The president's latest pick

It is just short of amazing that a man of Henry Paulson's stature would sign on as Treasury secretary, given the experiences of his two predecessors. That he did so indicates that he has been given assurances that he will be the secretary of the Treasury, not just play one on the occasional TV appearance.
The White House had treated the two previous holders of that post unkindly, firing Paul O'Neill and hanging the current occupant of the post, John Snow, out to dry. Neither had any significant influence on economic policy, which was dictated from within the White House.
It will be absolutely amazing if Paulson can, at this late date, enforce some semblance of fiscal discipline on an administration that has overseen a 50 percent increase in the national debt in just five years. Again, that he took the job would indicate that he has the expectation of being able to set and pursue a Treasury policy with which he would be comfortable. He'll need more than the fulsome praise and good wishes he got on accepting the job.
How the debt grew
A little history of the national debt is in order. It is a given that the debt increases in times of war. The first time the national debt reached into the billions was during the Civil War, during which it grew from $58 million to $2.76 billion. But after the war, Congress began attacking the debt and ran 18 straight years of surpluses.
In 1917, war bonds were introduced and by the end of World War I the debt had grown to $25 billion -- 10 times the amount at the end of the Civil War. But, again, Congress began working on the debt, and had it down to $17 billion when the Depression hit in 1929, followed by World War II. By the end of that war, there had been 16 straight years of deficits and the debt stood at $269 billion, about 10 times what it had been at the end of WW I.
Despite a booming post-war economy, Congress did not show the same commitment to reducing the deficit as it had after other wars, and Republican and Democratic administrations seemed content to live with debt. It grew from $286 billion in 1960 to $371 billion in 1970 (part of which was the $173 billion cost of the Vietnam War). The debt ballooned to $909 billion by 1980,and the first year it exceeded $1 trillion was 1981. It increased four-fold throughout the Reagan and George H.W. Bush years. When Clinton took office, it was a little over $4 billion and grew to $5.6 million over his eight years. During two years of budget surpluses, it began to level off, then exploded from $5.8 trillion in September 2001 to $8.3 trillion over 56 months. It is increasing at an average of $1.7 billion a day.
Paulson must convince an administration that describes itself as in an ongoing war against terrorism that it cannot continue to run up war-time deficits. This war is undeclared and has no definable end-date. But the nation cannot continue to spend as if there is no tomorrow.
Broad implications
The massive debt is more than a burden to future generations. Because much of it is tied up in those IOUs President Bush referred to a couple of years ago -- the Social Security trust fund -- the future financial security of aging Americans is tied to the nation's ability to pay its debts. And because much of the debt is being bought by foreign governments with the hundreds of billions of dollars they are reaping though unbalanced free trade, America is selling its ability to be master of its own destiny. Nations that hold enormous amounts of U.S. notes eventually gain the ability to affect U.S. policy.
In addition to the national debt and continuing budget deficits, Paulson's Treasury department must contend with the trade deficit, a softening dollar, fears of inflation on Wall Street and a housing boom that was built on extraordinarily low interest rates.
On the plus side, economic growth is robust and unemployment is low.
Paulson is unusual in the Bush Cabinet in that he is coming from the outside. He obviously expects to have access to the president and clout within the administration. To the extent that he gets it, some things are going to have to change. And if he doesn't get it, this appointment could turn out to be a bigger mistake than the appointment of O'Neill, who wrote a scathing book after he was fired.