O'Neill's revenge
Some of his gaffes were doozies, but on some key issues, former Treasury secretary was on the mark.
January 13, 2004: 4:14 PM EST
By Mark Gongloff, CNN/Money Staff Writer

NEW YORK (CNN/Money) - Long a source of fun and fury on Wall Street and in Washington, former Treasury Secretary Paul O'Neill is back in the news for shooting his mouth off again.

But on some critical economic issues, some of O'Neill's more infamous political fumbles have come close to being vindicated -- including his views on the U.S. dollar, steel tariffs and tax cuts.

Ex-Treasury Secretary Paul O'Neill on the 'Today' show.

After his inauguration in January 2001, President Bush tapped O'Neill, the former CEO of aluminum producer Alcoa (AA: Research, Estimates), to head the Treasury Department, promising he would be just as soothing to markets as former Clinton Treasury Secretary Robert Rubin had been.

As it turned out, O'Neill was rarely soothing to anybody -- including the Bush administration, whose officials reportedly joked that his press conferences were like watching a child play with a loaded gun.

To be sure, some of O'Neill's gaffes were simply indefensible:

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  • He called the Enron debacle, in which corporate fraud cost employees and shareholders billions of dollars and broadly undercut confidence in corporate accounting, "the genius of capitalism"
  • When U.S. stock prices imploded in July 2002, rather than returning home to help calm the markets -- as Rubin likely would have done -- he stayed on a tour of Central Asia, saying there was nothing he could have done to help
  • He ridiculed financial-market traders, saying he could learn their jobs in "a couple of weeks"
  • He offended the Brazilian government and triggered a slide in Brazil's currency by suggesting that any financial aid to the nation was likely to end up in "Swiss bank accounts"

There were more -- many more. By August 2002, the Washington Post was reporting that the Treasury Department had lost prestige, that morale at the department was at a nadir, and that officials were fleeing in droves. Given his unpopularity with Republicans and his lack of enthusiasm for Bush's plan to cut taxes, his dismissal in December 2002 wasn't surprising.

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What has been surprising, however, is his sudden re-emergence in the news. He's the main source for a new book, "The Price of Loyalty: George W. Bush, the White House and the Education of Paul O'Neill," by Ron Suskind, in which he severely criticizes Bush, calling him a "blind man among deaf people" and accusing him of misleading the public about his Iraq policy.

It's clearly bad publicity for President Bush, who is gearing up for a campaign to get re-elected in November.

Call it "O'Neill's Revenge" -- but it might not end there. On some critical economic issues, O'Neill's previous fumbling remarks, though politically tone-deaf, seem less far-fetched in hindsight.

Down with the dollar

In February 2001, O'Neill triggered a sell-off in the U.S. dollar when he said, in an interview with the German press, "We are not pursuing, as it is often said, a policy of a strong dollar."

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Ex-Treasury Secretary Paul O'Neill says he didn't give classified documents to the author of a new book. CNNfn's Louise Schiavone reports.

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Given the wailing and gnashing of teeth following that stunning declaration, it was easy to assume O'Neill had simply suffered a momentary lapse of reason, that of course what he meant to say was that the United States was pursuing a strong-dollar policy.

But in the year since O'Neill's departure, John Snow, his successor at the helm of Treasury, made similar comments that helped batter the dollar last year. It soon became clear that the Bush administration really did want the dollar to weaken after all, giving a boost to U.S. exporters by making their goods more competitive overseas.

Tiff over tariffs

In March 2002, when the Bush administration was preparing to launch controversial tariffs on steel, O'Neill told the Council on Foreign Relations -- in an off-the record remark that was widely reported anyway -- that he objected to the tariffs, saying they might actually destroy jobs.

O'Neill's objection was largely seen as another political fumble, the tariffs were imposed, and O'Neill even occasionally defended the administration's policy later that year.

But in December 2003 -- nearly a year to the date after O'Neill's resignation -- the tariffs were removed. The World Trade Organization had threatened to slap billions of dollars in retaliatory tariffs on U.S. goods, and some steel-using industries claimed the tariffs were hurting them, forcing them to lay off workers -- just as O'Neill had warned.

Tepid on tax cuts

The comment that likely ended O'Neill's tenure at Treasury, however, was about a tax-cut package the Bush administration was trumpeting in late 2002 as the salvation for a troubled economy.

In a late-November 2002 interview with the Financial Times, he reportedly said the Bush plan wasn't his idea and that the economy really didn't seem to need much stimulus. After his dismissal, he said that, if he'd been in charge, he wouldn't have pushed the tax cuts.

Paul O'Neill
George W. Bush
Ron Suskind

Certainly, O'Neill's position hasn't yet been vindicated -- but neither has Bush's. Defenders of the tax cuts, including Bush administration officials, say the economy would have been much worse without it and that it will start to produce more jobs this year.

But critics say a recovery would have occurred with or without the cuts, and some -- including Rubin and the International Monetary Fund -- have warned the tax cuts have fueled dangerous budget deficits that threaten the future health of the economy and the solvency of Social Security.

The jury's still out on how much the tax cuts, which were passed in the spring of 2003, have actually helped the economy or hurt the nation's long-term fiscal health. But there's little doubt the White House's promise that the cuts would lead to job growth of 300,000 jobs a month late last year was incorrect.  Top of page

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