Gary Cohn left the White House and the world didn’t end. Now it’s time for would-be successors to step up to the plate or let the markets do their work.
In retrospect, Gary Cohn inherited a vacuum and now he’s left one behind. Someone’s going to fill that vacuum, but it may not be anyone whose name is being circulated right now as his replacement.
Nobody left behind at the National Economic Council wants the job. It’s hard to think of anyone else who’s really qualified to step into the role that Cohn effectively created for himself.
That’s actually a good thing. Instead of institutionalizing the “chief economic advisor” as a kind of diplomatic envoy from the financial industry elite, the NEC can go back to coordinating the work of people who really do have the power to make things happen.
Some great people have run that agency over the years, don’t get me wrong. But before Cohn, I had a hard time naming one who rose to prominence in that particular position — most did their best work before (Summers, Lindsay) or after (Rubin, arguably Gene Sperling) their NEC tenure.
They came and went, without shocking or rocking the markets. It just isn’t a high-profile role. With all respect, the odds are good that a relative nonentity will be appointed to fill it. Maybe it’ll be Trump’s trade advisor Peter Navarro, with his contrarian love of import barriers and superficially sinister quotes about how government economists’ job is to make the numbers fit the policy goals.
News flash: that’s what the NEC does. It’s not a conclave of independent economists modeling the future. That’s the Council of Economic Advisors and the National Bureau of Economic Research, whose senior members are probably better suited to academic and think tank work than working with the Cabinet to get things done.
Of course some complete unknown can come in out of nowhere to fill the job description. And even if there’s a long gap, life will go on. Maybe Mick Mulvaney will add it to the list of agencies he runs — the Office of Management and Budget evidently isn’t a big enough challenge — and we won’t even notice the difference.
Mnuchin and Powell in focus
Normally the highest-profile economist in the government is the Treasury secretary, if not the head of the Federal Reserve. When Cohn got to the White House, people hoped hard that he’d be the market-friendly velvet fist behind the iron glove of campaign rhetoric.
Steve Mnuchin wasn’t confirmed at Treasury yet and Jay Powell was only a glimmer on the horizon then. Suddenly Cohn was the top-ranked Wall Street figure in the administration.
“Gary,” the story went, would be the grown-up in the room, the guy who spoke the market’s language, knew the market’s concerns, would advocate the Wall Street position. If policy veered too far from the status quo, people argued, “Gary” would gently correct course for the good of Goldman Sachs and the world.
That was only a year ago. Since then, what initially looked like a tight partnership between Wall Street and White House disintegrated, leaving “Gary” in the middle. People started assuming in August that he’d be gone in 18 months. He lasted eight.
Looking back, it’s hard to quantify what he actually did, much less what policy doors his departure slams shut. Everyone in the administration wanted the tax cuts, so they happened. Talk of tariffs made Wall Street nervous, but they happened anyway.
If Wall Street can’t live in a world of snap decisions to raise trade barriers, its advocates need to speak up.
Mnuchin seems cozy in his role and fine with whatever comes out of the White House. Early in his tenure, the Treasury press office used to issue statements amplifying the administration party line, so even if his profile climbs in Cohn’s wake, he’s unlikely to go up against the boss.
Powell is a still an unknown quantity. Nominally the Fed charts its own course, but that’s not completely a great thing for people nervous about trade policy and looking for an advocate. Generations of Fed governors have stayed out of policy debates. Even comments on internal rate discussions are a new and relatively rare phenomenon — unless Powell has a deep unrevealed love of controversy, it’s unlikely that he’ll do a whole lot of meddling.
And in the absence of anyone with the tools and motivation to win this argument, it looks like the tariffs are going to happen, at least for the next few months until Congress needs to actively reauthorize what’s currently only a presidential proclamation.
More to the point, the world clearly hasn’t ended. Friday proved that markets are more worried about the Fed than about the cost of imported metal. It’s all about financing charges and the yield curve, not cars and girders. With wages under control for now, interest rates can keep edging up extremely gradually, giving us all time to enjoy the bull market while we have it.
Do it yourself
Given the alternatives on the table, I think the most likely scenario has Gary Cohn’s successor emerging from Wall Street itself, from people who still run the institutions that drive the industry. If Jamie Dimon or Lloyd Blankfein are worried about what trade does to trading, they’ll squawk.
They haven’t squawked yet on this one. They may be content to let tax relief circulate before fretting about a fresh drag on the way.
That’s all it takes. Be the change and the conviction you want to see in the world. You may not get that change, but sitting on your hands and fretting while the Gary Cohns of the world come and go is no way to go through life.
After all, your clients are counting on you. Argue. Back up your points in a way Steve Mnuchin hasn’t really bothered with lately but maybe Jay Powell will provide.
And remember, any consequences of a bad call from the White House will take years if not decades to play out. Well-made portfolios will swing with the headline flow, but otherwise keep edging upward between the jolts.
That’s the lesson for your clients. There’s a long way to go before we see the future. And the point of dealing with an institution — even one as huge as “the market” — is to avoid getting hung up on the daily chatter of people coming and going.
Cohn didn’t stick around long enough to leave a real legacy or even put together a succession plan. When he’s gone, his name will fade away like other NEC chiefs or even legendary Treasury secretaries and Fed governors.
People worried about a market crash when Bob Rubin left the Treasury way back in 1999. They worried about a world without Greenspan, then Bernanke, then Yellen. All these people came and went. Stock prices gyrated but mostly went up.