White House Adviser Summers Hopes History Forgets This Great Recession
By most accounts, White House economic adviser Larry Summers is a cantankerous but brilliant economist who has a gift for explaining complex ideas simply, a skill that's invaluable in the current economic climate.
As the director of the National Economic Council, his influence is seen in a broad range of economic policies ranging from health care to financial reform. Summers organizes the president's Daily Economic Briefing, and he co-chaired the auto industry task force. He also acts as a spokesperson, explaining Obama administration policies and initiatives.
A Defender Who Makes a Clear Case
Few can make the case as clearly as Summers for Obama's economic plan. In a recent op-ed in the Financial Times, the economist rejected criticism that Obama was not committed to reducing the deficit and boosting the economy.
"During the next five years, the US is expected to experience the fastest deficit reduction since the second world war. Much of that will stem from the return to growth and the phasing out of Recovery Act programmes," he wrote. "We will see clearly in the years ahead that pushing growth and reducing deficits are complementary, not competing, objectives. Reducing the spectre of prospective deficits will enhance near-term growth. And ensuring adequate growth in the near term will reduce long-term deficits."
Speaking at the Eighth Annual John M. Templeton Jr. Lecture on Economic Liberties and the Constitution at the National Constitution Center in May, Summers offered a spirited defense of the Obama administration's call for a second stimulus package, as the impact of last year's $787 billion program starts to wear off.
He also argued in his talk at Philadelphia's National Constitution Center -- for which DailyFinance was the media sponsor -- that the President has little choice given the historical consequences at stake.
"A flawed financial system means a weaker economy," said Summers, who served as Treasury secretary during the Clinton administration. "Less income means less hiring. The 1930s were such a time, and 2008 was such a time. General Electric was not able at one stage to borrow money for five days.... There was no alternative but for strong action to stop those vicious cycles."
Economics in His Blood
Summers was born in New Haven, Connecticut, and grew up in the suburbs of Philadelphia. Economics was a family business. His parents Robert and Anita were economists at the University of Pennsylvania. His late Uncle Paul Samuelson was a Noble laureate in economics. Another uncle, Kenneth Arrow, also won the award. At 16, Summers entered the Massachusetts Institute of Technology and did graduate work at Harvard University, becoming one of the youngest tenured faculty members at the age of 28.
He has reached the pinnacle of his profession, being appointed both Secretary of the Treasury and chief economist at the World Bank. Henry Kissinger suggested that he be given a job in the administration "shooting down or fixing bad ideas." Those who know Summers well say it's role that suits him well.
"He does not suffer fools," says R. Glenn Hubbard, dean of the Columbia University Graduate School of Business and a former Bush administration official, in an interview. "Larry's strength is being able to connect the dots very quickly. He communicates clearly and succinctly. "
In a 2001 profile in Slate, David Plotz argued that Summers always tried to find real-world applications for economic principals, and that "from early in his career, he engaged in practical politics." He served on the staff of the Council of Economic Advisers in the Reagan administration and was chief economics adviser to Michael Dukakis' 1988 presidential campaign. In the early 1990s, he was the chief economist at the World Bank. Summers arrived at the Clinton Treasury Department in 1993 as undersecretary for international affairs and served as Treasury Secretary from 1999 to 2001, until he was named president of Harvard University. In was there that his communications skills failed him.
Hard Times at Harvard
In 2006, Summers, now 55, left the presidency of Harvard University over comments he made that seemed to question the aptitude of women for math and science -- remarks his supporters say were overblown by the media. Members of Harvard's Faculty of Arts and Sciences passed a vote of no confidence in Summers for this and other controversies.
"There is no question that he got a raw deal from a lot of people," says Claudia Goldin, Henry Luce Professor of Economics at Harvard University, in an interview. Goldin adds that most Harvard faculty members, including those in the professional schools, backed him. "I think he was often misinterpreted."Other aspects of Summers' career have generated controversy. As Summers admitted in response to a question from a DailyFinance reader during the Philadelphia speech, he's no stranger to deregulation. Experts have pointed to several laws passed during the Clinton era that contributed to the financial crisis, including the repeal of the Depression-era Glass-Steagall Act that had mandated the separation of commercial and investment banking.
Summers gritted his teeth and cracked a joke about how much he liked the audience. Later, he explained that he thought it was unfair to compare his previous government service with his current stint.
"Clearly, we are in a different world than we were in the 90s," Summers said.
How Do You Define Success?
Throughout his talk, Summers maintained the air of a supremely confident college professor, a role he has played for decades. Gruff manner aside, the American people would be wise to listen to what he has to say because it makes quite a bit of sense.
"People asked me when I first made plans to go to Washington and advise President Obama on his economic strategy, 'How do you define success?' " said Summers. "I was never quite sure how to answer that question, then one day a kind of answer struck me. I remembered back to my twin daughters' study of Advanced Placement American History... What I was struck by as an economist was that all kinds of events that seemed important to me -- the 1987 stock market crash, the 1982 recession, the inflation of the 1970s -- were barely mentioned in their course. In contrast, the course seemed to go on and on and on about the Depression of the 1930s.
"I vowed that the first definition for success for us would be this: Let's make sure that this economic crisis is not studied by students of history 25 years from now or 50 years from now. "
Government: the Problem or the Solution
As his daughters' study of history illustrates, there are times when the American people see government as part of the problem (the 1980s) and others when it's part of the solution (the 1930s). Summers argues that the American people favor a more activist government now -- like they also did in the first decade of the 20th Century and again in the 1960s -- though it needs to be held accountable.
"Yes, we have much to fear from excessive government, but it was my judgment that the largest challenges we face came from the concern that government would do too little, that government would not seek to restore stability in our economy, that an unchecked financial system would too often be a source of instability, rather than stability," Summers said.
Summers's rhetoric underscores that there are no neat, simple answers to how the economy got stuck in its current predicament and how we can get out of it. Implicit in his speeches is another assumption: Anyone who says otherwise is a fool.