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The Strange Pushback in Favor of Larry Summers

So Larry Summers is out. And it didn’t take but a few minutes before a host of center-left commentators warned “the left” to be careful what they wish for. It’s a bit jarring that they think they must not even wait for the ink to dry on the resignation letter before leaping to Summers’ defense. Keep in mind that this is a man who, whenever given access to any levers of power, managed to unleash a wave of deregulation on Wall Street that led to the financial meltdown, destroy the credibility of Harvard University, and short-arm stimulus to cause a stagnant economic malaise. You can put aside his advocacy against fundamental reform on Wall Street even after the crisis and against net neutrality, of all things. Just know that the defense in this case is for a man who has turned to crap virtually every institution he’s come in contact with over his career.

I’m just going to focus on a couple parts of this defense.

2. Summers has been an increasingly progressive influence on the most important economic issue of the day: Jobs. In late 2008 and early 2009, while the administration was drawing up plans for a stimulus, Summers wanted a large program. Exactly how large is a bit unclear; I’ve heard, and read, different accounts. And Summers seemed content with the final package, even though we now know it was too small to do the job: Although it succeeded in avoiding catastrophe, it failed to produce a vibrant recovery.

OK, Ryan Lizza wrote pretty clearly that Summers blocked Christina Romer from presenting a $1.2 trillion dollar stimulus proposal to the President, in favor of smaller versions, because “a package that was too large could potentially shift fears from the current crisis to the long-term budget deficit, which would have an unwelcome effect on the bond market.” This is a bond market which is selling 10-year Treasury bonds at 2.52%, practically begging for more stimulus. At the time, Summers called stimulus a mere “insurance package against catastrophic failure.” Unemployment is now at 9.6%.

Summers may have had a come-to-Jesus moment later, which is what Cohn argues here. But as Paul Krugman argued at the time, the decision on stimulus, given the hysterical right and how they would clearly react, was the original sin of the Administration, and the White House would only get one opportunity to go big. This has come to pass. Furthermore, he structured the policy meetings which Cohn admits offer a narrow, neoliberal perspective on economic matters, and filtered to the President the information he wanted in front of him.

I’m apparently supposed to be scared because Summers’ replacement may not be as “progressive” as he is. Indeed, the Administration is floating that they want a current or former CEO to replace him at NEC. This fundamentally misunderstands how Summers managed the position, differently than anyone who came before, or I’d argue, since. NEC is more of an appendage than anything. Obama floated Summers for Treasury Secretary and got massive pushback from the progressive grassroots and members of Congress. So he stuck him at NEC, which doesn’t require confirmation. He had the influence before coming to the job, and he greatly expanded its role. Whoever replaces him will simply not be as influential, at least not at the outset. I agree that Tim Geithner and Austan Goolsbee will effectively replace Summers. And given their similar position inside the neoliberal consensus, I’m not sure why I should be scared about some terrible, horrible female CEO who’ll come in and ruin everything.

As for the counterfactual that Summers would have been a better Federal Reserve chair than Ben Bernanke, because he would have already engaged in monetary stimulus, I don’t quite know why people take that as gospel, and also Summers would have had to convince the entire FOMC, virtually none of whom at this point agree on the issue of quantitative easing, and have to be eased into it themselves. I certainly hold no brief for conservative Republican Bernanke, but am not sure Summers would have done anything fundamentally different there.

Summers, to put it mildly, didn’t provide solutions that worked. Not in this position or virtually any other. It’s not really any of my concern whether he goes.

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David Dayen

David Dayen