Obama’s Cabinet: Hoping for an Empirical Presidency

Looking at the best and worst picks from a libertarian perspective

There is no telling how circumstances and exigencies will change a president. President Bush, who ran on a platform of restoring “humility” to U.S. foreign policy, became an international cowboy after 9/11 when he declared: “You are either with us or against us.” But there is hardly anyone who has run for the presidency in living memory who is more enigmatic – more open-ended – than President-elect Barack Obama. After a nearly 24-month long campaign, basic elements and themes of his governing philosophy remain shrouded in mystery.

Will he be the ideological second-coming of Lyndon Johnson, hewing closely to Democratic Party dogma and using his office to fulfill every unrealized item on the liberal wish-list from Nationalized Health Care to Nationalized Day Care? The National Journal, after all, ranked him as the most liberal senator of 2007 based on his voting record.

Or will he be a New Democrat in the mold of Bill Clinton? Clinton quickly absorbed the lesson from the 1994 HillaryCare debacle and pushed policies like welfare reform, balanced budgets and free trade. Will Obama follow in his foot steps and operate from the political center – or will he drive the Democratic Party to the left? One indication that he won’t is his choice of Machiavelli’s first cousin and a tough centrist like Illinois Rep. Rahm Emanuel as his chief of staff. Emanuel is a skillful arm-twister who will be able to nudge Congressional Democrats to stick with the program.

Or will Obama be the Empirical President, given his academic bent of mind, honed perhaps during his tenure as law professor at the University of Chicago? If so, the issue for him won’t be whether a proposed policy relies on the government or market forces but whether it will deliver results. Market policies might not always win under an Empirical Presidency, but they would have a decent shot. Obama insisted on the Rachel Maddow Show recently that “I am a strong believer in the free market. I am a strong believer in capitalism.” Perhaps that comment was calculated to throw non-liberals off the scent. But Naomi Klein, an ultra liberal writer, worries that Obama might in fact be serious.

Whatever President-elect Obama’s real views, the fact of the matter is that he wasn’t elected just by MoveOn.Org members. He managed to pull a cross section of independent, centrist and libertarian votes, even doubling his support, compared to John Kerry’s, among white, evangelical Christians. These voters embraced him not because they had suddenly awakened to the wonders of more government – but out of fatigue with the current administration. Indeed, according to a post-election survey by the Club for Growth of 12 swing districts where Obama won by convincing margins, 73 percent of voters polled were dubious about “spread-the-wealth-around” schemes. By contrast, they supported the idea that the federal government should focus on “creating the economic conditions that give all people opportunities to create wealth through their own effort.” Two-thirds of these voters preferred to see a permanent elimination of the death tax, and 65 percent preferred to keep capital gains and dividend tax rates at their current levels. In short, there was a political realignment during this election but not an ideological one. It offered no mandate for a super liberal agenda.

One indication of whether President-elect Obama accepts this will be the cabinet he assembles. It would be smart policy and politics for Obama to recruit not establishment liberals, but people with a wide-array of views that reflect the ideological diversity of the voters who elected him. Limited government and open markets are ideas that are inextricably woven into the DNA of this country and Obama would be wise to hire smart people capable of articulating them and crafting policies to implement them.

To this end, I’ve offered a list of three sets of candidates for the major cabinet appointments. One: a list of excellent picks which includes people – regardless of their party affiliation – who have demonstrated a commitment to containing the size and scope of government and exploring market-oriented, liberty-enhancing solutions to public policy problems. Two: a list of good picks which includes mainly Democrats – but occasionally Republicans and others – who are open-minded about market-based ideas and won’t automatically use the government to advance a partisan agenda. Three: a list of ugly picks which includes Big Government types who have either little interest in or harbor open hostility toward free markets and have no compunctions about growing government. They would use their office to fulfill ideological goals or cater to special interests – as opposed to honestly exploring the most workable solutions.

More picks from the first two categories will reflect that Obama intends to govern – as he promised – as a post-partisan liberal as opposed to an extreme liberal. A cabinet heavily laden from the third list will signal the opposite.

