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Listening to our "economic czar" (or should it be "dictator-presumptive"?)

By Jack M. Balkin

Today's Washington Post has an article about the proposal that the $700 billion bailout include some salary limits on the Masters of the Universe who got us into this mess and then propose, by administering, without any apparent oversight, the bailout. It concludes as follows:

Speaking on "Fox News Sunday," [Treatsury Secretary Henry] Paulson acknowledged "excesses" in executive compensation but said the debate should be put off for another time. "If we design it so it's punitive and so institutions aren't going to participate, this won't work the way we need it to work," Paulson said.

Paulson expressed more openness to the idea of foreclosure relief for homeowners whose loans are being financed by the securities the government would buy. "I think there should be a mortgage relief component to this," he said, without elaborating. For nearly a year, Paulson has touted an initiative that calls on banks to voluntarily modify mortgages held by struggling homeowners so they can stay in their homes. Paulson said in a recent interview that this effort, called Hope Now, has helped 1.7 million households. But Democrats are skeptical, noting that the data are vague about the extent of assistance provided.

Paulson again warned lawmakers to resist adding too many provisions to the bill. "We want this to be clean, and we want this to be quick, and it's urgent that we get this done," he said.

A couple of comments about "the Banker" in the Times story, discussed in my previous posting, about Paulson and the Professor, Ben Bernanke, take on added relevance. The story contrasts the two as follows:

Mr. Bernanke, 54, had managed the academic politics of the Princeton economics department, where he served as chairman, by developing a conciliator?s style. Mr. Paulson, 62, rose to the top of Goldman Sachs by pounding the phones, and the occasional table. ?Hank is just the most hyperactive, get-it-done kind of guy who?s always trying to get the problem solved and move on. He?s impatient to fix things,? said Allan B. Hubbard, a former national economic adviser to Mr. Bush. ?Ben is much more low-key. He?s very thoughtful. He?s an incredible thinker, listens well, analyzes well and is not intimidated by anyone. It?s probably a great pair.?

Perhaps I'm over-reacting (or am simply an academic who prefers people who actually described as "thoughtful" and have a propensity to listen instead of pounding the table). That being said, for me the very admiring Times piece describes a Paulson who seems to have a dictatorial personality, as reveald, among other things, in his demands for a "clean bill," i.e., one that doesn't include anything he doesn't personally approve. (Not to mention the astonishing lack of accountability noted by Jack and many others.)

Moreover, his description of pay caps as "punitive" puts the lie to Professor Bernanke's assurance that ?There are no atheists in foxholes and no ideologues in financial crises." Paulson comes out of a culture in which anyone who is making less than $10-20 million/year is a veritable nobody (I may even be underestimating what it takes to count as a Wall Street somebody these days). According to the Washington Times (which I assume is a reliable source for conservatives who read Balkinization, Mr. Paulson made "more than $38 million in overall compensation" in the year before taking the $171,900/year position as Secretary of the Treasury. "But [Mr. Paulson] has a net worth estimated at a half-billion dollars and earlier this year gave $100 million in Goldman stock to a family foundation dedicated to conservation and environmental education, one of his favorite causes. " That is, there is no reason to believe that Mr. Paulson is a "bad man," given his charitable impulses. Still, no doubt he believes, as do all of the Masters of the Universe, that he richly earned the salaries and bonuses he was making at Goldman Sachs (which, I suspect, hopes to reap a fortune from administering the bailout) . I'd be truly surprised if he didn't view his good fortune, both literally and figuratively, as tributes to his own personal brilliance. That is just what "ideology" does, provide a framework to explain why those on top "deserve" to be there, while the fate of the lower orders can be blamed on their defects of character and judgment.

I am in rare agreement with both Bill Kristol (A Fine Mess" and Paul Krugman ("Cash for Trash") in today's NYTimes. Congress will be behaving disgracefully if they don't engage in careful review of our would-be economic dictator's hastily-cobbled and ideologically-loaded (and constitutionally transformative) bill. Kristol calls for McCain to oppose it, which would obviously make him an even more interesting "Republican" candidate, given the fact that most congressional Republican "leaders" seem to be lining up behind it. I also await Obama's more specific words on the bill. This may be his presidency that is being determined--what will be left over to pay for the social programs that he is advocating?--and he has a duty to lead and to inform rather than leaving it to Harry Reid and Chris Dodd (whom I respect greatly).

Perhaps I am exaggerating in my constant references to "constitutional dictatorship." But let me suggest that we are facing a "natural experiment": I will be proved wrong if Congress in fact exerts some real decision-making authority (and not merely formal rubber-stamping "authority") in the next several weeks (and note the plural); if, on the other hand, Banker Paulson manages to stampede Congress into passing his version of a "clean bill" because of the imminent "cataclysm" that he has declared we face, then I think the term becomes ever more useful as an analytic construct.

Full post as published by Balkinization on September 22, 2008 (boomark / email).