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U.S. News
Bush forces out O'Neill; Economic shake-up also ousts Lindsey

Saturday, December 07, 2002

By Mike Allen and Jonathan Weisman, The Washington Post

WASHINGTON -- President Bush yesterday forced out his treasury secretary and another top economic adviser, an abrupt move that reflects heightened White House anxiety over the ailing economy.

Treasury Secretary Paul O'Neill and National Economic Council director Lawrence Lindsey resigned after Bush decided that he needed stronger messengers to communicate with voters, investors and lawmakers as he headed into his re-election race, White House officials said. The officials said Bush plans no change in his fundamental economic policy, which will still emphasize tax cuts.

White House officials said Bush plans to announce their replacements soon, perhaps next week. The officials said the leading candidate to replace Lindsey is Stephen Friedman, a former chairman of the investment bank Goldman, Sachs & Co. O'Neill is likely to be replaced by a corporate executive, and the two will be announced together in an effort to convey concern for "both Wall Street and Main Street," a senior aide said.

O'Neill, 67, is the first member of Bush's Cabinet to depart. It is unusual for Bush to push out a top aide, especially one like O'Neill, a former corporate chieftain who shared a gruff camaraderie with the president.

O'Neill's resignation letter to Bush stated, "It has been a privilege to serve the nation during these challenging times. I thank you for that opportunity."

Bush issued a statement that was just as terse: "My economic team has worked with me to craft and implement an economic agenda that helped to lead the nation out of recession and back into a period of growth. Both are highly talented and dedicated, and they have served my administration and our nation well."

Lindsey, 48, issued a page-long letter full of praise for Bush and his policies. "But the time has come for me to devote myself to other pursuits," Lindsey said.

Sources said Bush had soured on the gaffe-prone O'Neill last May, after a series of statements -- including ones contradicting administration doctrine -- had to be explained away. The sources said Bush decided to get rid of Lindsey after the economist told The Wall Street Journal in mid-September that a war with Iraq could cost as much as $200 billion, at a time when Bush was not confirming that he planned any such attack. "That made it clear Larry just didn't get it," one official said.

Bush's aides said he was dissatisfied with the ailing economy, which he often describes as "bumping along." The Labor Department reported yesterday that the unemployment rate soared to 6 percent last month, matching the eight-year high reached in April.

O'Neill's problems additionally stemmed from his absence from the public stage at crucial moments for the economy. Bush's discontent with Lindsey was not over policy matters so much as his managerial skills. As director of the National Economic Council, Lindsey was expected to meld a range of economic policy opinions into a coherent package with a clear message.

"There was no specific piece of advice or comment or behavior that prompted the change," a senior official said. "It was the president's determination to move in a new direction and look forward as he reached the midpoint of his term."

Bush reached the final decision after a meeting Wednesday with political adviser Karl Rove, Chief of Staff Andrew Card and Deputy Chief of Staff Joshua Bolten. Friedman, Lindsey's likely replacement, is a former boss of Bolten.

Vice President Dick Cheney, who recruited O'Neill to join the administration, called O'Neill late Thursday afternoon "as an old friend," and suggested that he "have a stiff drink," an aide said. Another aide added that after the conversation, O'Neill "came to his own conclusion to resign."

Reportedly furious, O'Neill did so early yesterday, then informed his senior staff at 8:38 a.m. and left for his home near Pittsburgh 20 minutes later.

O'Neill, former chief executive of the aluminum giant Alcoa Corp., has an unvarnished style that rankled powerful lawmakers on Capitol Hill, and executives on Wall Street complained that he insulted them. O'Neill and Ways and Means Committee Chairman William Thomas, R-Calif., no longer speak to each other, sources said.

Lindsey, a former Federal Reserve governor, was at loggerheads with O'Neill as the administration devised a package of tax cuts that is to be a centerpiece of Bush's legislative agenda next year. Bush blamed Lindsey for many of the administration's economic missteps in recent months and even complained privately about his failure to exercise, aides said.

The departures have caused Bush to postpone the announcement of his tax-cut package, which had been planned for mid-December, to January to allow the new team to work on it, officials said. Lindsey had won many of the internal battles over the shape of the package, which is certain to include the removal of the expiration dates on the 10-year, $1.35 trillion tax cut enacted last year, and is likely to include elimination of the tax on dividends.

Although rumors about a shake-up on the economic team had swirled practically since Bush's inauguration, the timing took both O'Neill and Lindsey by surprise, their aides said. A senior administration official said the announcement about the shake-up was moved up after a reporter on Thursday asked several senior White House officials about Friedman.

"The president loves these guys, and we decided it was cruel to let them find out from leaks," the official said.

Since the Republican electoral successes in November, both O'Neill and Lindsey appeared to be solidifying their holds on their jobs. O'Neill was planning an ambitious push for fundamental tax reform, while Lindsey was shaping a stimulus package that was set to be released as early as next week.

If O'Neill was pushed, it did not take much of a shove, one treasury official said. O'Neill made clear this summer that he was growing tired of the in-fighting and skullduggery that characterized policymaking in Washington. He had spent virtually all summer and fall traveling outside the capital.

"As he told senior staff this morning, there are lots of other important things to do in life," said treasury spokeswoman Michele Davis. "Back in December of 2000, he was planning to retire and devote himself to improving health care and education in Pittsburgh. I'm sure he will return to those important projects."

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