It's some measure of the scope and depth of Treasury Secretary Hank Paulson's portfolio that instigating and arranging an $80 billion bank bailout fund isn't the biggest item on his packed agenda. Yes, dealing with the fallout from the subprime implosion and ensuing credit market fallout is important stuff, but it pales with successfully tackling the two major long-term issues that Paulson is actively confronting: creating a policy framework for keeping Social Security solvent and, most important, managing trade relations with China.
At least the former Goldman Sachs honcho is having some success with the credit crisis. Social Security and China will probably go down in history as nice efforts but ultimately failing ones. The Treasury Department has been releasing research reports on Social Security's fiscal situation and what measures—higher taxes and spending cuts—would need to be taken to make the system self-sustaining.
Yet most of this information is already widely known and seems to be doing little to reignite the Social Security debate. Consider this: Congress is having trouble getting its arms around reforming the alternative minimum tax, and that will starting pinching millions of middle-class taxpayers next year. Social Security doesn't have to begin tapping its trust fund until 2017. At the very least, this is an issue for the next president, Treasury secretary, and Congress to confront.
And if Social Security is Mission: Improbable—at best—then China is certainly Mission: Impossible. Congressional calls for a rapid strengthening of the yuan will surely go unheeded by Beijing, which views such a move as threatening to both economic growth and political stability. (The yuan has, however, gradually risen 10 percent or so vs. the greenback since China loosened its strict peg to the dollar in July 2005.) The best Paulson and his "strategic dialogue" with China is likely to produce is just enough progress and promises—maybe on intellectual property, for instance—to keep the forces of protectionism on Capitol Hill at bay.
Yet trade itself is doing some of the hard work for Paulson. Booming U.S. exports have greatly offset the impact of the housing recession on the American economy. A sharp downturn in U.S. growth would surely turn the protectionist mumblings and rumblings into screams. And some Democrats, like House Ways and Means Chairman Charley Rangel, are also trying to turn down the heat by incrementally proposing a new "social contract" with workers, such as expanding "trade adjustment assistance" to include service workers displaced by trade.
For now, though, trade continues to lose public support—among Democrats and Republicans—according to poll after poll. So Paulson's role as a public promoter for an open-trading society doesn't seem to be having much of an impact, either. It could be said that Paulson is playing a bad hand and he's playing it well. But that hand still looks like a loser.