No need to hold back here: Larry Summers as the next Fed chairman?
Worst idea ever.
The scuttlebutt in Washington this week is that Summers, the former Harvard president, Treasury secretary, and chief White House economic adviser, is on the short list to replace Federal Reserve chairman Ben Bernanke when his term expires in January.
Summers, by all accounts, is a brilliant economist, one of the best of his generation. He is also someone who is confident, and, in times of crises, may be the adult in the room that he supposedly said the Obama administration didn’t have when the economy collapsed.
But he lacks one critical trait I like in my Fed chairmen: He’s not boring.
Summers is far from bland. He is arrogant and a lightning rod and would carry so much baggage he couldn’t fit it on the shuttle to Washington.
At Harvard, Summers ruled by fear as he sought to change culture and shake up complacent faculty. One professor once recounted in a 2005 Globe interview that Summers responded to critical faculty members “in this way that made you want to crawl under the table.”
What finally did him in were his remarks at an economic conference in which he suggested that women lacked the same “intrinsic aptitude” for science as men. Critics seized on the comments. Facing a growing revolt from professors and evaporating support from the university’s governing board, Summers reluctantly resigned in 2006 after five tumultuous years.
Little has happened since his Harvard reign that indicates he has changed his brash ways. Let’s go to the Obama White House, where he served as the president’s chief economic adviser during the Great Recession.
In his book “Confidence Men,” about the Obama White House’s handling of the economic crisis, former Wall Street Journal reporter Ron Suskind paints Summers as brilliant but overconfident and prone to unnecessary battles. “As he has aged, he has grown less troubled by being uninformed,” Suskind wrote.
That’s not what you want in a Fed chairman. The nation’s top central banker must manage the economy primarily by raising or lowering interest rates and must build consensus to do so. He must work with six other Fed governors and 12 regional Fed bank presidents. Imagine what would have happened if the Fed board was split over what to do with the economy in 2008? What would that have done to the markets?
“I know Larry very well. He is a smart guy,” said Allan Meltzer, a Carnegie Mellon professor who has written the definitive history on the Fed. “But the skills that are required for that job are not just brilliance, they are ability to manage compromise. He doesn’t do that well.”
While Obama hired Summers to get the country out of the financial mess, some blame him for setting it in motion. As Treasury secretary under Bill Clinton, and as deputy secretary before that, Summers was a proponent of deregulating financial markets and helped repeal the Glass-Steagall Act, which was created during the Great Depression to make sure commercial banks didn’t get too fast and loose with people’s money. Some say the repeal led banks to take inappropriate risks, such as investing in mortgage-backed securities, contributing to the 2008 global financial crisis.
His risky ways were evident at Harvard, too. He gambled with the university’s operating fund, placing billions of dollars in an aggressive mix of investments. He would have heated debates with Jack Meyer, then the revered head of the endowment, who advocated for a more conservative approach.
During the good times, it was a lucrative strategy, and the cash from the operating account more than doubled under Summers. The windfall allowed Harvard to fuel his ambitious plan to expand its campus into Allston. But when the market crashed in 2008, Harvard lost $1.8 billion, prompting layoffs, tighter budgets, and an abrupt pullback of the Allston plans. Summers was long gone by then.
“We all can look back now and say we wish we did something different,” Harvard treasurer James F. Rothenberg would say later.
The next Fed chairman should not be controversial, or at least not this controversial. If and when the market is in free fall, you want an adult in charge. Larry Summers is not that guy.