Obama’s Cabinet: Part Three

Picking Secretaries of Commerce, Energy, and Health and Human Services

This the final installment of a three part series. Part one, with picks for Treasury, Education and Transportation, is available here. Part two, with my picks for Secretary of State, Defense and Attorney General is here.

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 President-elect 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 Commerce/U.S. Trade Representative

Trade is one of those issues that will signal whether President-elect Obama intends to position himself as a centrist, New Democrat or an old-style liberal. He sent mixed signals during the presidential campaign, initially striking a free trade posture, only to retreat after his labor backers expressed annoyance. He invoked the mantra of “fair trade over free trade,” which is code for protectionism. He blamed NAFTA for losses in the auto and other manufacturing industries – promising to renegotiate the treaty if elected president. But Austan Goolsbee, a University of Chicago economist and Obama adviser, told a Canadian delegation that Obama’s NAFTA comments were “political maneuvering” that don’t reflect his real views.

An early test of what Obama’s views really are will come when a standing U.S. quota against Chinese textiles expires in January. If Obama wants to do the right thing – let the quota die – and set the proper tone for the rest of his presidency, he will need a Commerce Secretary and a trade representative capable of clearly articulating the case for free trade. And the two best people for those positions are: Grant Aldonas, a Senior Advisor at the Center for Strategic and International Studies who was Undersecretary of Commerce in the Bush administration, and Federal Express Founder and CEO Fred Smith.

Aldonas, who advised the McCain campaign and would certainly be an unusual pick, has repeatedly argued against blaming outsourcing for job losses in the United States. He understands the role that trade can play in promoting democracy and freedom and has called for expanded trade in every part of the world, including the Middle East. “Trade is a cornerstone of democracy,” he has said. “While trade promotes the rule of law, it also promotes a free and stable government that protects the rights of individuals and institutions.” He was an early supporter of normalizing trade relations with China and backed its bid to enter the World Trade Organization. He would be particularly suited to leading the Commerce Department, given that he has already managed it and is intimately familiar with it. The department is charged with keeping track of goods entering and leaving the country. This produces an institutional tendency toward mercantilism – namely, encouraging exports and discouraging imports – that Aldonas understands and will be able to counter.

Also good would be Smith. Ironically enough, he may be under consideration for energy secretary, a job for which he would be worrisome given his misguided support for energy independence. However, he is rock solid on trade issues. Evidently, he has not figured out that one cannot consistently advocate autarky with respect to energy markets while free trade with respect to everything else. Be that as it may, he has admirably advocated the equivalent of unilateral disarmament on trade – meaning that the United States should throw open its markets to foreign goods regardless of whether other countries open their markets to our goods. He calls U.S. agricultural subsidies immoral – because they keep Third World farmers poor by making their products uncompetitive in global markets while hurting U.S. consumers.

Among the satisfactory picks would be Austan Goolsbee, and Jason Furman, also an Obama advisor. Both of them are pro-traders but favor expanded social insurance – more unemployment benefits, skills training – for “trade’s losers” or Americans who lose jobs to foreign competitors. Furman, director of the Hamilton Project, a centrist economic group, has expressed worries about the coming China-bashing, including a proposal asking Obama to slap a 27.5 percent tariff on Chinese goods because of a weak yuan – a good sign.

Goolsbee expresses similar positions, although he favors using the WTO to aggressively enforce of the labor and environmental standards that countries have signed in trade agreements, something that can become a backdoor way of hobbling competitors. But, on balance, as columnist and author George Will notes: “He seems to be the sort of person – amiable, reasonable and empirical – you would want at the elbow of a Democratic president…”

Completely disastrous would be Thea Lee, the Chief International Economist with the AFL-CIO. Dismissing the evidence before her eyes, she writes: “The logic of global capitalism as currently practiced is to drive down workers’ wages, weaken their bargaining power and strip away their social protections in both rich and poor countries, while simultaneously encouraging and celebrating the excesses of debt-driven consumerism.” Picking her-or any other representative of organized labor – would indicate that the Democratic Party has abandoned the legacy of free trade that Bill Clinton built.

