Summers at center of unusually public fight over Fed
Lawrence Summers addresses the Economic Policy Institute December 13, 2010 in Washington, D.C.
A report in “Nikkei,” a Japanese newspaper, jolted gold and bond markets this morning. Citing unnamed sources, it said Larry Summers is President Obama's pick to be the next Federal Reserve chairman. The White House shot that down in short order, saying the report was wrong.
But it is widely held that the short list to replace Ben Bernanke at the end of January, when his term is up, does include Summers, who has been Treasury Secretary, chief economist at the World Bank, and the president of Harvard University.
Summers, whose spokesperson did not reply to our request for an interview, is a lightning rod. Critics have lined up to question his policies and personality. Several senators on both sides of the aisle say they would not support his nomination.
This is a nerdy but consequential fight, and an unusually public one.
A loud voice in the chorus of critics is Larry Kotlikoff, the William Fairfield Warren Distinguished Professor of Economics at Boston University.
“There are hundreds, if not thousands, of top economists in this country and the world,” says Kotlikoff, who has written papers with Summers and was a classmate of Summers in graduate school. “We could have any one of them be the Fed chairman, and I think most of them would do a better job.”
Kotlikoff says the position requires a certain amount of diplomacy.
“You have to get everyone to agree on what the course of policy should be,” he explains. “And Larry Summers, unfortunately, has a track record of getting into fights with people.”
Summers was on the M.I.T. debate team, and he is known for picking apart arguments and playing devil’s advocate.
But Summers’s supporters say the critics have got him all wrong. They describe him as funny, as someone who, as one colleague puts it, has “people in stitches all the time, often in pointing out the absurdity of various arguments.”
Jeremy Bulow is the Richard Stepp Professor of Economics at the Stanford Graduate School of Business. He and Summers also met when they were graduate students, and according to Bulow, Summers is “blind to status.”
“Larry is not a good yes man,” he says.
Summers doesn’t care if you are a college freshman, Bulow says, or if you are the president of the United States. All Summers cares about is what you think, he says, and to be sure, he is going to tell you what he thinks.
Bulow says Summers has been a mentor to many young economists, something he traces back to graduate school, when Summers worked on a research project in Indonesia, with S. Malcolm Gillis, now the Zingler Professor of Economics at Rice University.
“When he came back from that summer, I asked him, ‘Well, what did you learn?’ And he said, ‘You know, what I learned was that you can get a lot done in this world if you don’t insist on taking the credit.’”
Bulow describes Summers as a brilliant economist with wide-ranging interests in policy.
“He has this exceptional ability to see through the mathematics and understand the real pragmatic effects of a policy on the average person,” he says.
That brought Summers to Washington, when he was a young man, and it has kept him coming back.
Several decades ago, James Poterba, the Mitsui Professor of Economics at M.I.T., was Summers’s research assistant.
“One of Larry’s bits of advice to graduate students beginning their economics careers was, ‘Be about the economy, not about the economics literature,’” he says.
But critics like Kotlikoff say that, while Summers’s resume and list of publications is impressive, there are red flags: Summers has made millions as a consultant to banks and hedge funds, and during the Clinton administration, he pushed for deregulating the derivatives market. That has led to questions about how Summers would implement parts of the Dodd-Frank financial reform law.
Michael Barr, who was Assistant Secretary for Financial Institutions at the Treasury Department, worked with Summers on that law, and he rejects those concerns.
“He has been a strong proponent of tough reform in the sector, and I am confident that he would implement that with the same spirit,” he says.
Another former assistant secretary at the Treasury Department, Ted Truman, who is friends with Summers and Janet Yellen, the other economist reportedly on President Obama’s shortlist, says some people might be surprised to hear that Summers was a loyal boss. They might assume he is so smart that, as Truman puts it, Summers “brushes all the crumbs off the table.”
“But I think many of us crumbs who have been on the table have felt considerable satisfaction from having the opportunity to work with him,” Truman says. “He’s always been generous to most of us.”
Even if, Truman adds, he can also be frustrating to work with.