THE NEXT BERNANKE AUGUST 1, 2013
When you read about Larry Summers in the press, a certain figure emerges. You hear him described as “controversial” and “polarizing.” The stories about him might include a detail about an un-tucked shirttail or his penchant for long argumentative meetings. These renderings of Larry—with whom I co-taught a class on globalization—lose track of his great strengths.
If you judged Larry based on a superficial glimpse of his style, you would fail to understand his extraordinary people skills and his superior political skills. These traits and his loyalty have won him legions of friends; they are the reasons that presidents keep installing him in the most important jobs.
Let me begin with some observations from watching him in the classroom. For starters, Larry had an extraordinary ability to boil complicated ideas and evidence down to concepts and data that are easily understood. It’s no wonder then that President Obama, whom he briefed so often on the financial crisis, has such evident affection for him. The anonymous student reviews of him universally read like this: “Prof Summers…. has no intellectual arrogance and encourages students and his co-professor to challenge his ideas without fear, while he responds with full honesty and respect and logic.” Indeed, remarkably, every one of the Kennedy School students in our class gave him a perfect score when asked to rate him as a teacher
In our class, we often structured sessions as debates. To be sure, the stakes weren’t high. But it was my experience that with Larry open disagreement is compatible with mutual respect. Summers often has strong opinions but he is always open to reconsidering his views in the light of new arguments and evidence.
These skills—his ability to listen carefully--have made him an effective operator during his long years in government Despite his reputation for arrogance, he has a record of building consensus around bold programs that would never have prevailed without both his vociferous arguments and his ability to rally others to his point of view. The first great example of this was his orchestration of the Clinton Administration’s response to the economic meltdowns in Mexico and Asia. During the last economic crisis, Summers helped steer a successful middle course. On the one hand, he rejected the advice of those who advocated allowing the auto-firms and large banks to fail. On the other hand, he refused to go along with those who claimed that nationalizing the banks was the only way to save the financial system.
It is fair to say that Summers, like many others, failed to appreciate some of the flaws in our regulation of financial markets. But it is wrong to claim that the legislative initiatives undertaken when he was Treasury secretary -- such as the repeal of Glass-Steagall -- played an important role in causing the financial crisis. After all, the investment banks (Bear Stearns, Lehman) that failed in the crisis would still not have been regulated had Glass-Steagall still been in effect, and the commercial banks that failed in the crisis were still being regulated, despite Glass-Steagall having been repealed. It is also unfair to ignore Larry’s long standing concerns about “too big to fail”, as evidenced by his prescient warnings about Fannie Mae and Freddie Mac when he was Treasury Secretary. Or to overlook, his concerns in 2007 about the undercapitalization of the banks.
Is he an ideological centrist? Well, he certainly appreciates the need for economic growth and understands that regulations can interfere with that. But he is hardly afraid of aggressive government. In 2009, Summers wanted the largest fiscal stimulus package that was politically feasible. In his recent writings, he has written forcefully on the failures of austerity and about the desirability of using both fiscal and monetary policies in a complementary fashion to promote expansion and create jobs.
The chairmanship of the Fed isn’t just a capstone to a career; it’s the perfect culmination of it. The job takes advantage of all his natural strengths. Larry is a superb macroeconomist and since the position now requires extensive interfacing with the public, it also demands someone with Larry’s ability to accessibly explain economics. Indeed, the Fed Open Monetary Committee is in a sense the most important economics seminar in the country—the type of setting that he has mastered.
My perspective on Larry Summers is unusual. Without knowing Larry well, I would think he would make an excellent Fed Chairman on the basis of his brilliance as an economist and his unmatched c.v. But since I do know him, I would add that an even more important qualification is who he is as a person.