President Barack Obama’s pick to succeed Tim Geithner as US Treasury secretary may prove more tweaker than reformer. Jack Lew is a budget expert and helped balance America’s books under President Bill Clinton. But he may be too liberal for today’s Republicans, and his boss wants to cut entitlements with a scalpel, not a cleaver. That makes it unlikely he will preside over a long-term answer to US deficits.
Lew is about as qualified as anyone could be to head the Treasury, a job that requires a diverse skill set. Sure, his financial markets exposure is thin, having spent just a few years running operations at a Citi prop trading desk, and he lacks robust diplomatic experience. But Lew makes up for it with his extensive fiscal policy work with Congress. He’s first and foremost a budget wonk.
His fiscal sorcery helped him craft budgets for both Clinton and Obama. Under the former, he was part of the negotiating team that balanced the books and subsequently oversaw three years of surplus. In theory, all that should boost prospects for the elusive so-called grand bargain that almost everyone from Washington to Wall Street is clamouring for.
Unfortunately, a comprehensive deal under Lew is far from a certainty. For starters, many Republicans loathe him. Some objected to his attitude during the 2011 debt ceiling negotiations, according to news reports. He was absent during recent negotiations that resulted in a short-term deal on taxes and spending cuts, possibly because Obama didn’t want to inflame GOP lawmakers just before they held hearings on his nomination to Treasury.
Lew is philosophically liberal, so he has been careful to adjust rather than fundamentally alter entitlement programs like Medicare. But a light touch won’t provide long-run stability. The Congressional Budget Office expects federal healthcare spending to rise from five per cent of GDP to over 10 per cent in the next 25 years, and addressing that needs more than fine-tuning.
A medium-term fix might be enough to pacify financial markets for a while. At least it would be an improvement on the recent month-by-month approach. But that would leave Lew and Obama without a lasting fiscal legacy.