Secretary of Treasury

This is likely the most important job, next to the president’s, given that the country is in the midst of the worst financial crisis since 1929 and slipping into a recession. The $700 billion bailout that Secretary Henry Paulson jammed through Congress is both economically flawed and politically dangerous. It gives extraordinary powers to the secretary to potentially nationalize banking and other segments of the economy with little oversight. It has triggered a feeding frenzy beyond just among distressed banks holding bad assets – the original targets of the bailout. Auto, credit card and other companies facing any competitive threat are all demanding a piece of the pie. This puts federal taxpayers on the hook for bad corporate decisions at a time when they are already facing massive debts from just two government programs: Medicare and Social Security. Government spending on these programs alone is projected to soon consume 10 percent of the GDP.

The government should not be taking ownership stakes in or otherwise bailing out any private institutions. With that horse now well out of the barn, the first order of business for the new secretary would be to clean up the present bailout mess and establish sensible and strict guidelines for who would qualify for government assistance. At the very minimum, the new secretary ought not to ask for additional bailout money to address any further weakness in the financial markets. And instead of trying to pre-empt a system-wide collapse by handing big financial institutions advance assistance, the treasury should show great restraint and intervene narrowly only in cases – if any – where the failure of an institution could truly lead to a collapse of the economy. He or she should feel no shame if no entities qualify.

The secretary should also be a strong voice for fiscal discipline and against the government adding to its already massive burden. He/she ought to also counsel the president against tax hikes, especially during a recession when businesses, big and small, need every incentive to expand and create jobs. If anything, the secretary should counsel the president to stimulate the economy, not through additional government spending, but by lowering America’s corporate income tax rates – the second highest in the industrialized world – and keeping a lid on capital gains tax rates.

The treasury secretary is also in a strong position to influence trade policy and he/she should counsel the president against insisting on “fair trade” – code for protectionism – to prevent the recession from deepening into a full blown depression, as happened after the 1929 market crash.

There are no perfect or even excellent candidates with the right experience and resume who combine a commitment to fiscal discipline with an appreciation for free trade and low taxes. Nearly every major figure in government or the banking industry expressed support for the bailout.

That said, among the top picks for the job might be JP Morgan Chief Executive Jamie Dimon. Although a Wall Street insider and a political neophyte, Dimon’s big plus is that he was ahead of the industry curve in recognizing the threat posed by bad mortgage assets and began doing damage control much before anyone else. Hence his bank was in much better shape to weather the subsequent sub-prime debacle and even agreed to acquire the faltering Bear Stearns and Washington Mutual’s banking operation – albeit after the government assured him that all of their bad debt would be covered. He probably understands the complicated financial instruments such as credit default swaps and derivatives whose breakdown is being blamed for the debacle, something that will be invaluable in helping shape a sensible government response going forward. He is a deficit hawk who believes, however, that some modest cuts in taxes now would be a better stimulus than presumably government spending. “The policy should be, reduce taxes a little bit now, provide stimulus now, but have a serious, and I mean very serious plan to attack deficit spending going forward,” he noted in a summer interview on the Charlie Rose Show. Unsurprisingly, however, he is not a fan of the over-regulation of Wall Street – and will bring a useful perspective in the current political climate.

Close seconds might be Laura D’ Andrea Tyson, chair of President Clinton’s Council of Economic Advisors and Larry Summers, who briefly served as Clinton’s Treasury Secretary and was also in the Reagan administration.

They both harbor strong interventionist streaks and were among the early and vocal supporters of the Wall Street bailout. However, Tyson was a sensible moderate in the Clinton administration; an open critic of HillaryCare; and a strong defender of free trade.

Summers is known to be a worry-wart concerning federal liabilities and debt – something that the Obama administration could certainly use. Another strong pick – even stronger than Summers – would be Robert Rubin, also Treasury Secretary under President Clinton. He was the architect of the Clinton administration’s balanced-budget policy. He is a strong opponent of too many regulations, especially on Wall Street, because of a keen appreciation of the difficulty of crafting good ones that avoid awful unintended side effects. He is reluctant to use taxpayer dollars for bailouts – foreign and domestic. In Rubin’s view, as Summers puts it, “there is something worse than Country X going down, which is Country X going down and taking our credibility and $10 billion of our money with it.” Rubin’s Achilles Heel is that, as head of Citigroup, he unsuccessfully tried to use his influence in the Treasury Department to prevent rating agencies from downgrading Enron’s debt.

