Originally published in the New York Times
Let me start by getting the disclosure stuff out of the way. I’ve known Larry Summers for 20 years and have watched with particular interest as his multifaceted career has unfolded. More recently, I worked for him in the Obama administration, when he was director of the National Economic Council and I was the lead adviser on the auto bailout.
As the debate has intensified over who should slide into Ben Bernanke’s chair as chairman of the Federal Reserve, Larry’s critics have been piling on, including dredging up examples of positions or decisions where they believe he was wrong.
No one is perfect, but I score Larry’s batting average and qualifications at the top of the heap. There’s that extraordinary intelligence: the most brilliant, most analytical and most surgical brain of anyone I’ve ever encountered.
That has helped him achieve a deserved reputation as a world-class economist — but one who has used his theoretical base to work on a broad range of real-world assignments.
His lengthy public service — which also included stints as chief economist of the World Bank and secretary of the Treasury — engaged him in a dizzying array of policy matters and thrust him to the front lines at times of crisis. And they provided him with the political chops of an experienced Washington hand.
As I worked away on autos, I saw, at close quarters, snippets of Larry’s ability to bring all his experience to bear on the worst meltdown in decades. “He was the Rock of Gibraltar on trying to work through policies to turn the economy around,” President Obama recently told House Democrats.
In his private-sector work, it is true that he has consulted for a variety of financial services firms, and that’s being presented as a liability. But I believe that has given him an important practical understanding of how Wall Street functions that can only be helpful to a Fed chairman. Since when is having relevant experience disqualifying?
Certainly those involvements haven’t impeded him from pushing back on the financial industry when appropriate. As early as January 2008, when most economists were focused elsewhere, he called for banks to hold increased levels of capital.
Later, during the effort to pass the Dodd-Frank financial regulation law, he took on the banking industry, noting that there were four times as many financial services lobbyists working on the issue as there were members of Congress. Larry deserves much credit for the tough legislation that emerged.
Last week, the Slate writer Matt Yglesias tweeted a 2010 speech by Larry, saying that “Summers delivered perhaps the most cogent overall case for the Dodd-Frank bill.”
Remember also that as useful as Dodd-Frank will be in curbing future excesses, the recent meltdown wasn’t so much a failure of legislation as a failure to exercise prudential regulation, including by the Federal Reserve. Having watched Larry’s leave-no-stone-unturned style firsthand, I believe that kind of laissez-faire approach would be unimaginable in a Summers-led Fed.
Larry’s vivid and sometimes strong personality has been well chronicled. Even as a friend, I approached the prospect of serving under him with some trepidation.
Boy, was I wrong. Working for him turned out to be stimulating, enjoyable and harmonious. I relished the give-and-take, the chance to watch that remarkable mind at work and the risk that if I said something undeniably stupid, he wouldn’t hide his displeasure.
As we sat around his small West Wing conference table working through endless lists of seemingly intractable issues, Larry entertained any meritorious thought from any attendee, regardless of rank. Everyone got a say. At times, we even took votes. But at the appropriate moment, he was decisive and direct.
As near as I could tell, my thoroughly satisfying experience was similar to that of his other staffers. On reflection, I concluded that passing years, a searing experience as president of Harvard and some help from trusted aides had sanded down some rough edges.
More substantively, I’d stack Larry’s judgments up against anyone’s. For example, he was way ahead of the curve on the dangers of allowing Fannie Mae and Freddie Mac to continue to run amok.
“Debates about systemic risk should also now include government-sponsored enterprises, which are large and growing rapidly,” he said in a 1999 speech.
Long before the 2008 financial crisis hit, Larry was warning about the dangerous blanket of complacency. “The main thing we have to fear is the lack of fear itself,” he wrote in The Financial Times in December 2006. And then the following month, at the World Economic Forum at Davos, Switzerland, he said, “It’s worth remembering that markets were very upbeat in the early summer of 1914.”
That should make unsurprising Larry’s steadfast support for a big stimulus package in 2009, a step that contributed mightily to the economic recovery. In response to those who thought it should have been larger, Mr. Obama cogently declared it a “bit rich” to blame Summers for the stimulus’s not being larger when Congress could barely haul itself together to approve the roughly $800 billion measure.
The newspapers are full of accounts of what Larry does or doesn’t believe about monetary expansion and the implicit question of whether he is a hawk or a dove. My answer is neither; when it comes to the ever-so-tough job of assessing whether the balance of risks should tilt policy toward fighting inflation or fighting unemployment, I would declare Larry dispassionate and pragmatic.
At the moment, that has led him to argue forcefully that the nation’s economic risks are on the growth side rather than on the price-stability side, including supporting the Fed’s actions and proposing that the government take advantage of exceptionally low interest rates to borrow for important investment projects.
With the economy still visibly fragile, that adds up for me to a compelling case for Larry Summers as the next chairman of the Federal Reserve.