Should Lawrence Summers, the former Treasury secretary and Harvard University president, become the next chairman of the Federal Reserve? That possibility has provoked an outcry from both critics and supporters, forecasting a contentious confirmation process should President Obama decided to appoint him.
Summers, who served as Obama’s top economic adviser during the worst of the last recession, is alternately described as a brilliant economist, creative thinker, and skilled crisis manager, and as a brash, arrogant bully. He has earned praise for his understanding of financial markets and role in the Clinton administration during the expansion of the 1990s, but also criticism for his close — and lucrative — ties to Wall Street and advocacy of financial deregulation, which some analysts say contributed to the recent crisis.
So what might Summers, now a Harvard economics professor, bring to the job? Does he have the skills and temperament to manage the central bank as the country continues to recover from the last recession? The Globe asked some of his colleagues in university economics departments for their takes.
Jeffrey Frankel, professor, Harvard’s Kennedy School of Government. First there was the rapid devaluation of the Mexican peso in 1994, then the East Asian financial crisis in 1997. In 1998, Russia defaulted on its debt sending ripples through the world financial markets. All threatened global economic stability and the US economic expansion.
As the international community coordinated loans, loan guarantees, and credit lines to stabilize the volatile regions, Summers, as a top Treasury official, helped shape the responses to all these crises, said Frankel, who has known Summers since the late 1970s when they were both graduate students in Cambridge, Frankel at MIT and Summers at Harvard.
“He has proven an effective crisis manager, and not all the other candidates have that,” said Frankel, who served in the Clinton administration as a member of the White House Council of Economic Advisers.
Frankel acknowledged that Summers has a “knack for giving people the impression that he feels he has to be the smartest person in the room.” At the same time, however, he has the ability to apply his intellect to the problem of building influence in Washington, finding logical ways to swing people to his way of thinking, Frankel said. Summers analyzes how to overcome obstacles between himself and politicians, rather than engaging in flattery and back slapping. Frankel said.
“He’s not willing to play that game,” Frankel said.
Claudia Goldin, professor of economics, Harvard University. In January 2005, Goldin was heading into her office at the National Bureau of Economic Research in Cambridge when she got word that Summers was speaking to a small group in a nearby conference room. When she heard the topic — women in math and science — she put her work aside to listen to his remarks.
That talk sparked a firestorm of controversy, contributing to Summers’ departure from the Harvard presidency. Summers cited a number of hypotheses to explain the shortage of women in math and science, including one that argued that fewer women have extremely high aptitudes for those fields. Many interpreted these comments as sexist. For Goldin, however, the speech didn’t indicate a bias against women, but something else entirely: Summers’ ability to grasp and analyze almost any topic.
“I was just amazed that he had mastered a literature and a subject that I thought I knew something about,” Goldin said. The speech, which he gave with almost no notes, was “insightful, provocative, and superbly stated,” she said.
As for whether Summers’ intellect would translate into success at the Fed, Goldin could only point to his previous experience at very high levels in Washington.
“He was secretary of the Treasury,” Goldin said. “It’s a very big job, and he did it.”
Laurence Kotlikoff, professor of economics, Boston University. For all the talk of Summers’ brilliance, he has yet to demonstrate it in the high-level government posts he’s held, said Kotlikoff, who attended graduate school and authored at least four papers with Summers earlier in their careers.
As a top official in the Clinton administration, Summers made no meaningful proposals or contributions to tax reform, Social Security reform, or banking system reform, Kotlikoff said. And as Obama’s top economic adviser, his response to historic recession, including the administration’s stimulus plan, produced lackluster results.
“Those jobs demanded great achievement and creativity and energy and accomplishment,” Kotlikoff said, “and none of it was forthcoming.”
In addition, said Kotlikoff, Summers’ tendency to clash with colleagues could be detrimental to the Fed and the economy. Dissension among those creating monetary policy creates uncertainty among businesses and investors, who then put off hiring, expansions, and other activities that help the economy grow, Kotlikoff said.
“You want someone with leadership qualities,” Kotlikoff said, “not someone who is leaning back and cutting down other people’s ideas.”
James Poterba, professor of economics, Massachusetts Institute of Technology. When asked to outline Summers’ fields of research, Poterba lists at least a dozen topics, from the impact of taxes on consumer behavior to labor market dynamics.
“He is an economist who has remarkable intellectual curiosity that is filtered through an interest in public policy,” said Poterba, who as an undergraduate at Harvard worked as a research assistant for Summers and later collaborated with him on several papers. “He’s not an ivory-tower economist.”
Poterba declined to comment on who would be the best candidate to lead the Federal Reserve. Janet Yellen, the Fed’s vice chairman, is the other leading contender.
But Summers’ wide-ranging knowledge of macroeconomics — which studies unemployment, income, inflation, and other issues of the broader economy — and his concern with the real-world ramifications of economic theory would be advantages, Poterba said. As the jobless rate continues to hover over 7 percent, the question of how to reduce unemployment is a pressing one for the central bank.
“Determining what the social costs of unemployment are is an essential ingredient to thinking about that question,” Poterba said. “And some of Larry’s most celebrated work is specifically on that topic.”
Jonathan Gruber, professor of economics, MIT. There are two Larry Summers, said Gruber: academic Larry and Washington Larry.
Gruber knows both versions. Summers was his thesis adviser at Harvard, and Gruber worked with him at the Treasury Department from 1996 to 1999.
Summers’ reputation as sometimes abrasive and controversial, Gruber said, is “much more of a problem for the academic Larry.”
Washington Larry, on the other hand, would thrive as the Fed chairman, Gruber said. During Summers’ stint at Treasury, he always sought multiple perspectives and weighed them fairly, Gruber said.
Summers has “got a big ego, of course,” Gruber said, but he admits to what he doesn’t know and respects the advice of other experts. He will not hesitate, however, to question or dispute what he’s told.
“He’ll challenge that expertise,” Gruber said. “But it’s just in the spirit of trying to understand it better and be a better advocate.”
Sarah Shemkus can be reached at firstname.lastname@example.org.