In Praise of Larry Summers
Posted on January 4th, 2010 in Uncategorized |
Economics blogger David Warsh reviews the record and argues that Larry Summers is the right man in the right place at the right time.
For all the litany of trial and error, it may seem strange to conclude that it’s a good thing that Summers has got his current job. In fact his understanding of the real economy and historical perspective have only begun to be tested. But recession, long-term fiscal imbalances, two foreign wars, health care reform, climate change, banking re-regulation, an automotive crisis and, above all, the rise of China in global markets, with the various imbalances it entails are challenges on an unprecedented scale. Summers talks to everyone about everything. He doesn’t tune out opinions he doesn’t want to hear. He has a terrific spreadsheet mind. He is a man of progressive convictions. He has every reason to want to succeed.
As the first speaker on an economic team of rivals, he reports to a man who has much better political judgment than Summers possesses – Barack Obama. Now that he has settled into the National Economic Council office, let’s hope that he remains there for many years to come.
For the country’s sake, I hope Warsh is right. But I am not so bullish on Summers. I disagree with some of the characterizations, for one thing; I am not so convinced that Summers listens to all opinions, despite the rhetoric to this effect that surrounds him, that he encourages. I don’t think Summers hears dissenting voices; I think he hears them out. There is a difference.
In Summers’ current job, his great strength is his certitude, the aura of absolute faith in his own rightness that he projects. He conveys a sense of omni-competence, and this is a good thing for the administration politically, for consumer confidence, and for Wall Street confidence. Widespread confidence in economic competence can help the economy recover.
But that aura of certitude, as so many at Harvard know, is also Summers’ greatest weakness, because it’s not a hollow projection; he really does believe constantly in his own rightness. Problem is—and this is where I take leave with David Warsh—he’s not always right.
Summers was wrong, IMHO, about the best way to address the financial crises of the late 1990s; his fiscal policies, which worked to preserve the sanctity of Wall Street loans to Mexico and Asian and Eastern European nations, were needlessly harsh to poor people and resulted in long-term capital redistribution from poor to wealthy in those nations.
He was wrong in a different sense in accepting millions of dollars from Wall Street banks for “speaking fees”—essentially, bribes, but if you wanted a nicer word you could call them “investments”—even as he was advising presidential-candidate Obama on economic policy. Those investments have paid off well for the Street, which knows that it has a friend in Larry Summers.
He was wrong about many things at Harvard, including how to fashion and implement policy. The disastrous curricular review is just one example.
He was tragically wrong in killing Brooksley Born’s plan to regulate derivatives, which contributed to the economic crisis we are still in, and about the repeal of Glass-Steagall, about which ditto.
And this is what is worrisome to me about Summers: When he makes mistakes, they are doozies. Because his actions are not tempered by any measure of self-doubt.
And it is wishful thinking to suggest that Obama can keep a handle on Summers. Economic policy is too byzantine, and moves too fast, for the president to do more than monitor its broad strokes. Summers has in the past proved himself skillful at manipulating those with more power than he, and it’s entirely possible that this pattern will reemerge, if it hasn’t already.
I may be too hard on Summers; he may have changed, grown. Let’s hope I’m wrong and David Warsh is right.
7 Responses
1/4/2024 9:29 am
Unfortunately I think you are probably right and not David Warsh. Summers may have all the mental tools but I suspect his sense of humanity, his sense of morality, motivations, what’s inside. That comes from early life, roots, values,etc. and not just self doubt which would be helpful, and even that comes from roots, but I think you are right and I’m not sure he has that either. Probably badly expressed but that should have grown in a lifetime, or have at least remained unchanged if it was strong enough in the first place. I surely don’t see any evidence of that in his past, even from what I know, and you know him a lot better than I do.
1/4/2024 9:29 am
I hate to be the first to comment on this. But let’s not forget Harvard in Russia.
1/4/2024 9:34 am
lmpaulsen must have been posting her remarks while I was composing mine. She is quite right to mention his sense of morality, which is exactly what I wanted to remind us of when I mentioned the Shleifer affair in my post just now.
I don’t think his early life is the problem, though. It’s his personal psychological make-up, about which, unfortunately, he can do little (at least, that’s how I see it).
1/4/2024 10:28 am
That’s possible, Judith…you could be right. I have seen people with perfectly fine roots go completely to hell…first hand. Never thought of that.
1/4/2024 10:31 am
I don’t think any of us probably has a very clear perspective about how (and how well) an economist collaborates with *other economists*. And Richard, I suspect that some of your disagreements about nineties economic policy are disagreements about goals rather than about strategy or prudence. The one clear exception is the Brooksley Born thing, and especially the matter of credit default swaps.
As for myself, I intend to keep focused on the guy we elected. I don’t intend to evolve into an apologist for Summers, but I intend to be consistent. The kossacks work for the czar. Bush was responsible for Rumsfeld’s failures, moral and otherwise. Obama will be responsible for failures that might emanate from Summers’s shop. And so far they’re getting pretty good results in an INCREDIBLY lousy situation.
I have confidence so far that Obama can handle his people — a LOT of confidence. I’d like him to pick a few more battles, but let’s try to be specific. What are our concerns so far about the choices the White House has made in getting through this crisis? Me, I thought the banks should have been nationalized, but I think I was wrong. Also, I think there needs to be some serious trust-busting and nurturing of regional banks, and less of a Wall Street focus. That’s the extent of my current tsuris.
SE
1/4/2024 11:16 am
Like Richard and SE, I hope David Warsh is right, and one does have to keep hoping that Obama has both picked the right people and is pushing the right policy.
However, things don’t look very encouraging for the long term, and the greed of the banks, and further trouble they are getting us into down the road, is very troubling. Today in Bloomberg, e.g.:
http://www.bloomberg.com/apps/news?pid=20601087&sid=aOU4QAVClHXI&pos=3
Geithner and Summers know these banks and bankers extremely well, and it is hard to believe they were ever going to be good actors (or that G and S thought they were) rather than just continue in the knowledge they are too big to fail, and get picked up by the taxpayer when they should fail.
I also keep having the uneasy sense that Obama, his economic team, Barney Frank, all of them, are occasionally “getting mad”/nodding and winking at the bankers, talking about how we MUST bring back jobs, MUSTN’T pay billions in risk-inducing bonuses, but at the end of the day prioritizing Wall Street’s interests. And that is where the ethics of the players come in.
The Brooksley Born business, Gramm-Bliley-Leach, etc. are all part of the default for both parties since Reagan. John Dugan is still in place, I don’t hear much talk of meaningful regulation any more, Third World just got duped in Copenhagen, etc., etc.
1/5/2024 2:12 pm
Warsh speculates that Rahm Emmanuel may have pulled the reins in on LHS (which is plausible given Emmanuel’s reputation) but that was only to explain why LHS appeared to stop angling for more power.
I too hope that Warsh is correct and that LHS is really trying to redeem himself but my heart of hearts tells me that this leopard will not change his spots. His past errors do not strike me as honest mistakes, but seem rather to involve flaws of character and ideology that make his advice and interpretations suspect. A sincere admission of error and culpability along with some indication that he’s become a better person with a revised view of the world would make me feel a little better about LHS being where he is.
I’d feel a lot better if LHS were replaced by Paul Krugman, but the Obama administration seems to be operating on a model which employs small incremental changes, something akin to Romer’s rule, whereby small changes that appear less threatening to the status quo can, over time, lead to major changes. This strategy can work if there is sufficient time, and if the small changes are seminal.