There were plenty of reasons to oppose Larry Summers’s nomination to the Fed, which had seemed inevitable for much of the past few months, before Summers abruptly withdrew from consideration on Sunday. There’s Summers’s famously polarizing intellectual style, which made him a lousy fit for the consensus-driven (and hyper-transparent) Fed. There’s the corrosive boys’ club dynamic that appears to have made him the front-runner for the job. There are the arguably superior credentials of his top rival for the post, current vice chairman Janet Yellen.
All of these dynamics helped array the Senate math against Summers—most recently on Friday, when Montana’s Jon Tester became the fourth Banking Committee Democrat to either announce or signal their opposition. But to see the real reason a Summers’s nomination was doomed, look no further than the fourth paragraph of a letter some 20 Senate Democrats sent President Obama back in July, ostensibly to tout Yellen’s candidacy. “Our nation needs a chairman with a solid record as a bank regulator,” the senators wrote, before praising her “independence, intellectual rigor, and willingness to challenge conventional wisdom regarding deregulation.” Translation: Yellen isn’t a Wall Street tool, unlike that other guy in the running.
It’s a bit strange to say that the world’s top economic policymaking job may not even have been the most important thing at stake in the fight over Larry Summer’s candidacy for Fed chair, but it’s likely that this was the case. In reality, the Summers fight was the first fully-engaged Obama-era battle over the future of the Democratic Party—not just over its economic philosophy, but its whole economic constituency.
The fight has been brewing since the immediate aftermath of the financial crisis in 2008. Having won the Democratic nomination as a liberal reformer—and an opponent of the Clinton-dominated Washington establishment—Barack Obama provoked outrage among a number of Senate Democrats when he entrusted his economic policymaking to a team of Clinton veterans, led by Treasury Secretary Tim Geithner and Summers himself. One Democratic Senator called up Obama and pleaded that the Clintonites had been too close to Wall Street during the 90s, insisting to the President-elect that “Cats don’t change their stripes.” A senior Democratic Senate aide told me that several senators were bubbling over with rage toward Summers in January 2009, as he lobbied them to make the second tranche of bailout money available to the administration. They blamed Summers for many of the Clinton-era deregulatory efforts that helped cause the crisis. During one meeting of senators around this time, John Kerry thundered, “Why the hell should I listen to Larry Summers?” according to the aide, who was present. Several other senators chimed in in agreement.
The problem was that congressional Democrats rarely got to air these grievances with the administration, much less litigate them at any length. And for understandable reasons. After all, senators tend to give a president of their own party considerable deference, especially when that president faces an existential crisis and tells them he needs experienced crisis-fighters at his side. Except for the occasional flare-up—an obscure nomination delayed, an abstruse financial reform amendment proposed—Senate Democrats mostly repressed their frustration with Obama’s economic team.1
Perhaps more importantly, Democratic voters never got to express their frustration with Team Obama either—and, more specifically, with its failure to hold Wall Street accountable for the economic crisis. At least Republicans had the Tea Party, and the cathartic thrill of sticking it to Obama and his fellow Democrats in 2010. Democrats had no similar release. They were left to stew, year after year, as Wall Street more than made up for its crisis-era losses while the unemployment rate declined at a trickle (and the employment rate barely moved).
As Peter Beinart pointed out in a recent Daily Beast essay, all this has begun to have real political consequences. They’re starkest among the so-called Millennials—people in their early 30s and younger—who have only known a disastrous, volatile, and increasingly unequal economy since they joined the workforce. According to polling Beinart cites, the Millennials are extremely liberal and militantly pro-government. As a cohort, they narrowly favor socialism over capitalism. Suffice it to say, they have little patience for the neoliberalism of the Clintonites that Obama brought back into power. And they’re a growing demographic power. Political scientist Ruy Teixeira believes they’ll account for one-third of the votes cast in 2016.
All of these forces converged on Larry Summers. Some of the anti-Summers animus on the left was undeserved. As I’ve noted before, Summers was arguably the administration’s biggest internal skeptic of megabanks during the first six months of 2009, when he became convinced that the banks’ accounting was fraudulent. Beginning in late 2009, he became one of Obama’s most enthusiastic boosters of additional economic stimulus.
But that doesn’t mean the case against Summers is unfair. He was probably the key Clintonite in ensuring that derivatives stayed unregulated in the late 1990s. (Even his mentor and boss, Robert Rubin, was more sympathetic to derivatives regulation at the time.) Summers was the Obama administration’s leading opponent of the Volcker Rule, which prevents megabanks from gambling with taxpayer-backed money. Since leaving the administration, Summers has taken on consulting gigs with Citigroup and NASDAQ, among other financial entities.
More broadly, Summers has always been much too enamored of big shots, particularly financial elites, to make you trust his judgment when their interests are at stake. In my recent book about Obama’s economic team, I describe Summers’s gleefulness in attending quarterly dinners with Wall Street executives in his capacity as a Treasury official in the 1990s. The satisfaction he derived from rubbing elbows with the masters of the universe reflected a lifelong pattern, so far as I could tell. I would not have expected it to change should he have ascended to the chairmanship of the Fed.
All of which is to say that the senators and liberals who spent the last five years quietly seething at Team Obama’s solicitousness toward Wall Street weren’t wrong to channel their resentments at Larry Summers. The world, and certainly the Democratic Party, has changed quite a bit since Bill Clinton was president. Overwhelmingly, Democrats now see their economic interests as opposed to Wall Street’s rather than aligned with it. Summers is a product of an era when the Democratic mindset was largely the reverse.
Obama largely got a pass for ignoring this, at least at the level of personnel. (His former Treasury secretary once told me that a large and powerful financial sector was the key to U.S. global economic competitiveness, much like earlier generations of Treasury secretaries probably linked the economy’s fate to GM’s.) If Summers’s aborted nomination teaches us anything, it’s that the next Democratic nominee for president won’t be so lucky.
Noam Scheiber is a senior editor at The New Republic. Follow @noamscheiber.