3 More Surprings Things About Paulson's Speech

I've been thinking some more about Hank Paulson's speech. I increasingly think it does show a shift in the administrations economic thinking. This was laid out in a perceptive Council on Foreign Relations Memo two weeks ago:

Bush essentially set five goals for the new Treasury secretary. Keep taxes low. Curb federal government spending to curb the budget deficit. Deal with international imbalances. Keep investment markets open. Support innovation and risk-taking in the private sector to boost USeconomic growth.

They were right on the money: this gives a pretty good summary of the speech. But three things strike me nonetheless. First, the repeated focus on entitelments. Paulson mentions it throughout, along with restarting stalled reforms. It is a very clear sign that we'll soon have Social Security, round 2. Second, the new deficit focus heralds budget cuts above the Deficit Reduction Act. Paulson is "working with my colleage and friend Rob Portman" at OMB. This implys new measures in the offing. Remember when most people thought Portman's move from trade signalled the death of Doha? Perhaps it instead meant a genuine new enthusiasm for budget cuts? I mailed a Wall St insider last night who concurred, saying "The major point of Paulson's remarks was the promise to cut entitlements next year to reduce the deficit." Finally, the sheer domesticity is striking. When Paulson was appointed, he was going to be Mr Global "No Retreat From The Global Economy." Now it seems he is Mr domestic "Getting Our House in Order." Yet, underneath, he could still be Mr "Using The Economy As An Excuse To Slash Spending." Lets watch and see: at some point, the real Henry Paulson will have to stand up.