WASHINGTON -- Henry M. Paulson Jr. took over yesterday as Treasury secretary and as President Bush's top economic adviser, filling out a new economic team with a more pragmatic cast for the final 2 1/2 years of this administration.
Bush, who wooed Paulson from his post as chairman of Goldman Sachs, said yesterday that the former executive would have a central role in setting the agenda and implied that the Treasury Department would regain some of the power it lost to White House advisers during Bush's first term.
"Hank Paulson will be my leading policy adviser on a broad range of domestic and international economic issues, and he will be my principal spokes- man for my administration's economic policies," the president said before Paulson was sworn in.
Paulson, who has a net worth of more than $700 million and has announced plans to sell $370 million in Goldman Sachs stock, is probably the richest Treasury secretary in history.
White House officials seemed intent on coordinating Paulson's arrival with a broader effort to generate more excitement for Bush's economic agenda and record.
Administration officials are frustrated that Bush's popular support has plunged, mainly because of the war in Iraq, even as the economy has grown briskly and unemployment has remained comparatively low at 4.6 percent.
The administration plans to announce today that this year's budget deficit will be lower than projected because tax revenues are climbing faster than expected.
Bush visited a microelectronics factory near Chicago on Friday to highlight the nation's high-technology strength and the newest employment statistics.
But Paulson will be taking over at a time when the economy appears to be slowing, inflation is rising, and gasoline prices have climbed to nearly $3.20 a gallon in many regions.
The Federal Reserve has raised interest rates 17 times in two years and is expected to increase them at least once more. The once-sizzling housing market has slowed noticeably, with prices edging down in some cities and homes remaining on the market much longer than in the recent past.
Paulson suggested that his top priorities would be international issues. He said little about major domestic initiatives.
His most forceful remarks were about the need to promote a greater engagement in the world economy.
"We must always remember that the strength of the U.S. economy is linked to the strength of the global economy," he said after being sworn in by Chief Justice John G. Roberts Jr. "If we retreat from the global stage, the void is likely to be filled by those who do not share our commitment to economic reform."
Paulson could have his hands full on the international front. With the trade deficit approaching $800 billion this year, the United States needs to attract more than $8 billion a day from foreign investors to pay for its current level of consumption.
Dollar at stake
A loss of confidence in the dollar could aggravate inflation pressures by pushing up import prices. It could also push up long-term interest rates, which remain surprisingly low even though the Fed has pushed up overnight rates.
Paulson's other challenge will be budget issues. Though tax revenues have increased sharply this year, spending continues to climb rapidly as a result of the war in Iraq, hurricane relief and the new Medicare prescription-drug program.
Despite more than four years of economic growth, tax revenues have barely recovered to their level in 2000, and the deficit is still likely to be about $300 billion this year.
Bush made it clear that he expected Paulson to help make his tax cuts permanent, which would cost more than $1 trillion over the next decade.
"Our first challenge is to keep taxes low," Bush said. "Hank understands that cutting taxes has helped launch the strong economic expansion that is lifting the lives of millions of Americans."
Paulson was more demure.
"We need to pursue economic and regulatory policies that are responsive to today's world," he said. He did not mention tax cuts.