A lot of public discussion takes place before the president nominates a new Federal Reserve Board chairman. This time, that discussion has gotten unusually heated.
Continuing economic difficulties are one reason. Another is that Lawrence Summers, a top candidate, is a larger-than-life figure — unusually well-known and widely admired, but in some circles controversial. The paradox is that those who know him best, and who have worked with him most closely, are his biggest supporters — and that the objections are coming largely from those who know him little or not at all. (Disclosure: Summers is a colleague and a friend, and I co-taught a course with him last spring.)
No one doubts Summers has the right background and credentials. One of the nation’s best macroeconomic theorists, he produced a series of influential academic papers that helped him win the 1993 John Bates Clark Medal, known as the “baby Nobel.” Although his full-time academic career was short, he remains among the most-cited economists in the world.
Unlike most academics, Summers has a wealth of practical experience, having served as U.S. Treasury secretary under President Bill Clinton and as head of the National Economic Council under President Barack Obama. In the latter position, he helped to design the central responses to the economic crisis, including the stimulus package, the rescue of both General Motors Co. and Chrysler Group LLC, and the “cash for clunkers” program.
Some of Summers’ critics think that he is anti-regulatory and reflexively pro-business, and that he would undermine the important regulatory mission of the Federal Reserve. Nothing could be further from the truth.
I worked with Summers in the Obama administration, and I can report that in internal discussions, he was one of the most uncompromising advocates for financial regulation. Of course, he supports the free-market system and wants to avoid unnecessary regulatory burdens. But time and again, he insisted that the events of 2008 required everyone, including him, to re-evaluate their views about regulating the financial industry. He contended that banks can’t police themselves any more than polluters can be trusted to protect the environment or pharmaceutical companies can be trusted to ensure that drugs are safe.
Building on these analogies, Summers vigorously argued on behalf of a consumer financial protection agency, and he supported strong safeguards designed to reduce the risk of another economic meltdown. Intensely focused on the problem of “too big to fail,” he was one of the earliest and most forceful advocates of promoting financial stability by requiring banks to have enough capital to withstand an economic downturn.
Summers never wears his heart on his sleeve. Would he take steps to protect those who are struggling, including the unemployed? If the past is any guide, the answer is unambiguous. In the long discussions that led to Obama’s decision to save GM and Chrysler, Summers was acutely concerned, at every stage, with the human consequences. He asked: If those companies failed, what would happen to the people who worked for them? What would be the effects on workers in manufacturing?
It is true that when he was president of Harvard University, Summers made some ill-considered remarks about women in science. Those remarks have followed him ever since — an irony given that he has been an unwavering opponent of sex discrimination in all its forms, and a strong supporter and loyal mentor of numerous women. To take just one example, he chose a relatively young law professor as the first female dean of Harvard Law School. (Her name was Elena Kagan.)
The mission of the Federal Reserve Board is to help to increase employment, to promote economic growth and stable prices, and to protect consumers. For its next chairman, Obama has some extraordinary candidates, but no one knows more about how to carry out that mission than Larry Summers.