possessed an allegiance to something other than the White House and its political ambitions.

Take Robert Rubin, who had headed Goldman Sachs. His prior experience, to at least some extent, reassured markets during the Clinton administration that there was a limit to anti-market, anti-business policies that he could defend in front of Congress and the American public. Tim Geithner, who headed the New York Federal Reserve, made clear that he would be a voice of reason on the issue of banks, the financial crisis and the economy.

With a resume of political posts, including two stints as budget director and most recently as Chief of Staff, it is simply difficult to look at Lew experience and find that reassurance.

(Read more: In Picking Lew, Obama Turns a Page at Treasury)

To be sure, that independence can end up being either a liability or worthless. John Snow, who held a Ph.D. in economics and headed CSX, was religious in his advocacy of administration policy and almost never offered an opinion at odds with the White House, even while many argued that tax cuts amid war would result in large deficits.

Paul O'Neill, despite excellent intentions, found his executive experience in the private sector a liability in his efforts to run Treasury more like a business. For any Treasury Secretary, being either at odds with the White House on any substantial issue is fatal. Whatever Geithner thought of Obama's policies, he publicly supported every one of them. (He even ended up backing the Volcker Rule despite initial opposition.)

All government bodies are in some way political. Most appointees are politically appointed and many of the top ones must be approved by Congress. But there is a spectrum of, for lack of a better word, politicalness. Although both have recently been criticized, the Supreme Court followed by the Federal Reserve probably enjoy the best reputations for independence.

If you were placing agencies on a line with the Supreme Court on one end and the White House on the other, the Treasury Department would best be put closer to the White House but not as close, say, as the Departments of Defense or Education. That is to say, there has always been a certain measure of political independence attached to the Treasury.

Why? Because the Treasury has responsibilities that transcend strict political considerations. The Treasury heads the Internal Revenue Service and is responsible for the apolitical collection of taxes. It is charged with issuing and managing the national debt, which creates a responsibility to both the White House (fund it cheaply) but also to markets (fund it predictably.) The Treasury Secretary is the chief spokesman on the dollar and represents the United State in its international economic relations. It's a small example, but Geithner was always careful not to give press interviews or speeches during market hours — understanding he had a responsibility to markets in his public pronouncements.

In an editorial on Thursday, The Wall Street Journal suggested markets would be losers in the selection of Lew. Whether that's the case, it seems the White House is leaving something on the table too.

Jack Lew
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The optics from a market consideration are simply different for Republican vs. Democratic administrations. The pro-business Reagan administration needed to send no message of reassurance to Wall Street. Clinton did and his choice of Lloyd Bentsen helped buttress his right flank, along with appointing Rubin char of the National Economic Council.

Obama has an issue with business, and Geithner (unclear if just how successful he was) served to bridge the gap at least somewhat. During the debate over the "fiscal cliff," he was on the phone consistently with top business executives. It appears he was able to some degree to help turn that into pressure on Republicans to get to do a fiscal cliff deal.

The sense of independence on the part of the Treasury Secretary may not convince markets that a given proposal is the right way to go, but it at least would prompt them to think about it before rejecting it. In that sense, President Obama may have missed an opportunity to add a voice with market credibility to his team.

It is not impossible for Lew develop for himself a market-reassuring reputation of independence while at Treasury. Lew could for example appoint deputies with strong ties to Wall Street.

He does talk often with senior executives from major corporations. Also his expertise on budget and budget policy comes with acumen for numbers and economic forecasting that in a one-on-one setting is very impressive. And, finally, if you asked many executives, economists and investors about the one thing they want right now from Washington, it would almost certainly be fiscal sanity.

If the Lew nomination results ultimately in serious entitlement or tax reform, and an end to the monthly end-of-other-world brinkmanship over the nation's finances, then his lack of independence will matter a whole lot less, if at all.

— Written by Steven Liesman, CNBC's Senior Economics Reporter