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Home Publications Blogs Beat the Press Washington Post Continues the Beatification Process of Larry Summers

Washington Post Continues the Beatification Process of Larry Summers

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Wednesday, 04 September 2013 14:10

If one were to list the people most responsible for the country's dismal economic state few people other than Alan Greenspan and Robert Rubin would rank higher than Larry Summers. After all, Summers was a huge proponent of financial deregulation in the 1990s and the last decade. He was a cheerleader for the stock bubble and never expressed any concerns about the housing bubble. He thought the over-valued dollar was good policy (and therefore also the enormous trade deficit that inevitably follows), and he was unconcerned that an inadequate stimulus would lead to a dismal employment picture long into the future.

However President Obama apparently wants to appoint Summers as Fed chair, so the Post is rising to the occasion and busily re-writing history. Today's effort has Summers as a far-sighted oracle whose concerns were unfortunately dismissed by those in positions of power. 

The Post tells us:

"As a young economist, Summers helped shape the idea that it can take many years for jobs to return after a financial crisis. In the White House, that left him deeply skeptical about the swift rebound many of his colleagues were expecting."

Actually the piece cited does not really talk about financial crises at all. It mostly focuses on how the shocks from jumps in energy and food prices led to high unemployment in Europe in the 1980s. If this work left Summers skeptical about the prospects for a swift rebound he was able to conceal this skepticism from the public. He apparently was also unable to convince President Obama to embrace such skepticism since the president was talking about the "green shoots of recovery" just after the stimulus was approved and the need to pivot to deficit reduction. 

Later we are told:

"Summers was also a major advocate of new requirements that banks hold more emergency funds in reserve — a position he had been pushing years before the crisis. Such higher capital requirements can restrain excessive speculation and bubbles — which Obama has said must be an important goal of the next Fed chairman."

The linked column is from February of 2008, well after the financial crisis was underway, not "years before the crisis." Again, if Summers had been overly concerned about undercapitalized financial institutions he managed to largely keep these concerns to himself.

We then get the following insight from "people familiar with Summers’ thinking:"

"maintaining adequate capital would be a key element of his approach to bank oversight as Fed chairman."

This followed by the assessment from "associates" that:

"he’d encourage banks and other financial companies to serve lower- and middle-income workers by more tightly regulating fees and by ensuring that banks are lending to needy communities and deserving borrowers."

On this last topic it probably would have been rude to point out that when he was Treasury Secretary the Treasury Department put out a report on subprime lending that community groups and progressive members of Congress tried to squelch because they thought it would undermine more serious efforts at regulation. Hey, if Summers' "associates" are saying off the record that he would be a vigorous regulator concerned about protecting consumers, why waste time going over his actual record?

So there you have it. This piece should put to rest all those concerns people have raised about Summers' appointment as Fed chair.

Comments (6)Add Comment
...
written by watermelonpunch, September 04, 2013 5:15
Larry Summers is the pits.

I can't believe, after all that's happened, that anyone in their right mind would think to give him a job that's even math related or has any effect on people. Let alone consider appointing him fed chair.
Our Summers of discontent
written by Peter K., September 04, 2013 6:46
Jackie Calmes reports

http://www.nytimes.com/2013/09/05/business/economy/in-fed-succession-obamas-favorite-faces-opposition.html?pagewanted=all

"Also influential — and described as the one insider pulling for Ms. Yellen — is Valerie Jarrett, the president’s close adviser and longtime Chicago friend, who had a cool relationship with Mr. Summers.

An announcement had been possible next week, aides said, until plans for the coming debate in Congress over American military intervention in Syria scrambled the timing. While Mr. Bernanke’s four-year term — his second — does not end until Jan. 31, a decision on his successor is needed soon because Senate confirmation hearings and votes take time."
Erroneous reporting is not about who's in their right mind...
written by JaaaaayCeeeee, September 04, 2013 9:42
It's not who's in their right mind... it's who's in whose pocket, and who's swayed by deep-pocket propaganda that crowds out productive investment in not-bros (who btw haven't tantalized Wall Street with the possibility of more anti-regulatory, Dodd-Frank-weakening visions).

It's possible that Larry Summers will become the opposite of everything that makes him problematic as a potential Fed chairman. Not sure it's plausible.
The Silence is Deafening About Larry Summers and What Could Have Happened
written by Last Mover, September 04, 2013 10:43

So Larry Summers thinks it should take years for jobs to return after this particular financial crisis, in contrast to the usual V-shaped recovery from a recession. Hmmmm. So does David Brooks who keeps saying this based on his talks with economists.

So Larry Summers thinks banks should hold more reserves to reduce incentives to take reckless risks. Hmmmm. So did Alan Greenspan, conveniently after it was too late, noting they did not have enough skin in the game to protect their own stockholders.

Let's see, Paul Krugman writes one of his most important blog posts in 5 years demonstrating how the output gap could have been closed by now at a cost of 4% added to the debt as a percent of GNP:

http://krugman.blogs.nytimes.com/

The Arithmetic of Fantasy Fiscal Policy (August 21, 2013)
So at this point, instead of where we are — with federal debt at 72 percent of GDP — we would have had federal debt at 76 percent of GDP. Does anyone seriously claim that this difference would have caused a fiscal crisis?


The silence from Larry Summers and friends on this point is deafening. For that 4% of additional debt as a percent of GDP, America could have recovered fully from the worst economic disaster since the Great Depression ... yet Wapo reports a puff piece on how Summers believes job recovery must take a long time because the crash was a financial crash, and banks should have more skin in the game like Greenspan said.

At this very moment war hawks are accusing America of remaining silent as Syria gasses its own people to death indiscriminately. Yet for Summers and the other economic predators who in effect, economically gassed millions of their own people for a slow economic death of a thousand cuts, the deafening silence is golden.
Fox on 15th strikes again
written by John Q, September 05, 2013 9:21
A cynic might think that WaPo is continuing its effort to undermine the Obama administration by pushing it to appoint bad policy makers.
...
written by JSeydl, September 05, 2013 9:58
The linked column is from February of 2008, well after the financial crisis was underway, not "years before the crisis."


This one isn't just misleading but wrong. The WAPO should make a correction here.

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.

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