But among the worst picks for the job would be billionaire investor and philanthropist Warren Buffet. He is reputed to be dismissive about federal spending and unfunded liabilities and worries instead about the effect that the trade deficit might have in devaluing the U.S. dollar – a position that could easily morph into protectionism. He also favors an inheritance tax.

Equally bad would be Timothy Geithner, president of the New York Federal Reserve Bank, a perennial bail-outer who has been involved in the bailouts of Mexico, Indonesia, Korea, Brazil, and Thailand. No surprise then that he was an aggressive proponent of the current bailout – recommending that the Treasury inject direct liquidity into banks by buying preferred stock even before Paulson eventually did this, thus opening the door to all kinds of government meddling. The New York Times reports that Geithner, and his mentor Summers, are fond of quoting Mexican president Ernesto Zedillo, saying since markets overreact, policy makers must overreact too.

Also, Obama should banish any thought to keeping Henry Paulson. His constant vacillating on how to use the massive amount of bailout money that he arm-twisted out of Congress demonstrates that he understands neither the underlying causes of the financial crisis – nor what to do about them.

Secretary of Transportation

Infrastructure spending is likely to be a big element of President-elect Obama’s economic stimulus plan. However, for this idea to succeed, Obama will have to: One, direct existing funding toward projects that serve genuine economic needs such as highway capacity expansion – rather than pie-in-the-sky schemes such as bullet trains and a national electricity grid backed by wind-power, ideas that Obama flirted with during his campaign. Two, try to obtain new funding for these projects from the private sector through the creative use of such arrangements as public-private partnerships. This is particularly important because the country’s infrastructure needs are enormous, thanks to years of neglect – but a large increase in gas taxes, as some recommend, would be ill-advised, especially during a recession.

To advance these goals, the new secretary will have to be ready to do battle when Congress prepares to reauthorize the current surface transportation law, SAFETEA-LU, which is due to expire next fall. The law establishes the framework for the transportation projects that the federal gas tax will fund for the next six years. There will be a concerted push from some of the ultra-liberal legislators this time to divert an even larger share of gas tax revenues from road projects and toward mass transit projects, supposedly to reduce greenhouse gas emissions and advance other green ends. Some even want to divert funds from the highway trust fund to expand Amtrak and build a dozen all-new high-speed rail lines.

There is also talk of including in this law a California-style global warming plan that would discourage driving by requiring regional transportation plans to be based on “smart-growth” land-use plans, on the tenuous grounds that high-density, mixed-use development is a cost-effective way to reduce the amount of driving, and hence greenhouse gas emissions.

The gas tax is a quasi user tax in which the motorists pay for the facilities they use. Using this money on things other than roads and bridges would not only produce a huge misallocation of resources, but it would also effectively force motorists to subsidize facilities of other users. The secretary ought to resist this on grounds of both equity and utility.

The other big issue that the next transportation secretary will confront is the revamping of our antiquated, 1960s air traffic control system, which is careening toward a crisis of capacity. Addressing this crunch by rationing the number of flights during peak periods to what the system can handle, as some suggest, would raise airfares and leave fewer options for air travelers. The better way to handle the problem would be by deploying something called the Next Generation Air Transportation System (NextGen). This system would double or triple air traffic capacity by, among other things, using state-of-the-art satellite-based air traffic control technologies. But implementing this system in a timely and affordable form will require extricating air traffic control operations from the Federal Aviation Administration’s bureaucratic shackles and spinning them off as a separate “company” with the authority to fund the $25 billion revamp through revenue bonds paid by user fees. President Bill Clinton and Vice President Al Gore unsuccessfully pushed for a corporate entity to take over air traffic control in 1994 as part of the Reinventing Government campaign. Congress blocked it then, and is unlikely to relinquish control without a nasty fight now. The new secretary should have both the inclination and toughness to stand up to it.

The candidate who is best suited for this job is, in fact, the current Secretary of Transportation, Mary Peters. She began her term in 2006 and since then she has repeatedly drawn attention to the imminent bankruptcy of the National Highway Trust Fund and the need, therefore, to explore leasing arrangements with private companies to build new toll roads and to implement congestion pricing – an idea that Obama has praised – in our most-congested urban areas as well as airports.

