Suave Jim

National Review, Nov 29, 1985 by John J. McLaughlin

TRANSPLANTS WORK, it would seem, in politics as well as in medicine. Of 19 Cabinet-rank members of the Reagan team, seven were transplanted from different first-term posts: Ed meese at Justice, Bill Bennett at Education, John Herrington at Energy, Don Hodel at Interior, Jim miller at the OMB, Don Regan at the White House, and Jim Baker at Treasury. These seven transplants chart fresh policy; whereas the old guard manage crises, protect turf, speak in cliches, and succumb to their bureaucracies.

Take suave James Addison Baker III. As Ronald Reagan's first-term chief-of-staff, Baker was generally regarded as the shrewdest, most non-ideological, and most powerful member of the Meese/Baker/Deaver troika. When he swapped jobs with then Treasury Secretary Don Reagan at the beginning of the year, some insiders thought that he might not make the grade because of his lack of exposure to the complexities of international and domestic finance. But Baker is a very quick study and a skillful utilizer of staff talent, notably that of Harvard-trained (MBA) Richard Darman. As things stand now, Jim Baker is happier, more relaxed, more "centered," as one aide and friend puts it, than he ever was in his frenetic, centrifugal White House job. Many think that Baker has more political clout with Ronald Reagan now than he had when he was at the White House, because he no longer is required to fight the day-to-day battles on a range of fronts, to balance conflicting constituencies, to advance all options for review. "Baker can now fashion policy full time," says an aide. "Compared to firefighting at the White House, that's a luxury. And the President has given him a long leash." (Don Reagan's shop knew little, for example, about Baker's early October maneuverings in international economic policy at Seoul until they turned up in the newspapers.)

In a word, Baker has more wiggle room at Treasury, and he's using it not only to originate policy, but to exploit his superior skills as a dealmaker with Congress. Without question, he works harder than any other Reaganite to court the Hill, and it works. It's practically impossible to get anyone in Congress, on either side of the aisle, to say anything really negative about Baker. "When he says yes or no," declares a senior Democratic staffer, "you can count on it. He's a stellar, politician, but he's also a man of his words." A main-line Republican senator expands on this: "We sometimes have our disagreements, bu Baker's strength as a negotiator makes him an excellent representative of the President."

If you search long enough, however, you can locate Baker critics. "He doesn't toe the line," says a Conservative Opportunity Society (COS) congressman. "yet nobody at the White House has called him on it. Jim's more concerned about the Baker agenda than about teh Reagan aganda, and he talks too much with the other side."

A case in point is tax reform, according to the COS school of criticism. "Baker's lack of resolution in pushing the President's proposal is making it all unravel," asserts a COSer; which, on analysis, is a bum rap since Baker, after assuming his new job, refashioned Don Reagan's tax-reform plan (Treasury I) into Baker's (Treasury II), became totally proprietary about it, and was instrumental in getting House Ways and Means Committee Chairman Dan Rostenkowski to shoulder the reform wheel. Tax reform is dying not because of any insouciance on Baker's part but because a) it has no popular constituency, b) it does nothing for the middle class, c) it's probably a revenue loser, which, with $200-billion deficits facing us, is an absolute no-no, and d) politicians, including Republican Senate leaders, are properly scared of its voter-alienation potential during an election year.

This being said, it is also probably true that Baker realized a couple of months ago that tax reform, if it emerges from Congress at all, will be so diluted that to call it reform would be semantic larceny. Realistically, then, the Treasury Secretary focused on other reputation-enhancing mechanisms, to wit, the new policies of devaluation and reflation.

ON SEPTEMBER 22 he convened a meeting of the Group of Five (G5--Britain, France, West Germany, Japan, U.S.A.) finance ministers at the Plaza Hotel in New York and successfully coerced an 11 per cent appreciation of the yen, despite Fed Chairman Volcker's skepticism about devaluation. This G5 meeting and the OECD conference in Paris last April (at which Mr. Baker voiced a willingness to chair an exchange-rate meeting of central bankers and finance ministerse) were the first sallies by a U.S. Treasury Secretary into international monetary policy since George Shultz's floating of the dollar in March 1973. What does it mean? A dramatic deviation from first-term Reagan econimic policy, with monetarism heading down the chute.

This aggressive intervening in currency manipulation put Baker at odds with non-interventionists Beryl Sprinkel--chairman of the President's Council of Economic Advisors--and Geroge Shultz. Yet it let the gas out of Congress's protectionist balloon. Coupled with expanded lending ($20 billion) by private commercial banks to Third World countries, and an additional $9 billion from the IMF--both of which Baker touted successfully at the IMF/World Bank meeting in Seoul in early October--it marks a powerful shift in the Reagan Administration's monetary policy.