Geithner departure would give opportunity to right-size treasury role

Whenever Tim Geithner steps down as treasury secretary, he will go with the well-earned gratitude of the president he served. He took on an almost impossibly difficult and generally thankless task and achieved much. That much will remain to be done is more of a reflection on the scope of the challenges faced by the U.S. economy than it is on any one member of the Obama team that has worked to engineer a broad-based recovery. 

That said, part of the problem that the president and the country has faced has to do with the fact that the core challenges within the U.S. economy, notably those associated with job-creation, are simply not issues that any treasury secretary given the tools at his disposal is equipped to address. Treasury secretaries do macro-economic and fiscal policy and, thanks to the ever-growing influence and resources of the markets themselves, they face an uphill job in doing that. 

But there is more to solving America’s economic problems than tackling the budget, tax policy, financing or monetary matters. The U.S. economy has undergone major structural changes, is facing new competitive challenges and requires much closer collaboration with business leaders, governors, and other economic players than any treasury secretary can handle even in normal times-much less in times when the battles associated with the budget, taxes, and financial markets at home and abroad are so all-consuming.

Much as international relations are far too complex to be left to the State Department alone, economic policy needs to be made using all the tools at a president’s disposal and that means it needs to come from a much stronger White House economic policy apparatus, a National Economic Council that is much closer in weight, prestige, and role to the National Security Council than is the current version (through no fault of its tireless leadership).

Further, within the cabinet, the president needs someone he can call up and say, "help me create new jobs" — someone who can truly lead that effort. That is not the role of anyone in the cabinet at the moment — not the secretary of labor nor the commerce secretary. It should be the role of someone who can handle the nuts and bolts side of the economy as a true peer in the pecking order of the treasury secretary, perhaps a successor to the commerce secretary who was a secretary of the economy akin to the role found in many other governments. Were this individual to have real resources and the ability to direct all the trade and business (small and large) policies of the administration, they would both help the country tackle its problems and enable the treasury secretary to stay focused on the issues that should be atop his or her list of priorities.

Ironically, given the comment above about the need to supplement the role of the State Department with all the tools in the NSC toolbox, limiting Treasury’s role more to its core macro-functions might also get it out of the business of playing at diplomacy as it has done periodically during the past two decades. Geithner, like Paulson before him, for example, assumed a central role in U.S. China policy, essentially elbowing aside the State Department to dominate the Strategic and Economic Dialogue with that country. This is a mistake. The relationship with China is too complex to be left to a primarily economic agency with very, very limited international manpower. I understand that bureaucratic impulses that lead to such jockeying for position, but it would be better if Treasury did less but did it better.

This won’t diminish the importance of the department or its leader nor will it make it harder to attract top talent to the job. Rather it will adjust the government to more effectively deal with the special challenges we face at retooling our economy and making it more competitive at a time when virtually every competitor we face in actively pursuing coordinated industrial policies. The old saw among Treasury types that their macro fine-tuning is all that really matters simply doesn’t hold water in such an environment even if things like currency value and tax policies are among the biggest factors in shaping our economic future.

Somehow the State Department has managed to survive the arrival on the scene of a much bigger rival across the river in that five-sided building. Treasury could handle the establishment of an equal partner in the economic process.