Peters has proven herself to be an able administrator. More to the point, she would offer creative and sensible ways for Obama to deliver on his idea of using infrastructure projects to stimulate the economy without burdening taxpayers. Nor would it be so unprecedented for Obama to extend her term given that President Bush appointed former Democratic Congressman Norm Mineta as his first transportation secretary. It would speak well of Obama to reciprocate that gesture in a spirit of bipartisanship – while hiring the best person for the job.

Top among our second-tier picks would be Pennsylvania Governor Ed Rendell. Although he has expressed reluctance to take this position, he would be a good choice if he were to change his mind. After some initial hesitation, he became a strong – but ultimately unsuccessful – champion of leasing the Pennsylvania Turnpike to private operators and using the revenues generated for other transportation-related projects.

Beyond transportation-related issues, Rendell is a tough fiscal manager who is always looking for creative ways to enhance the efficiency of government. As mayor of Philadelphia, he outsourced a number of municipal services such as street sweeping to private vendors, producing better service at a lower cost for city residents. As governor he also authored something called the Strategic Sourcing Initiative under which the state government procured goods and services from wholesale vendors, producing savings of about $72 million for state coffers. He has a history of backing mass transit projects, however, and has little experience in aviation-related issues.

Also acceptable would be Mort Downey, deputy secretary of transportation in the Clinton administration. Although he is a big booster of transit and rail boondoggles, he is realistic when it comes to funding the nation’s transportation needs through public funding alone. In a 2007 article he coauthored in Traffic World, he insisted that transportation planners “should have access to the largest possible toolbox of financing mechanisms, strategies, and options. Accordingly, there is an important-indeed a necessary-role for PPPs as part of an overall infrastructure program.”

He has been a proponent of innovative ideas such as HOT (High Occupancy Toll) lanes for congestion relief. Under this concept, motorists who want to escape traffic can pay variable-priced tolls that rise and fall during rush hours to get into a free-flowing lane moving at the maximum speed limit.

Other names in the running that would have a few positives include Jane Garvey, former FAA chief. She is open-minded about considering innovative options for highway financing. However, she starved the air traffic system of funding, partly because she didn’t have the gumption to standup to the demands for a sweetheart contract by the controllers’ union.

In the same league would be Steve Heminger, executive director of the San Francisco Bay Area’s Metropolitan Transportation Commission and a member of the National Surface Transportation Policy and Revenue Commission. He doesn’t have any aviation background, but showed some real skill in persuading his diverse political board to approve California’s first network of HOT lanes.

Among the names mentioned in various reports thus far, the two worst picks for the job would be Minnesota Rep. Jim Oberstar who is currently chair of the House Committee on Transportation and Infrastructure and Oregon Rep. Earl Blumenauer – both Democrats. They routinely advocate spending gas tax revenues on everything but highways and are huge champions of mass transit, regardless of a project’s effectiveness. Oberstar, a bike enthusiast, is arguably the worse of the two because he also has a taste for larding highway pork on favored constituencies. Oberstar also launched what is tantamount to a federal war against state’s seeking public-private partnerships when he dashed off a letter to all 50 governors, discouraging them from using them – and even threatening to undo them if he determined that they “do not fully protect the public interest and the integrity of the national [transportation] system.” Evidently, it did not matter to him that PPPs have produced billions of dollars in savings and new revenues for Chicago, Indiana and many other cities and states. His missive triggered a mini-revolt by some governors such as Texas’ Rick Perry. Oberstar would be a great friend of the decrepit transportation status-quo, something that America’s economy can ill afford.

Secretary of Education

Unlike our national infrastructure, our education system’s problems do not stem from a lack of investment. The United States spent $553 billion on public elementary and secondary education in 2006-2007, which is 4.2 percent of gross domestic product. Per student government spending on education has grown 49 percent between 1984 and 2004 and two years ago stood at $9,266 after adjusting for inflation. Still, student achievement has barely budged as measured by high school graduation rates, SAT scores or long-term National Assessment of Educational Progress reading scores.

The conventional wisdom is that schools need more resources to reduce classroom size, buy more computers and hire more credentialed teachers. The problem, however, is not one of inputs, but of accountability and incentives. As things stand, the vast majority of parents whose children are stuck in failing schools have few options for transferring to better schools. What’s more, since teachers obtain guaranteed raises based on the pay scales negotiated by their unions, they have little incentive to try new teaching strategies or look for innovative ways to ensure learning. In short, public schools have a captive market whose providers face little penalty for poor service.

