ADRIAN MA, HOST:
As President-elect Donald Trump prepares to head back to the White House, he's quickly named the people he wants to fill his cabinet. One of those nominees is Scott Bessent for Treasury secretary. It's an important role steering U.S. fiscal policy. But how does the Treasury secretary affect the lives of everyday Americans?
To learn more about that, my colleagues Darian Woods and Wailin Wong, over at NPR's daily economics podcast The Indicator, spoke to Karen Dynan. Dynan was chief economist at the Treasury Department under former President Barack Obama, and she also worked under former President George W. Bush. Darian began by asking Dynan, what does the Treasury Department actually do?
KAREN DYNAN: Let's talk about the money going out of the government. So Treasury is essentially cutting the checks. So when people get their Social Security payment, it comes from the Treasury Department. If you received a payment from the government during COVID, like one of those economic impact payments, that came from the Treasury Department.
DARIAN WOODS, BYLINE: So if you're receiving Social Security or are employed by the government, that's Treasury's hands all over your payment each month. And in normal times, this is a fairly routine task. Treasury advises the president and Congress about spending. They do the deciding, and then the Treasury writes the checks. But over the last decade or so, the debt ceiling has become this recurring fixture of politics, where the government routinely runs out of authorized funding. And several times the treasury has had to resort to what are known as extraordinary measures to find cash to pay, say, Social Security entitlements.
WAILIN WONG, BYLINE: Yeah, it's become a much more exciting job if you want to characterize it that way (laughter).
WOODS: That is one way to put it, and some of those extraordinary measures include paying with federal employees' savings funds so that the government has more cash on hand for other things.
WONG: The new Treasury secretary could even take the nuclear option and default on debt payments.
WOODS: Yeah. That is unlikely, at least we hope so. Now, on the side of money going into the government and out of our wallets, the big one is the Internal Revenue Service, the IRS, and that's a bureau within the Treasury Department.
DYNAN: It collects the taxes. It doesn't set the law about taxes. That's done by Congress. But it's the Treasury Department and the Internal Revenue Service that make sure that people are paying the taxes that, by law, they owe, and that's really important because if some people aren't doing that, that means the rest of us have to shoulder that burden.
WONG: So if I get audited this year - God forbid - it's the IRS, which is within Treasury, which is overseen by this new Treasury secretary.
WOODS: You know who to plead mercy to.
WONG: I'm getting out my receipts now. Now, generally speaking, the Treasury secretary and Treasury advises the president and Congress on taxing and spending decisions, which is nothing to sniff at. You know, Scott Bessent will have to be the one fronting up to Donald Trump about whether or not his tariff plan can make up for lost revenue from tax cuts. And shepherding a big tax or spending bill through Congress, accounting for all the tweaks and changes suggested by politicians, is an art. Treasury also implements those decisions. But the department doesn't actually have much power to change big policies on its own. That's for the president and Congress. Treasury's power is having the politicians' ears and being the ones with the spreadsheets.
WOODS: Yeah, so Treasury has these restrictions on what it can do. But perhaps a big reason why Trump took comparatively longer to decide on the Treasury secretary is that it has a lot of scope to mess things up.
WONG: And that might be why Scott Bessent is seen as one of the more business-as-usual cabinet picks.
WOODS: You may be on to something. So let's take the example of government debt, Treasury is the one that holds the auctions for government bonds, you know, the IOUs that fund some of the government.
DYNAN: It's really important that that debt is managed responsibly. But it's also really important that the payments are made on that debt. And, you know, I think the average person might think, oh, that's not really relevant to my life, but it is relevant to your life because if the people who are buying that debt - if they lose confidence in the U.S. government to making the payments on that debt, then those investors are going to demand a higher interest rate, so that's likely going to then increase interest rates for us all.
WOODS: So a mortgage could be more expensive, car loans...
DYNAN: Absolutely.
WOODS: ...Credit cards?
DYNAN: Absolutely. Yeah.
WOODS: OK, so that - yeah, that definitely affects all of us.
WONG: Then Karen says, the stability of the financial system is in large part managed by the treasury. Karen says, take the great financial crisis in the late 2000s. Banks and lenders were in a panic. Loans were freezing up.
DYNAN: So people wouldn't be able to get those mortgages that they needed to buy homes. Firms wouldn't be able to get loans to build factories. Firms - some firms need loans to be able to make payroll on a regular basis. So, you know, a seizing up of the financial system is something that could be very destructive for the economy and also could cause a lot of job loss. And so the Treasury secretary needs to be there to step in and do what he or she can to stabilize the financial system and mitigate the harm that will be caused.
WOODS: Back then, that mitigation meant bailouts. Then-Treasury Secretary Henry Paulson got Congress and the president to approve $700 billion, which Treasury would use to buy toxic assets that no one else wanted to touch and that was seizing up the financial system. Those toxic assets were mostly based off mortgages that a lot of people weren't able to pay back.
WONG: Treasury secretaries have dealt with financial crises all throughout U.S. history. The first was Alexander Hamilton and what was known as the Panic of 1792. Karen says that, firsthand, the greatest time for Treasury officials was the mid-2010s when the Alexander Hamilton musical brought the role of Treasury secretary to a wider audience.
DYNAN: I think a lot of us had spent our lives as wonky people, nerdy people, who, you know, were just you know, into our subject areas, but then we had this moment where we felt really cool with...
WOODS: Yeah. You could go to dinner parties, and people would know what you were doing, roughly.
DYNAN: Absolutely.
MA: Now that Scott Bessent is the nominee for Treasury secretary, many experts are wondering, what does he think about Trump's tariff proposals? Now, in the past, Bessent has expressed lukewarm support for them while also suggesting they could be a major strategic mistake. Monday's episode of The Indicator takes a deeper look at this tariff trade-off Bessent may face. If you want to hear more, check out The Indicator From Planet Money, five days a week wherever you get podcasts. Transcript provided by NPR, Copyright NPR.
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