You can’t believe everything Larry Summers says

September 5, 2013

Here’s a tip for listening to Larry Summers if he becomes Federal Reserve chairman: You can’t always believe what he says. At least not literally. It’s not that he’s untruthful. It’s that if he raises a concern, or asks what seems like a loaded question, you can’t infer that he favors a specific course of action. He loves to think out loud, ponder every side of a question.

This is also one of the reasons why many people don't like him –- and others, including President Obama –- admire him.

Larry Summers is likely the next Fed chair. (Brendan Smialowski/Bloomberg)
Larry Summers likes to think out loud. (Brendan Smialowski/Bloomberg)

What you need to understand about Summers is that he went to college at MIT at age 16. He took longer than he really needed to finish his PhD dissertation -- a whole three years -- perhaps hesitant to submit it after two of his uncles won Nobel prizes for their own. At age 27, he got tenure at Harvard. At 44, he became U.S. Treasury secretary. At 46, he was president of Harvard.

Now, he wants the nation's top job in economics, Fed chairman. He’s accomplished what he did so quickly partly because he’s uber-ambitious and loquacious, consuming huge amounts of information and spitting it back out with new twists and provocations, not always fully formed conclusions.

In my Thursday piece on why Obama appears to support Summers for Fed chairman despite all the critics (read it!), this passage seemed to catch a lot of people's attention.

His brother, psychiatrist Richard Summers, recalled how in the weeks before Summers came to the White House, he was on a family vacation in Jamaica, barefoot and in a bathing suit, when he began grilling his children, nieces and nephews on what to do about General Motors, which was on the verge of collapse.

 

One of the teens said GM should be saved, and Summers asked, what about other companies? Another said it would not be fair to rescue the automaker, and Summers asked, what about the workers?

 

“Whatever they said, he would say, ‘Yeah, that’s a good point, but what about this?’ ” Richard recalled. “He would bring up the problem.”

If you put the image of a barefoot Summers in a bathing suit out of your head, you'll see that questioning people about their views, and taking the other side, is at the core of who he is. Many of his colleagues like to joke that the best way to convince him of something is to take the opposite position.

This can cause problems -- and it did for Summers at Harvard and at the White House -- and it's causing issues for him as Obama nears a decision on who will succeed Fed chief Ben Bernanke.

At Harvard, Summers gave an infamous speech about women in math and science that came across as suggesting, as he later acknowledged, that the leader of one of the world's top universities didn't think women were quite as talented in these fields as men. His defenders argued he was just trying to stir intellectual debate and was actually making a narrower statistical point, raising the question of whether women were less likely than men to produce the very best (and very worst) mathematicians and scientists. Summers concluded he engaged in an act of " spectacular imprudence."

At the White House, he drove many colleagues crazy with endless debates. When he thought someone else had a bad argument, he'd declare, "You'll get killed!" He made people think he favored nationalizing banks, when he didn't.  He wanted to shape not only economic policy but health care and energy. Some of his former colleagues say the style led to dysfunction. Christy Romer, former chairwoman of the Council of Economic Advisers, told me she's not sure Summers has the "the managerial skills and personality to win over a large committee" that is the Fed.

And, indeed, Summers's limited comments on Fed policy have already stirred confusion. He's said the Fed's ultra-loose monetary policy leads to bubble risks and may exacerbate inequalities, and he questioned whether quantitative easing, the bond-buying linchpin of the Fed's recent strategy, really works. These points have raised concerns among many investors that Summers might pull back on the Fed's stimulus efforts. But people close to Summers say these were simply the kinds of interesting questions he likes to talk and think about. Neither statemen, they say, has actual import for how he'd carry out monetary policy in the near future, when unemployment remains high and inflation is low. To the contrary, they say, Summers would largely follow the policy set by Bernanke.

If he's appointed Fed chairman, Summers will probably have to bite his tongue a lot more than usual, both internally and externally. The words of a Fed chairman can create or cost millions of jobs and send markets up and down. A quieter Summers would be a loss for public discussion about economics. But it would be crucial if Summers doesn't want the controversies that have followed him over the past decade to undermine his leadership at the Fed.

UPDATE: One person who knows Summers notes that when he has been in official positions – Treasury secretary at the end of the Clinton administration and director of the National Economic Council in the Obama administration – he never said something that shook financial markets. The implication of the observation is that as Fed chairman, he’d be similarly disciplined.

Zachary A. Goldfarb is policy editor at The Washington Post.
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