Dakota Beacon

Lawrence H. Summers exits the White House on December 31, 2010.

            Larry Summers? Who the heck is Larry Summers?

            Not exactly a household word, that was my reaction the first time I heard his name a few years ago. Nevertheless, Larry Summers influenced President Obama’s economic policy and held sway over the US economy as Director of the National Economic Council (not to be confused with the three-member Council of Economic Advisors each requiring Senate confirmation).

            As influential as he is, one wonders just why he chose to leave the administration half way through Obama‘s presidency. The well worn mantra “I want to spend more time with my family” cries out for something more original. Summers avoided that pretext. Instead, he claimed his departure had been long-planned. A smart guy like Summers used something a bit more original. With a full professorship at Harvard, Summers indicated he would have to return to his professorship to keep his tenure.

            Summers floated in and out of government over the years. He is a great example of the academia-government-consultant revolving door. From late 2006 to late 2008 he earned over $5 million working one day a week for two years devising strategies for hedge fund giant D. E. Shaw & Co.

            Whatever one thinks of Summers, many accurately describe him as both brilliant and brusque. He entered MIT at 16 with intentions of studying math and physics but ended up studying economics. Maybe he was genetically predisposed toward economics. Both his mother and father were economics professors as were two uncles. His father’s brother, Paul Samuelson, and his mother’s brother, Kenneth Arrow, were both Nobel laureates in economics.

            At 28 Summers became one of Harvard’s youngest tenured professors. In 1999, at 45, President Clinton appointed him Secretary of the Treasury when Robert Rubin stepped down. In 2001, at 47, Summers became President of Harvard.

            Summers harbors a “suffer-no-fools” attitude which placed him in conflict at Harvard. First he successfully removed Cornel West as head of the African-American studies program. Then he caused an uproar when he intimated that there were innate differences between men and women that pushed women away from math and science. For these and other impolitic transgressions Summers resigned in 2006.

            Despite working in the Clinton and Obama administrations, Summers should not be construed as a hardcore liberal economist like Paul Krugman and Joseph Stiglitz. For example, some of Summers' papers concluded that corporate and capital gains taxes are an inefficient form of taxation. Cutting the capital gains tax rate, Summers found, could help the economy grow. Later, while working in the Clinton White House, Summers was able to successfully push for cuts in both corporate and capital gains taxes.

            Consistency may not be Summers‘ strong suit. Musing on the failures of Wall Street deregulation as well as his role in the government bailout, he quoted John Maynard Keynes, saying "When circumstances change, I change my opinion." Spoken like a true relativist!

            On the one hand, Summers helped torpedo an effort to regulate the derivatives market in the Clinton administration. On the other hand, he was instrumental in shaping the regulation of derivatives trading in the Dodd-Frank Wall Street Reform Act of 2010. In 2007 Summers pushed for the $787 billion stimulus package and supports another $800 billion package. Yet, he argues for less government involvement (in advice to California facing their economic crisis) and hailed less government regulation of banks in the Gramm-Leach-Bliley Act of 1999.

            One inconsistency too many may have placed Summers at odds with the President. One of Summers' prominent early findings supports the tenant that unemployment insurance and welfare payments are major contributors to unemployment, and therefore should be scaled back.

            Congress sent President Obama legislation on December 16 that would avoid a January 1 spike in income taxes -- and which provided jobless benefits up to 99 weeks. Obama signed it.

            Could it be that President Obama disagreed with Summers’ about unemployment benefits on political grounds thus earning Summers a vote of no confidence? In the face of politically motivated and ideologically driven policies, economic reality will lose every time. Who wants to stick around when their advice is no longer appreciated? Maybe that, among other disagreements, motivated Summers to leave.

            Speculation is so tantalizing.

Dennis M. Patrick can be contacted at P. O. Box 337, Stanley, ND 58784 or (JavaScript must be enabled to view this email address)