Secretary of Health and Human Services

Nationalized health care has been a liberal fantasy for so long that Obama will face tremendous pressure to deliver it quickly-especially since he has a Democratic-controlled Congress at his disposal. Even if nationalized health care did not come with deadly side effects like long waiting lines and inferior care, the fact of the matter is that the country simply can’t afford another big entitlement program when it is facing an annual deficit of half a trillion dollars and unfunded Medicare and Social Security liabilities in the tens of trillions. Under such circumstances, the best way for President-elect Obama to expand coverage would be by harnessing market forces to control the soaring costs of health insurance and putting affordable coverage within the grasp of more people. This would require, as influential economist Greg Mankiw has said, stealing some Republican ideas – and perhaps some Republicans.

They would certainly cut against the grain, but Obama has said he will name a Republican to his cabinet and two Republican governors would be particularly good for this job: Florida’s former Gov. Jeb Bush and South Carolina Gov. Mark Sanford. Unlike folks in Washington who have opinions about how to reform health care, they both have a track record of actually implementing practical, market-based reforms.

Bush implemented a pilot program called Health Opportunity Accounts. Under it, Medicaid recipients get a fixed sum of money – adjusted for their health – to buy their own coverage from private insurers. The vast majority of recipients have opted for the program and the competition that this produced among insurance companies has curbed cost increases. Similarly, Sanford has implemented Health Savings Accounts under which Medicaid recipients get an upfront amount every year to buy coverage, rolling over what’s left into the next year. This caps the state’s liabilities while giving recipients an incentive to conserve their health care dollars. It is too early to tell whether the program will deliver promised results, but the point is that Sanford and Jeb Bush have demonstrated an openness to innovative solutions that empower patients, control costs, and improve coverage that would serve an Obama administration better than a believer in command-and-control, big government solutions.

Among the good picks would be Obama’s economic advisor, Jason Furman, also under consideration for Commerce Secretary, and former Democratic Louisiana Senator John Breaux. Before John McCain unveiled his plan to reform the tax code to extend the health care deductions from employers to individuals during his presidential campaign, Furman wrote an excellent paper advocating exactly the same idea. He understands that the best way to cover the uninsured without breaking the federal budget is by making it easier for people to purchase their own coverage. “The most promising way to move forward in all three dimensions, coverage, cost, and long-run fiscal situation, is to replace the employer exclusion with a tax credit,” he noted in his paper.

Breaux, who headed President Clinton’s Bipartisan Commission on the Future of Medicare, is similarly mindful of keeping a grip on government spending on health care – although he voted for extending Medicare coverage to prescription drugs, vastly increasing the program’s liabilities. While on the Commission, he demonstrated a great deal of openness to considering market-based reforms and supported Health Care Savings Accounts.

For libertarians, three poor picks would be chairman of the Democratic Party and former Vermont Governor Howard Dean, New York Sen. Hillary Clinton, rumored to be the frontrunner for Secretary of State, and former Democratic Senator from South Dakota Tom Daschle.

Dean, a doctor himself, tried to control soaring health care costs by expanding government control over insurance prices and hospital budgets. He also created a statewide insurance pool and formed a new bureaucracy to manage it. None of this worked and premiums – and the number of uninsured – increased under him.

Clinton, of course, tried to nationalize the health care industry in one fell swoop when her husband was in office. Even though she seems to have abandoned that plan, during her presidential campaign, she advocated forcing the uninsured to buy coverage – through penalties and fines if necessary – to achieve universal coverage.

Meanwhile, since leaving the Senate, Daschle has written a book titled, Critical: What We Can Do About America’s Health-Care Crisis, in which he recommends creating the equivalent of the Federal Reserve Board for health care to set treatment standards, performance requirements and impose other mandates on the industry. In short, create another layer of bureaucracy on top of the one that he would oversee and hand it even more powers.

Either of them will signal a return of Big Government, big time.

Secretary of Energy

Obama has pledged to move America toward a green energy economy. He markets this idea – on which he plans to spend $150 billion over 10 years – as a public works project that would allegedly create millions of new jobs. The money would supposedly go toward supporting: electric cars; a renewable energy portfolio standard for electricity utilities; and reductions in carbon emissions.

