Hank Paulson Is Now in the Hot Seat

David Wessel wonders why Hank Paulson took the Treasury job:

WSJ.com - Capital: Three Big Questions: Now that he has been confirmed by the Senate, Henry M. "Hank" Paulson Jr. moves into the U.S. Treasury with higher expectations for his performance than anyone since -- well, since Paul O'Neill.... Despite a perfect mix of government and corporate experience and old ties to Vice President Dick Cheney, Mr. O'Neill was done in by an abrasive personality and an unyielding White House grip on policy. Mr. Paulson believes he can do better, and also believes he'll have more clout than current secretary John Snow, who became a traveling salesman for policies made by others....

Mr. Paulson faces (at least) three big questions.

Can he square the deficit circle? President Bush is at risk of leaving the government's long-term fiscal health worse than he found it, the result of an insistence on tax cuts, an expansion of Medicare, an inability to restrain spending on benefits and a post-Sept. 11 surge in defense spending. Mr. Paulson gets that.... [H]e needs to persuade the president that a strategy of (a) pressing to make Bush tax cuts permanent and (b) attacking annual appropriated spending, other than defense and homeland security, won't achieve the desired end.... [A] Republican president can hope to restrain spending on Social Security, Medicare and Medicaid only if he can bring some Democrats along. And the only way to bring Democrats along is to put taxes on the table -- maybe not increasing tax rates, but raising revenues by simplifying the tax code, closing loopholes, targeting corporate subsidies, broadening the tax base or whatever brings in more money.

Can he steer anything through Congress? Even if Mr. Paulson gets more negotiating flexibility than his predecessors, there's Congress. Republicans are rebellious; Democrats eager to deny Mr. Bush any victory. Business executives turned Treasury secretaries are often vexed by the peculiarities of Congress. Mr. Paulson has only a few months to figure out the game.... Mr. Paulson acknowledged: "It would be quite naive to say that these could be addressed and solved in a 2½-year period." But unless he thought he had a shot, why take the job?

Can he find the right words to cushion the dollar's fall?... With so many economists anticipating a downward drift in the dollar as the global economy turns, Mr. Paulson will need to choose his mantra carefully. Swearing mindless fealty to "a strong dollar" in the current economic climate could undermine his credibility. Appearing to favor a weak dollar could start an unwelcome avalanche. And the megaphone he has been handed is far more powerful than he probably realizes.

Of course, luck helps, and there's an early sign he may be lucky. No senator asked Mr. Paulson (net worth: north of $700 million) to defend repeal of the estate tax.