She was worried, she said, that she wasn't any good at math.
Natasha Sarin has long been interested in economic policy, and spent a college internship at the National Economic Council under President Obama. The head of the NEC at the time was Larry Summers, an economist who would return to teaching at Harvard University after leaving the administration. He included Sarin in policy discussions, and she impressed him. One of their conversations ended up being the launch pad for her college senior thesis.
Still, after graduating from Yale University, Sarin enrolled in law school. She explains why, in terms familiar to anyone who laments that too few talented young women pursue careers in the sciences.
"I wasn't a straight A-plus student in math and economics courses I took when I was in college," Sarin said. "And for a while that made me think that maybe graduate school wasn't the right path for me. And it's true that the heavy math and technical aspects haven't always come easily to me, and I've had to work very hard at them. But I know now that was a flawed way to think about it. And I am so lucky to have someone, in Larry, who has always believed in me, even when I didn't believe in myself."
When Sarin was at Harvard Law School, in her second year, Summers hired her to assist him with research. He is fond of hiring second-year law students, he said, because they tend to write well. But Sarin proved exceptional, he said: He would call her with a list of questions, and before he could finish ticking all of them off, she would start emailing him the answers.
He encouraged her to pursue a career in economics, not law.
“I kept giving her more challenging things to do, and she always was able to finish them, and in totally effective fashion," Summers said. "I realized that in addition to being fast and effective, she was extremely smart, and she was willing to speak up and tell me when I was wrong.”
“I had a lot of confidence in my judgment that she would be terrific in economics.”
Sarin finally agreed. After earning her law degree she enrolled in a doctoral economics program at Harvard University. She kept working with Summers on research projects. At some point, they began diving into the question of whether American financial institutions had grown less risky in the wake of the Dodd-Frank financial overhaul bill, which Summers helped craft as an Obama official.
They could see that banks had raised their capital holdings and reduced risk-taking. But they wanted to know if financial markets considered those moves effective for reducing overall risks. To gauge that, they studied several measures, such as stock price volatility, credit-default swaps and preferred stock yields.
The findings surprised them. "If you look at any sort of market measure, risk hasn't changed," Sarin said, "despite a massive increase in bank capitalization and massive decrease in leverage."
What Sarin and Summers believe has happened is that banks have become safer, but that they've also become less valuable -- and so they remain just as vulnerable to future shocks. They believe the situation would be worse without Dodd-Frank, but their results suggest it is not sufficient to prevent future crises.
“The system is safer than it would be if we had not taken steps to raise capital," Summers said. "That’s not the same as saying the system is adequately safe. It troubles me.”
Sarin hopes to work in economic policy circles someday, and there is irony there. In Washington, the NEC is famous for employing a particular type of young staff member to work on those issues. They often aren't trained economists. They're lawyers.