But there is a better way for Obama to promote green energy that doesn’t involve breaking the federal bank: A zero subsidy energy policy, something that Carl Pope, former executive director of the Sierra Club, and Ed Crane, president of the CATO Institute, jointly advocated some years ago. Instead of asking taxpayers to subsidize green technologies, such a policy would simply eliminate existing subsidies for coal and oil that supply the vast bulk of American energy. It would also replace existing coal and oil taxes with pollution taxes to internalize emissions that pose actual harm to human health or property. This would create a level playing field in energy markets – whose absence environmentalists have long claimed is responsible for making solar, wind and other green fuels uncompetitive.

There are many names floating for this post but, by and large, Obama should stay away from industry insiders such as Federal Express CEO Fred Smith – whose views tend to be skewed toward their own needs – and crusaders such as former Vice President Al Gore – who are too deeply wedded to massive government interventions to be able to evaluate un-intrusive strategies with an open mind. (As previously noted, Fred Smith would be a great pick as Commerce Secretary, however.)

One of the best candidates for the job would be Daniel Yergin, founder of Cambridge Energy Associates, who was awarded the 1997 United States Energy Award for “lifelong achievements in energy and the promotion of international understanding.” He does not fall for the energy cause de-jure of the moment – whether energy independence or the peak-oil crisis. He has cautioned against adopting an overly centralized approach to alternative fuels. “High [energy] prices combined with concerns about energy security and climate change are stimulating the most widespread drive for innovation the energy sector has ever seen,” he has noted. It will take time for these investments to yield results and government meddling would be useless at best and counterproductive at worst, he suggests.

Also good would be Republican John Sununu – a fiscal conservative, a social liberal and a civil libertarian – who just lost his re-election bid for the Senate in New Hampshire. He co-sponsored the Clean Air Planning Act which, among some valid air pollution measures, unfortunately also tried to impose a cap-and-trade scheme to decrease carbon dioxide. But by and large, he is sound on energy issues. He supports more domestic fuel exploration – but opposes subsidies for that purpose. And he voted against steeper CAFÉ rules and more hydrogen cars.

Among the acceptable but not great candidates would be Philip Verleger, who was on Jimmy Carter’s Council of Economic Advisors. He has a deep understanding of the political economy of oil and energy markets. He has cautioned against imposing price controls on energy markets – but favors a windfall profits tax on energy. Although Obama should avoid executives, one who might be tolerable is John Rowe, CEO of Exelon, a Chicago-based energy company. He is generally market-oriented, but believes ardently that the government should reduce greenhouse gas emissions through something akin to a Marshall Plan to jump-start low carbon fuels (maybe because his company owns the largest nuclear fleet in the country).

Pushing the Apollo Plan for energy is Rep. Jay Insleem, a Washington Democrat, who should be avoided – even though Obama himself is proposing something similar. Essentially, his plan is to put in place a “unified and highly prioritized national program” under which Uncle Sam would offer loan guarantees for the construction of renewable energy facilities, cap-and-trade program to reduce greenhouse gas emission and stronger fuel efficiency measures. In the same category is Michigan Gov. Jennifer Granholm, who raised income taxes Michigan’s economy entered a recession with an unemployment rate of 8 percent. Now she is pushing a renewable fuel mandate requiring utilities to produce 10 percent of their electricity from alternative sources – something that will raise energy prices and make Michigan even less competitive. She is precisely the kind of energy secretary the country does not need in a recession.

Any of these candidates would indicate that Obama wants to use this portfolio more for pie-in-the-sky, social engineering schemes rather than actually looking for genuinely workable green fuels capable of meeting the energy needs of the economy.

Shikha Dalmia is a senior analyst at Reason Foundation. Many thanks to colleagues at the Reason Foundation and analysts at the CATO and Manhattan Institutes for their input in assembling the cabinet lists. Katie Hooks provided invaluable research assistance.

Dalmia’s recommendations for Secretary of State, Defense and Attorney General are here. Her picks for the Secretary of the Treasury, Education and Transportation are here.