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Larry Summers is beginning to look more and more like the second incarnation of Richard Nixon. He just keeps coming back.
According to the rumor mills and betting lines, Summers is now the top contender for World Bank president. If track records mattered, Summers would be nowhere in contention.
Just looking at the economics (i.e. ignoring his stormy tenure as president of Harvard), Summers would not seem to be the sort of person who should be given another position of responsibility. In the 90s, Summers was a top advisor and eventually Treasury Secretary in the Clinton administration as it rushed full speed down the road of financial deregulation. He was among the loud voices dismissing then head of the Commodity Futures Trading Commission Brooksley Born’s concerns about unregulated derivatives.
Summers was also a central figure in the engineering of the bailout from the East Asian financial crisis. This bailout sent the dollar and the trade deficit soaring. The resulting build up of reserves by developing countries created the fundamental imbalance in the U.S. and world economy, which still has not been corrected.
Summers completely bought into the Great Moderation myth that Alan Greenspan had somehow ended economic instability for all time. At the famous Greenspanfest held at Jackson Hole in 2005, Summers derided the skeptics as financial “Luddites.”
Just as there was supposedly a new Dick Nixon running for president in 1968 there was supposedly a new Larry Summers who entered the Obama administration as head of the National Economic Council in 2009. Summers had supposedly learned his lessons and recognized that giving Wall Street complete free rein may not always be the best policy.
There is not much evidence of the new Larry Summers in the policy decisions of the Obama administration. While exactly who said what and when is hotly contested in the various accounts coming out now about the administration’s economic policy, the basic facts are not in dispute.
The administration left the financial sector largely intact. Huge too big to fail banks that were almost certainly insolvent (e.g. Citigroup and Bank of America) were nursed back to something resembling health with massive amounts of government assistance. The Obama administration blocked efforts to close or break up these behemoths.
The Obama administration pushed through a stimulus package that was clearly too small to restore the economy to health and then began touting the green shoots of recovery and saying that deficit reduction would now be its priority. As a result, millions of workers are needlessly unemployed and unable to care properly for themselves or their families.
We may never know exactly how much of the blame for these failures should rest on Larry Summers’ shoulders, but it is hard to believe that the head of the National Economic Council, the person who is supposed to summarize all the relevant views for the president, doesn’t have some responsibility.
In short, Summers’ record as an economic adviser has provided a trail of disasters that few can match. Does it make sense to give him yet another opportunity to do even more damage?
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By Scheiber's account, Larry was pushing to punish the banks and make them accept haircuts on mortgages, but Geithner's view of protect the banks at all costs and give them 100 cents on the dollar bailouts prevailed. Larry was telling the President that the need to cut the deficit so that the confidence fairy arrives was nonsense, while Peter Orszag had Obama's ear telling him to go big on deficit reduction and to talk up the government budget like a family budget.
Summers thought it was political malpractice to release specific targets for the unemployment rate with or without the stimulus, but Obama's political team made Romer and Bernstein create a memo that was then used repeatedly the GOP as justification for why the stimulus failed.
There are many examples like that... so I think Summers gets a bum rap for his time in the White House. If Scheiber is correct, they really didn't listen to him all that much. But I agree his past sins are too numerous to count, and those alone should disqualify him for World Bank president.