Bush Fires His Top Economic Advisors

WASHINGTON —  Treasury Secretary Paul H. O’Neill and Lawrence B. Lindsey, President Bush’s two top economic advisors, were forced from their jobs Friday, the administration’s first major shake-up and a clear signal of a more aggressive White House approach toward a struggling economy.

The dismissals were disclosed just as the stock market was reeling from the government’s announcement that the nation’s unemployment rate took an unexpected jump to 6% in November, up from 5.7% in October.

With word that O’Neill and Lindsey, head of the White House’s National Economic Council, had been asked to resign, the market staged a comeback. By day’s end, the Dow Jones Industrial Average had gained 22.49 points.

But worries about the economy -- and the administration’s handling of it -- were hardly expected to be alleviated by the departures. Indeed, the resignations underscored long-standing concerns that the administration’s key economic advisors had failed to effectively grapple with sluggish growth rates and rising joblessness.

Bush is keenly aware that economic woes -- and the perception of a lackadaisical White House response to it -- cost his father reelection in 1992. He repeatedly has vowed to avoid the same fate. Overhauling the economic team is seen as a key step to avoid such criticisms.

“This is really the beginning of the focus on the 2004 election, and [White House officials] felt they needed to burnish their image as an administration concerned about the economy,” said Robert Hormats, a former senior economic aide in Democratic and Republican administrations.

O’Neill, 67, and Lindsey, 48, became “sacrificial lambs,” said Mickey Kantor, Commerce secretary and trade representative in the Clinton administration.

The White House also is expected to soon unveil an economic stimulus package that officials and others have said will call for accelerating income tax cuts that were to be phased in later this decade. Another expected proposal would reduce taxes on dividends.

But as he pushes this plan, Bush faces the task of rebuilding virtually his entire economic team. The White House has yet to replace Harvey L. Pitt, who resigned recently as chairman of the Securities and Exchange Commission. Also, O’Neill’s hand-picked deputy secretary, Kenneth Dam, was considered likely to leave.

Commerce Secretary Don Evans, a close friend of Bush, was considered one of the most likely choices to replace O’Neill. Others whose names surfaced Friday were former Sen. Phil Gramm (R-Texas), U.S. Trade Representative Robert B. Zoellick, and R. Glenn Hubbard, chairman of the White House Council of Economic Advisors.

Stephen Friedman, a former co-chairman of the Goldman Sachs investment firm, is the favored candidate for Lindsey’s job at the White House.

While Republicans quietly applauded the changes, Democrats took advantage of the moves to criticize the administration’s economic performance.

“Firing its economic team is an overdue admission by the Bush administration that its economic policies have failed,” said outgoing Senate Majority Leader Tom Daschle (D-S.D.). “However, the fundamental problem is that this administration has no comprehensive plan to get the economy back on track.” The centerpiece of Bush’s economic policy in his first months in office was the $1.35-trillion, 10-year tax cut that became law in mid-2001. Bush and his GOP congressional allies have argued that the measure lessened the effects of a recession that was already underway.

But many Democrats, pointing to the return of a multibillion-dollar federal deficit since Bush took office, accuse the administration of a one-note approach to economic policy. Rep. Charles B. Rangel of New York, the top Democrat on the House Ways and Means Committee, echoed that criticism Friday.

“We’re just foundering in the darkness of economic deficits that are getting worse, and we’re just talking about [additional] tax cuts,” he said. “They never talk about working people.”

Sen. Trent Lott of Mississippi, who will replace Daschle as Senate majority leader when the GOP takes control of the chamber in January, praised the work of O’Neill and Lindsey. But like most Republicans, he did not decry their departures.

The dismissals will give the White House “the opportunity to build a new team that will focus on economic growth and creating American jobs.”

