Bush Adds Economic Advisor to New Team

President Bush brushed aside the objections of supply-side conservatives Thursday and named former Goldman Sachs Chairman Stephen Friedman as his chief economic policy advisor, completing a sweep of the administration’s economic team just weeks before what could be a contentious debate over how to help the nation’s sluggish economy.

Friedman, 64, will be director of the White House’s National Economic Council. He succeeds economist Lawrence B. Lindsey, who was dismissed last week along with Treasury Secretary Paul H. O’Neill for failing to effectively represent the administration on economic matters.

On Monday, Bush tapped rail giant CSX Corp. Chief Executive John W. Snow to be his next Treasury secretary, and the next day picked former New York Stock Exchange Chairman William H. Donaldson to succeed Harvey L. Pitt as chairman of the Securities and Exchange Commission.

“He’s an innovative economic thinker, a proven manager and a business leader of national standing,” the president said Thursday of Friedman. “Steve Friedman will be a key member of our team.”

In the days since their names first surfaced, Friedman, and to a lesser extent Snow, have been the targets of conservative attacks for their work in the mid-1990s advocating deficit reduction and balanced budgets. Supply-siders ridicule such goals as neither politically palatable nor particularly effective, and argue instead for steep new tax cuts to spur growth. Friedman was a director of the bipartisan anti-deficit group the Concord Coalition as well as a director of the nonpartisan Brookings Institution.

The attacks helped stall Friedman’s appointment, although Bush aides insisted the chief reason for the delay was the complexity of the investment banker’s personal finances, which the White House had to review before naming him to the post.

Conservative activists said Thursday they had received assurances from senior White House aides that Friedman will not use his new position to pursue what one termed “the failed politics of the Concord Coalition.”

“I’ve been told the guy is on board with the president’s program and will cheerfully go out and sell pro-growth tax cuts,” said Grover Norquist, president of Americans for Tax Reform, a conservative lobbying group.

But some doubt that Friedman can successfully mediate between the tax cut and deficit hawk wings of the Republican Party, which have been at odds for more than two decades.

“I don’t see how he can keep both camps happy,” said Brookings economist William C. Gale.

With his economic team now largely replaced -- the only prominent survivor of the shake-up is Council of Economic Advisors Chairman R. Glenn Hubbard -- the president turns to the next order of business, getting the economy to grow strongly again.

The White House appears to have settled on a new, 10-year $300-billion package of tax cuts that includes additional breaks for savers, a reduction in the so-called double taxation of dividends and an expansion of companies’ right to “expense” investment -- that is, use the amounts they spend on new plants and equipment to shrink their tax bills.

In addition, the president wants to make the $1.35 trillion in tax cuts for which he won congressional approval last year permanent. As things now stand, they will expire after 2010.

The problem is that economists are deeply divided about whether the economy needs the extra help and policymakers are at odds over whether Washington can afford the new cuts.

Thursday provided a classic example of the kind of mixed signals that the economy is sending.

In short order, the public learned that: November retail sales, which had been thought to be weak, were stronger than expected; initial unemployment benefit claims, which had been going down, took a huge jump up, and Federal Reserve policy-makers, who hinted after meeting this week that they thought the economy was on the mend, released documents disclosing that they devoted much of their previous meeting worrying about deflation.

Even if the economy does need help, Washington decision-makers are deeply divided over what kind and how much.

Democrats favor temporary measures that would generally focus on working- and middle- class households, such as a six-month payroll tax holiday or short-term grants to help state governments out of their budget binds. The president and Republican congressional leaders want permanent cuts focused on business and investors.

Friedman will be responsible for mediating the debate at a time when the government has swung from running surpluses to posting deficits. The deficit for the fiscal year that ended in September was $158.5 billion, according to the Congressional Budget Office.

Friedman is now a senior principal with Marsh & McLennan Capital Inc. as well as a director of Wal-Mart Stores Inc., Fannie Mae and Goldman Sachs.

In the early 1990s, he was co-chairman of Goldman Sachs with former Clinton Treasury Secretary Robert E. Rubin, to whom he is often likened. When Rubin came to Washington, Friedman headed the huge investment banking firm on his own and was credited with pushing it into a variety of new businesses.

Friedman graduated from Cornell University in 1959 and from Columbia University law school in 1962.