President Bush has lined up a Wall Street heavyweight as chief spokesman for the economy. He's Henry Paulson Jr., who has been running finance powerhouse Goldman Sachs - and as the designated next Treasury secretary, he'll have a big job ahead of him.
Despite the current strong economic statistics, he must try to lift public sentiment that polls show is distinctly negative about the economy. At the same time, he will have to convince the world's investors that they should continue to finance the swollen US budget and trade deficit. And Wall Street analysts say his extensive dealings with Chinese leaders make him one of the most qualified to persuade China to loosen control of its currency - a hot topic in Washington.
"His job between now and the election is to get out and tell everybody, I'm captain of the universe and I'm telling you everything's OK. Just trust me," says Stanley Collender, a Washington budget expert and a managing director at Qorvis Communications.
One of the toughest challenges of Mr. Bush's second term has been to eliminate the public's perception gap on the economy - the seeming disconnect between strong economic numbers and low public opinion of the state of the economy. Recent polling by Gallup shows that investor optimism remains at its lowest point since last November, and consumers' optimism about their credit situation remains low.
"This is all tied to gas prices," says Dennis Jacobe, chief economist at the Gallup Organization, based in Princeton, N.J.
Overall, the public remains pessimistic about the economy. In mid-May, 29 percent of the public rated the economy at excellent or good, down from 38 percent in mid-April, according to Gallup. Among those who viewed the economy positively, 47 percent cited job availability as the top reason. Among those who viewed it negatively, the price of fuel was the top reason at 26 percent, followed by unemployment (21 percent) and inflation (14 percent).
"What the overall economic numbers show is that there's a particularly upper- and middle-income group that continues to do very well, and the economy reflects how that better-to-do group is faring," says Mr. Jacobe. "What is happening in terms of middle- and lower-income groups isn't reflected in average economic data as much as it is in polling data."
One way Mr. Paulson can help to change the perception of the economy is to work through Wall Street. A confident Wall Street could help boost confidence on Main Street. Analysts compare him to Robert Rubin, Treasury chief under President Clinton, and also a former chairman of Goldman Sachs. Mr. Rubin often stressed that it was in America's interest to have a strong dollar. The strong dollar helped spur the economy by providing less-expensive raw materials from abroad and lower prices for consumers.
"That policy was good in the 1990s because the Fed was experiencing a very strong economy - unemployment fell below 4 percent - and there was concern about rising prices and inflation," says Richard DeKaser, chief economist at National City Corporation in Cleveland. "A strong dollar helped control inflation and reduce prices."
Today, however, one of the major economic issues facing the administration is managing the large trade deficit. Under President Reagan, Treasury chief James Baker engineered a devaluation of the US dollar. "The US is confronting a risk of significant further declines in the dollar," says Mr. DeKaser. "For this reason [Paulson] is a very good selection at this point in time."
Paulson could well encounter some kind of financial crisis in the next year or two as the effect of rising interest rates courses through the economy, says Mark Zandi, chief economist of Economy.com. "There was always some concern about former Treasury Secretary John Snow's ability and stature to play that kind of role," says Mr. Zandi.
During a time of large federal budget deficits, Paulson may be under pressure to make the president's tax cuts permanent. "Making the tax cuts permanent is Bush's economic legacy, and therefore Paulson has to wake up every morning figuring out how to make that happen," says Michael Franc, an analyst at the Heritage Foundation, a conservative think tank in Washington.
Mr. Franc has confidence in Paulson's skills in playing ball with Congress. "He's scaled the private sector's version of Mt. Everest and he does not understand failure and won't tolerate it," he adds.
With his extensive knowledge of the financial markets, Paulson may also engineer new ways of dealing with financial and economic problems, says Anthony Chan, chief economist at J.P. Morgan Private Client Services in Columbus, Ohio. "Bringing the ingenuity of Wall Street to Washington is a big positive," he says. "For example, there might be different ways to package our debt."
However, there are also some limits to how much Paulson can accomplish. For example, energy analysts expect gasoline prices to remain high no matter who is running the Treasury.
Paulson also comes to the job with no economic self-interest, says Mr. Chan. Last year, his total compensation came to $16.4 million, which ranked him 81st in executive pay. "He's already wealthy, so he's coming with a desire to try to make a difference versus to enhance his own value."