I.O.U.S.A. (54 page)

Q:
Toward the end of 2002, you wrote a report that said that the
current debt wasn ’ t the problem; it was the debt that we are
stepping toward. Shortly thereafter you were asked to leave.

Can you explain to me what happened the day you were fi red?

Paul O ’ Neill:
During 2002 I found myself being at odds with where policy seemed to be going, I kept arguing that we couldn ’ t really afford another tax cut and that we didn ’ t need one, since the economy was doing fi ne. But my problems were not just differences about tax policy and social policy and fi xing Medicare and Social Security. I kept asking almost every week, of the people from the CIA who briefed me, you know, where ’ s the evidence for weapons of mass destruction? I see all of these allegations and projections of trends from 1991 and what we knew in 1991, but I didn ’ t see anything I considered to be evidence. One of the things I ’ ve been trained to do for a long period of time is to know what you know and to differentiate that from what you suspect or what someone c16.indd 211

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alleges, so I kept being a pain in the neck and asking, “ Where ’ s the evidence? There ’ s no evidence, there ’ s nothing I believe. ”

Early in the administration, at a National Security Council briefi ng, there were a bunch of photos put on the table and it was alleged that this satellite picture of what looked like a warehouse that you could fi nd anywhere in the world was a production center for weapons of mass destruction. I said, I ’ ve spent a lot of time going around the world, producing goods all over the world, and have seen a lot of factories and warehouses. How can you tell me this one is a center for producing weapons of mass destruction? There ’ s nothing here that tells you that? You may assign it that, but there ’ s nothing here that tells you that.

One of the things I found really interesting out of this experience is that even today, people that I have a lot of regard for their intellect, like Bill Clinton, still say they believed the evidence was there. I ’ ve never had this conversation with him, but it ’ s hard for me to believe a guy who ’ s as smart as he is doesn ’ t know the difference between an allegation and evidence — especially someone who ’ s trained as he is as a lawyer. I ’ ve been astounded, this is a bipartisan thing — people on both sides don ’ t seem to get the difference between evidence and what they call intelligence, which I would call not intelligence, just a bunch of fabrications.

So I was working my way to the margins of what endurance that people had for me, both in economic policy and in everything else I encountered. I have to admit some of the things that I said during this period probably ought to have been tempered. For example, we were struggling with trying to get the International Monetary Fund and the World Bank out of the business of effectively bailing out private sector lenders who ’ d given money to developing countries with the expectation that the people of the United States and other tax - paying people around the world would bail out the private sector lenders. I said (probably not very advisedly), “ Before we give any more money to Argentina, we ought to make sure it ’ s not going to go to a Swiss bank account. ”

Which was, I admit, not very diplomatic, but it was true — and interestingly enough, in a few weeks a guy who had been the c16.indd 212

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president of Argentina said, without any prompting from me,

“ Well it was true he had money in a Swiss bank account, but it was all his own. ”

So in any event, as we moved past the election in 2002 and we had this continued conversation, a really heated conversation with the vice president about what I considered to be the inadvisability of a further tax cut, I got a call, early in December. I was in my offi ce having a meeting with a group of people and my secretary came in and said, “ The vice president ’ s on the phone and would like to talk to you. ” And so, as it always happens when you get this kind of a call, the people get up and go in the other room so that you can have a private conversation with the vice president or the president if he calls. The vice president said, “ The president ’ s decided to make some changes, and you ’ re one of the changes.

What we ’ d like to do is have you come over and meet with the president and basically say that you ’ ve decided to go back to the private sector, that you ’ re ready to quit your involvement with the Treasury. ” And I said to him, “ You know, I ’ m in the middle of a meeting here, I ’ ll call you back in a little while. ”

And so the people came back into my offi ce and we fi nished up whatever the topic was we were talking about, and then I called the vice president back. I said I didn ’ t think I needed another meeting with the president, thank you very much. I thought I ’ d had plenty of meetings, and I thought he probably didn ’ t need a meeting and I certainly didn ’ t need a meeting.

And I also said to him, “ You know, I ’ ve been going along now for 65 years or so and, you know, for me to say that I ’ ve decided to leave the Treasury to go back to the private sector is a lie, and I ’ m not into doing lies. And so what I want to do is issue a press release tomorrow morning before the markets open so that they ’ ll have time to digest this news in case it creates any stir. I ’ m going to meet with my staff at 8 o ’ clock to tell them so they won ’ t hear it from the media but they ’ ll hear it directly from me, because I recruited most of these people; they ’ ve done great work while I ’ ve been here, and I want to tell them personally. And as soon as I ’ m done telling them, because fi ve minutes after I tell them, c16.indd 213

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somebody will call the media, I want to issue a press release that basically says I ’ ve decided to resign. And I ’ ll send the president a note telling him I ’ m resigning. ”

And I think he was surprised by that. He didn ’ t try to argue me out of it, I think probably because he ’ d known me long enough to know that it wouldn ’ t do any good, that I ’ d made up my mind and that was it. So I called my chief of staff, Tim Adams, back in, and my press assistant came in and I said, “ I would like to issue a statement that says I hereby resign. ” Well, they didn ’ t think that was a very good thing to do, and so I wrote a little more of a note then, saying that I appreciated having the opportunity to serve and I hereby resign and that was it. And so the next morning, I came in and met with the staff, and I had an opportunity to tell them in person, face to face, all of them together, “ I ’ m leaving. You all need to stay. The president needs help and you ’ re all talented, thoughtful people, so my actions should not lead the rest of you to do anything except to stay and serve. ” And that was it. I went back to my offi ce and latched up my briefcase and went down to the parking space that ’ s reserved for the secretary of the Treasury, got in my car, and drove back to Pittsburgh.