To change that would require reintroducing proper incentives, including firing underperforming teachers and linking teacher raises to performance – both measures that Obama has supported. He has also advocated doubling funding for charter schools to expand parental choice.

However, kids in failing schools will get real choice only when education dollars are tied to their backs so that they can go to any public, private or charter school of their choice. San Francisco, Florida and many other places have tried this with remarkable success in reforming their public schools and improving student performance.

The choice component in the No Child Left Behind Act, however, has failed because it is too weak. It requires chronically low-performing schools to give their kids an option of attending another school in their district. But since there are usually few good options within a district, less than 1 percent of parents actually opt for a different school. The new secretary should use the pending reauthorization of the law to expand and strengthen its school choice aspect.

The hands down best person for the job would be Michelle Rhee, current chancellor of D.C. Public Schools and the founder of the New Teacher Project, a nationwide nonprofit that trains teachers for needy school districts. A non-establishment liberal, she has been dubbed the “Crusader of the Classroom” by The Atlantic because she has taken on the city’s powerful unions and offered unwavering backing to D.C.’s Opportunity Scholarship Program – the country’s first federal voucher program that gives 1,900 kids from low-income families up to $7,500 to attend private schools of their choice. Rhee, a tough and able administrator, doesn’t see school choice as a threat to her mission in the public schools. “I would never, as long as I am in this role, do anything to limit another parent’s ability to make a choice for their child. Ever,” she said. Indeed, she correctly sees the competition presented by school choice and charter schools as part of the process of raising standards in the public school system at large. Although she hedged her support for vouchers when pressed during the presidential campaign, her overall support for school choice stems not from any ideological commitment, but her pragmatism and open-mindedness – exactly the kind of person that an empirically-driven president would want on his side.

Also excellent would be General Colin Powell and Joel Klein, chancellor of New York City’s schools – both political centrists who support school reform over simply pouring more money into the system.

Gen. Powell, President Bush’s former Secretary of State who endorsed Obama, has been an ardent supporter of all manner of school choice to give poor, minority parents the same options that the rich enjoy. He has the stature and the depth to take on the education establishment and push reforms, qualities that would more than compensate for his lack of experience in education.

More controversial, but equally good would be Joel Klein, whose very possibility for the office has caused New York teachers’ unions to launch a petition drive opposing him – something that in itself demonstrates his aptness for the job. As chancellor of the largest public school system in the country, he has realized that top-down central planning doesn’t work and emphasized giving school principals more authority to run their schools while holding them accountable for results. He should, however, be kept as far away from the Justice Department as possible given the gusto with which he used antitrust laws to hound Microsoft during the Clinton years.

Among the less good, but still quite respectable picks, would be Arne Duncan, CEO of Chicago Public Schools and a regular in Obama’s basketball games. He was on the court with Obama the morning after the election. Duncan is a reformist who has implemented something along the lines of San Francisco’s weighted-student formula under which kids can take their education dollars to any school – public or private. Although not a supporter of full-blown vouchers, he authored the Renaissance 2010 program which aims at converting all failing schools in Chicago into charters by 2010. Like Obama, he supports performance pay for teachers.

Also acceptable would be Jonathan Schnur, founder and chief executive officer of New Leaders for New Schools – a national nonprofit that trains principals for urban public schools. He takes an unorthodox approach to teacher training, focusing not on candidates with traditional educational backgrounds but from all walks of life.

Obama should try to stay away from governors such as Janet Napolitano of Arizona; Tim Kaine of Virginia; and Jim Hunt of North Carolina. All of them would favor driving as much federal funding to states as opposed to tackling school reforms. They all are strong advocates of early childhood education and are likely to push – rather than temper – Obama’s plan to create a federally-funded universal preschool program, despite little evidence that this would help to improve academic performance.

Among the absolute worst picks for the job would be Randi Weingarten, current president of the United Federation of Teachers and the American Federation of Teachers, and Inez Tenenbaum, State Superintendent of Education in South Carolina. As a leader of New York unions, Weingarten has constantly butted heads with Joel Klein and opposed basic, sensible school reforms that unions find threatening. Tenenbaum is a career politician who has shown no interest in reforming South Carolina’s schools despite their dismal SAT performance. Picking either of them would be an eloquent signal that Obama wants to use this cabinet pick as pay-off to special interest groups rather than fix America’s broken school system.