The White House had been signaling its displeasure with O’Neill and Lindsey for several weeks, but neither took the hints that had been sent their ways. Indeed, O’Neill told a visitor three weeks ago that he was working on a proposal to overhaul tax laws during the coming year. And he had said he planned to remain in his post for the rest of Bush’s current term.

But he was told Thursday by Vice President Dick Cheney to hand in his resignation, said a well-placed Republican with ties to the administration. Cheney, who worked with O’Neill in the Ford administration, had been his primary supporter when Bush formed his Cabinet.

An administration official, speaking on condition of anonymity, added that White House chief of staff Andrew H. Card Jr. reinforced Cheney’s message late Thursday, demanding O’Neill announce his departure Friday.

O’Neill followed through with a terse resignation letter released Friday morning by the Treasury Department.

A short time later, Lindsey’s resignation was announced by the White House.

Bush, in a written statement, said he appreciated O’Neill’s and Lindsey’s contributions to the crafting and implementation of “an economic agenda that helped to lead the nation out of recession and back into a period of growth.”

He also sent them personal notes, White House Press Secretary Ari Fleischer said, but did not speak with them.

Bush prides himself on showing his staff the loyalty that he demands of them -- and his administration has largely exhibited little of the public backbiting and infighting that scarred his predecessors.

But loyalty goes only so far.

“This is yet another demonstration that sentiment is not going to get in the way of their doing what they feel the need to do,” both to govern and to win reelection, a source close to the White House said.

For an administration that since Sept. 11, 2001, has been focused primarily on national security and foreign policy issues, the nation’s lingering economic woes -- and the political traps they can present -- have been a troublesome shadow.

The economic team, even before last year’s terrorist attacks, has been considered the administration’s weakest element. And O’Neill, a former CEO of Alcoa, the giant aluminum manufacturer, quickly became a lightning rod for detractors.

O’Neill’s critics said he lacked the academic depth and political savvy of his two predecessors in the Clinton administration, Robert E. Rubin and Lawrence Summers.

“He didn’t come from the Wall Street-Treasury complex,” said Mark Weisbrot, an economist at the Center for Economic Policy Research, a liberal think tank. “That made him a bit of an outsider.”

O’Neill also created more unwanted controversy than any member of Bush’s Cabinet. He angered Congress, spooked Wall Street and alienated foreign leaders with his blunt and often off-key comments.

When House Republicans assembled their own package of proposed tax cuts, O’Neill dismissed the effort as legislative “show business.” When securities traders questioned his familiarity with financial markets, O’Neill said he could master their jobs in about two weeks. When the government of Brazil was seeking international financial aid, he said he was afraid much of the money would wind up in Swiss bank accounts.

Four months after taking office, he indicated a distaste for programs that have become politically sacrosanct, such as Social Security. “Able-bodied adults should save enough on a regular basis so that they can provide for their own retirement and, for that matter, for their health and medical needs,” he said.

And, in a moment of supremely unfortunate timing, he was on a lengthy trip to Africa in May, accompanied by rock singer Bono, as corporate integrity issues reached scandal proportions and shook the confidence of U.S. investors.

Lindsey had been Bush’s chief economic policy advisor during the 2000 presidential campaign and, before that, a member of the Federal Reserve Board during much of the 1990s.

With an office in the White House, he was less in the public eye than O’Neill. But he drew complaints within the administration for not mastering the demands of running a staff dealing with sensitive and politically crucial issues.

Eventually, said a Republican close to the current White House staff, Lindsey had been largely pushed aside, and much of his role was being performed by deputy White House chief of staff Joshua Bolton.

Suggestions that changes were due for Bush’s economic team have circulated in Washington and on Wall Street since summer, but the autumn political campaign dictated delay.

“These kinds of things normally do not happen prior to an election. But once an election is held, you have a housecleaning and prepare yourself for the next two years,” said Leon E. Panetta, one of President Clinton’s chiefs of staff.

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Times staff writers Maura Reynolds, Warren Veith and Nick Anderson contributed to this report.