Q:
What did it feel like to get fi red?

Paul O ’ Neill:
Well, it ’ s a fi rst in my life — I ’ d never been fi red before, I ’ d only been promoted to ever higher levels of responsibility. But it was okay with me because I would have really been uncomfortable arguing for policies I didn ’ t believe in. One of the things I actually said to President Bush and Vice President Cheney when they asked me to come and have lunch with them, and to ask me to serve as the secretary of the Treasury, was that I had reservations about doing this. And one of the reservations I had was that, having been the CEO of a very big corporation for 13 years and the president of a very big corporation for the period before that, I wasn ’ t sure how easy it was going to be for me to knuckle under when I thought the policy was wrong.

The thing I didn ’ t know is how diffi cult it would be to knuckle under if you thought the policy was not well vetted, that it was c16.indd 214

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decided on the basis of ideology instead of what was right for the country. At that point I really thought the decisions were not being made on the basis of what was right for the country, they were being made on the basis of what was right for getting reelected.

It ’ s probably altruistic, but I thought for a long time we need presidents who are so devoted to doing the right thing with and for the American people that they ’ re prepared to lose for their values and to hang their values out in public for everyone to see them.

Q:
Very few people know as much about budgets as you do.

And as far as your work in the private sector, some said it
was miraculous what happened at ALCOA. Do you think
that the advice that you gave the administration, if it were a
different administration, with different management styles and
techniques, that there may have been a different ending to your
story at Treasury?

Paul O ’ Neill:
There are times when I fi nd I ’ d rather not be right; I wish it were true that we didn ’ t have to fi x Social Security and Medicare, and we didn ’ t need to fi x the structure of the tax system.

However, the issues that I argued for and about over a long time are still there, and they ’ re worse now. The passage of time is not going to fi x these problems. The fact that our 10,000 - page tax system is an abomination and actually lends credence to the idea that we ’ re not an intelligent people hasn ’ t improved with the passage of time. We have several thousand more pages than when I came in 2001, in the federal tax code, and by the best estimates we ’ re undercollecting what people are supposed to pay by $ 300

or $ 400 billion a year. This is all because of complexity and the insanity of this thing that we now call our “ revenue raising system ” in this country.

It ’ s going to take a president with real courage to provide the leadership to make it simple, to make it transparent so that people pay their fair share. If you think about it, right now, the undercollection that ’ s represented by that $ 300 or $ 400 billion is like a 15 percent surcharge on the rest of us. You know, Medicare and Social Security could be fi xed in a really wonderful way c16.indd 215

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if we could elect a president who would tell the people some fundamental truths. One fundamental truth is this: The federal government doesn ’ t have any money that it doesn ’ t fi rst take away from the people — pretty straightforward and simple.

Now the other important truth is this: I believe that in a just society, especially one that is as wealthy as we are, when people get to be 65 years old they should have fi nancial security. That means not just the money to pay for your daily bread and your normal living expenses, but for your health and medical care needs as well. The only way to do that is to save, and right now we ’ re living in this condition where we don ’ t really save Social Security tax money, we don ’ t really save Medicare tax money — we ’ re spending it all. And in order to get on top of this notion of fi nancial security for people when they get to be 65, we actually have to save.

I ’ ll give you some numbers to make the point. If we were to say that we want people to have a $ 1 million annuity when they get to be age 65, this is what we would have to do: If we put $ 23,000 in an account on the day of birth for every of one of the 4 million kids born in the United States each year, and we had a 6 percent compound return rate, which is below the norm since 1929, every person would have actually over a million dollars by the time they get to be 65, which would be an annuity for $ 82,000 a year for 20 years, which is longer than the expected life span when you get to be 65.

Now people will say, well we have to take into account infl ation and all that, and that ’ s true. But this notion illustrates the point that if we as a society decided that we were going to save $ 92

billion a year, which is what it would take to put this notion into effect, we could in effect go a long way toward guaranteeing fi nancial security and money to pay for the health and medical care needs when every American gets to be 65, without regard to whatever they did in their lifetime, so that we can make good on this idea of guaranteeing there is something to being an American, and the current generation saves the money to make it come true.

Where does the $ 92 billion dollars come from every year? From we the American people. To put it in context, this year our total c16.indd 216

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spending is going to be something close to $ 3 trillion, and in fact, the money that hopefully we ’ re going to save when we stop doing Iraq would be more than enough to fund a fully saved program to guarantee fi scal security and fi nancial security for individual Americans, every one of them. This is not a family thing — this is if you ’ re an American, you as an individual will have fi nancial security when you get to 65. This is a doable proposition now, but there ’ s a transition problem. In order to do this, we ’ re going to have to fi gure out to pay for the generation now living that ’ s got Social Security and Medicare entitlements as we work our way through this problem.

And there are ways to do that, including fundamentally fi xing our health and medical care system on a bigger basis than Medicare alone. I spent lots of time working on issues of our health and medical care system, and I think the data would support me when I say that if we simply did well, extremely well, at everything we already know how to do in health and medical care, we could simultaneously improve the outcomes for our population and reduce the cost by 50 percent a year. Which is to say, instead of spending $ 2 trillion a year on health and medical care now (upwards of 16 percent of our GDP), we could spend $ 1 trillion a year and have a better outcome. That ’ s a longer story; it ’ s a diffi cult proposition to improve how we practice medical care.