Wrestling with a shaky economy and criticism that his administration projects a muddled message on how to respond, President Bush on Friday dismissed his treasury secretary, Paul H. O'Neill, and the director of his National Economic Council, Lawrence B. Lindsey.
The move, announced in a brief written statement by Bush with lukewarm thanks to both men, is Bush's first Cabinet shake-up in his nearly two years as president. The fate of the two officials had been the subject of speculation for months, but it came as a shock to O'Neill, Lindsey, and many of Bush's allies in Congress.
Administration officials conceded privately that O'Neill had first lost the confidence of the markets and then gradually of senior White House officials, especially his initial champion, Vice President Dick Cheney.
PHOTO: REUTERS
In the coming months, as the White House rolls out a new tax plan and other economic measures to try to show that the president is as focused on the economy as he is on terrorism, the officials said it was crucial that their team speak clearly and uniformly.
While administration officials said they wanted more effective spokesmen on the economy, it did not appear to signal a broad new direction for Bush's policies. O'Neill and Lindsey took opposite sides on key internal debates. In sharp contrast to Lindsey, O'Neill persistently expressed skepticism about the need for a broad new package of tax cuts to give the economy a short-term stimulus.
The dismissals also come as business confidence is stubbornly low, investment is weak and joblessness is rising. Less than two hours before O'Neill surprised Washington with his resignation, the Commerce Department reported that unemployment surged at an unexpectedly fast rate last month, to 6 percent from 5.7.
Although Lindsey was a prime architect of the tax cut that Bush claims has been one of his signature achievements, both he and O'Neill had been widely perceived as weak links in the administration. O'Neill, in particular, attracted frequent criticism for rattling the markets with off-the-cuff remarks about the dollar and other major issues. The stock markets, which dropped after release of the report on joblessness, rebounded upon news of the shuffle. The Dow Jones average ended the day up 22.49 points, at 8,645.77.
Among the names most frequently mentioned as a successor to O'Neill was that of Gerald R. Parsky, a financier who ran Mr. Bush's presidential campaign in California, and Commerce Secretary Donald L. Evans.
Other names mentioned were Donald L. Evans, currently the secretary of commerce; Representative Bill Archer, who retired in 1999 as chairman of the House Ways and Means Committee; and a long list of wild-card choices like Sen. John Breaux, a Louisiana Democrat and a conservative who has supported Bush in some tax fights.
People close to the White House said Stephen Friedman, a former co-chairman of Goldman Sachs, was a strong favorite to succeed Lindsey.
The nominee for treasury secretary -- but not the choice to head the economic council -- must be confirmed by the Senate. Administration officials would like to have the team in place so they can begin pressing their economic plan when Congress convenes next month.
For the moment, at least, Bush has only a skeleton economic team. Even as he moves to replace the two advisers, the president must also find a replacement for Harvey L. Pitt, the chairman of the Securities and Exchange Commission.
Pitt was forced to resign last month after a disastrous effort to name the head of a new accounting oversight board, a decision at the heart of efforts to improve corporate governance after scandals from Enron to WorldCom.
Democratic lawmakers seized on Friday's overhaul as evidence that the administration's economic policy has faltered.
That old sinking feeling
"Firing its economic team is an overdue admission by the Bush administration that its economic policies have failed," said Senator Tom Daschle, the majority leader.
Senator Joseph Lieberman, compared the administration to the Titanic: "When you're headed in the wrong direction, you don't just need new people in the deck chair -- you need to change course."
Republicans were restrained and somber, most limiting themselves to a few polite words.
"Ultimately, this is the president's economic team, and I will support the president and his goals," said Representative Bill Thomas, the chairman of the House Ways and Means Committee.
Administration officials have been tentatively planning for Bush to deliver a major economic speech in Chicago on Dec. 17. Bush's advisers said his most urgent need is not for policy advice but for a unified and forceful sales team with which to campaign for his plan in Congress.
People close to Lindsey and O'Neill said both men thought their jobs were secure. Their bad news came on Thursday night, when Cheney and Andrew Card, the White House chief of staff, let both know the time had come to resign.
White House officials had hoped to announce the resignations on Monday, but O'Neill angrily fired off an icy letter of resignation on Friday morning. By the time the letter was released, O'Neill had already driven back to his home in Pittsburgh without speaking to the press.
"There are lots of other important things to do in life," O'Neill said in a brief statement from the Treasury Department. The statement said he would devote himself to education and health care issues in Pittsburgh.
Word of his resignation came from the White House spokesman, Ari Fleischer, who simply said the president had accepted his resignation. Fleischer made no particular effort to commend the accomplishments of either man, and instead praised them for being willing to serve the government. Bush's statement included little discussion of the contributions the two men had made. "They have served my administration and nation well," he said. "I thank them for their excellent service."
As Bush settles on a new treasury secretary, even supporters of the administration say that there are few people now within the administration who have the stature to be a credible treasury secretary.
Kenneth Dam, the deputy secretary of treasury, has been in charge of the department's effort to crack financial networks supporting terrorism. But that program has been plagued with problems, from recalcitrance among allies to bureaucratic warfare with law enforcement agencies and the CIA.
On Friday, people close to Dam predicted that he would resign as well. A spokesperson for the Treasury Department declined to comment, but the department announced that Dam has canceled a trip next week to Latin America.
O'Neill, 67, was little known in Washington when he was named treasury secretary, but he quickly gained notice for rattling financial markets with off-the-cuff remarks about the value of the dollar or the need for bailing out countries like Brazil.
He sent currency speculators into a frenzy earlier this year when he insisted to a German newspaper that "we are not pursuing, as it is often said, a policy of a strong dollar."
But O'Neill also had substantive disputes with other members of the administration -- and he was often on the losing side. Worried about the rising budget deficit, and dubious about short-term stimulus measures, he argued that the administration should adopt only narrowly defined tax cut measures aimed at particular sectors of weakness. But he was overruled by other White House advisers, and Bush has made it clear he will unveil a jobs package in January, if not sooner.
Lindsey, a former professor of economics and a former member of the Federal Reserve Board, was on the winning side of that argument. But he was seen as a weak spokesman for economic policy, and he created a stir by publicly predicting that the cost of a war with Iraq might reach US$200 billion -- a much higher estimate than others circulating at the time.
If Friedman is chosen for the National Economic Council, he would give the White House a person with extensive experience on Wall Street, something that few other top officials have. Because his post is not a Cabinet position, moreover, it would not require Senate confirmation or exhaustive scrutiny of his deal-making background.
Continuous blunders
That is an advantage, because White House officials are still stinging from the debacle surrounding the nomination of William Webster, the former FBI and CIA director, to head a new oversight board for the accounting industry. Webster resigned from the job after it became known he served on the board of a company that is being investigated for potential accounting irregularities.
Naming a new treasury secretary may be more complicated. People close to the White House said one strong candidate was Parsky, a former senior treasury official under Ford who ran Bush's presidential campaign in California and was on the president's Social Security commission last year.
Evans, who was a top executive at an oil exploration company and was a major fund-raiser for Bush's presidential campaign, was mentioned by several people as one of the most likely candidates. But Evans does not have much stature in domestic and international financial markets.
Archer is both well-known and experienced.
Other names have surfaced as possible candidates. One is Robert Zoellick, who is now the US trade representative. A protege of James B. Baker, the former treasury secretary and secretary of state in the Reagan and first Bush administrations, Zoellick has held senior posts in both departments and also in the White House.
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