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.