A Surprise Ending for Larry Summers and the Fed?

Whoever said "What you don't know can't hurt you" doesn't know much about economics. That goes double for the nomination of Lawrence Summers to head the Federal Reserve.
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Whoever said "What you don't know can't hurt you" doesn't know much about economics. That goes double for the nomination of Lawrence Summers to head the Federal Reserve. For all the ink that's been spilled on the topic, there's at least one surprise ending people don't seem to be considering.

Remember the last time Summers was strapped to a trial balloon and exposed to this kind of a public dart-throwing contest? It was back when Obama was searching for his first Treasury Secretary. There was a public outcry against Summers then, too, and guess what happened:

We got Tim Geithner instead.

I'm against the Summers nomination too, but as they say: Be careful what you wish for.

99 Balloons

By now everybody and their brother has weighed in on the idea of a Summers nomination, and the hostility is as palpable as the summer heat. (We already knew what everybody and their sister thinks about Summers.)

But it's clear that the President and his team really, really want Summers. Knowing the depth of the hostility -- and the many reasons for that hostility -- they've nevertheless floated one trial balloon after another: first that he was one of the leading candidates, then that he was neck-and-neck with Janet Yellen (Vice Chair of the Fed's Board) for the post. Now we're told he's the leading candidate.

They like him. They really like him.

That doesn't appear to be the majority opinion about someone whose personality is often described as "prickly." In fact, there are those who think that adjective's carrying one syllable too many for Summers.

In the week of another major economic address from the President, it's worth asking: What does this deep Love of Summers tell us about the White House and today's Democratic Party?

Summers of Love

Ezra Klein, whose White House sourcing is eminently reliable, has provided the launching pad for most of the Summers trial balloons. Klein and co-writer Evan Soltas stated unequivocally this morning that "President Obama wants Summers for Fed chair." That comment, like other Summers leaks issued through their blog, went uncontradicted by the Administration, providing further confirmation of their accuracy.

Barack Obama thinks Larry Summers is the right man for the job, and you can take that to the bank (sorry about the pun). What are we to infer from this information?

It certainly tells us that the President is very forgiving of Summers' flaws, which include his apparently shocking attitudes toward women, his spectacular failure to foresee the financial crisis, his pivotal role in deregulation, the many millions he's made from the same Wall Street bankers he'd have to regulate, and his long record as a bully to subordinates, peers, and colleagues.

Economically, that last defect may be the most frightening portent of all. Summers is known for hectoring and shouting down anyone who disagrees with him, and if there's one thing the economy needs right now it's new and dissenting voices proposing smarter and bolder policy alternatives. Encouraging those voices is precisely what Summers doesn't do, and that's a grave warning sign for Presidential policy.

To be clear, Summers is not a wild-eyed Visigoth on stimulus/investment or job creation. He holds a far more reasonable position on these issues than anyone on the Republican side. He's more reasonable than Tim Geithner, too.

What are the political implications of a Summers nomination?

Dr. Doom

In a word, bad. In 11 words: Democrats would be insane to let the President nominate Larry Summers. Why?

Women voters are critical to the party's prospects. Dave Johnson has rounded up some of the worst evidence of Summers' seeming misogyny, and it's not pretty. What's more, the President would be choosing -- and his party would be confirming -- a man with a bad reputation for sexism, and they'd be bypassing a highly qualified female candidate to do it.

Janet Yellen would be breaking a glass ceiling as the first female Fed chair. A Summers nomination would feel like ground glass.

Everybody hates Larry. Women aren't alone in their dislike of Summers. Conservatives hate him because he's a Democrat. Clean-government advocates hate him because he deregulated Wall Street, took millions from it, then went back into government. Progressives hate him because he killed much-needed regulation and represented big banks' interests while he was in government. Biologists hate him because he distorts their findings to support his misogyny. Many human beings reportedly hate him just for being himself.

And since women are also conservatives, progressives, clean-government advocates, biologists, and human beings -- since, in fact, all those categories have significant overlap -- the Summers-loathing has the potential to grow exponentially over the next three years.

He lacks credibility. Fairly or not, Summers is inextricably associated in the public mind with the evils that crashed the economy: deregulation, the revolving door, and corporate-Democratic indifference toward the poor and the dying middle class. (Republicans, by contrast, are openly hostile.)

How's this perception going to work out when Summers goes before Congress or the public to explain why we still don't have a decent employment picture, five or six or seven years after the people who made him rich crashed the economy -- and never paid for their crimes? And how will the public respond if there's another financial crisis -- if, say, another major bank goes down and triggers a panic -- and their key words of reassurance must come from Summers?

The President would be sabotaging himself. This week's economic speech shows that the President realizes he needs to shore up his political capital in advance of the next budget showdown with Congress. That means returning to the pro-jobs, pro-middle class themes that won him re-election. But the public will measure his deeds against his words, and that includes his choices for a key economic post.

Most of all, a Summers nomination would reinforce the public perception that this Administration is too cozy with Wall Street. The President won't be running for office again, but he'll need to muster political support for his agenda. And since almost everyone on the Hill does plan to run again, will his party really let him hurt its prospects like this?

The Boys of Summers

It's true that Summers has his supporters, but most of them have chosen to remain anonymous. There's a very good reason for that: if everybody else hates him, they wouldn't want the aggravation.

Here's another good reason: Many of those supporters are Wall Street CEOs. As Klein and Soltas write, the White House is "getting positive feedback from fans of Summers, who are underrepresented in the econo-blogosphere, but very present in the ranks of economic and Wall Street heavyweights who've worked or fundraised at high levels in Democratic administrations."

We're told that Summers also has strong support from the likes of Robert Rubin, Tim Geithner, and Roger Altman, as well as White House insiders Gene Sperling and Jason Furman. Republican Sen. Richard Shelby is also reportedly a Summers supporter.

Needless to say, we're talking about a heavily male cohort here. (The banker support also undercuts a White House claim, which Klein and Soltas relay in the same piece, that "as much as the left mistrusts Summers on financial regulation for his actions in the 1990s, the White House believes that he, like many others, is strongly committed to regulating Wall Street now.")

One more thing: Unless I've missed it, not a single woman in a position of influence has spoken up for Summers. All of his reported defenders have been male.

All the President's Men

All-male chorus lines work better in Off Broadway musicals than they do in policy. The President's team is badly in need of more female representation, and nowhere more so than economically. Yet with the exception of Christina Romer -- who, like other women, was reportedly bullied and marginalized by Summers -- the President's economic team has been almost exclusively male.

The Administration has already received bad publicity -- not all of it well-sourced or credible, by any means -- for being a "boys' club." Deserved or not -- and for us the jury's still out -- that's a reputation worth fighting, not reinforcing.

So, given the many good reasons not to nominate Summers, how did he become the President's preferred choice? And why are they fighting such strong headwinds for him?

What were they thinking?

We can't know that, of course, but there are several possibilities:

They didn't see it coming.. It's possible that, while the White clearly knew Summers has enemies, the depth of the blowback has surprised them. It may be continuing to surprise them on a daily basis, and they may be hoping it will fade away as quickly as it appeared.

Fat chance.

The President wants Summers, come hell or high water. In which case, that's exactly how he'll get him.

They have a Plan B. They've got somebody lined up -- somebody other than Yellen, that is -- if they can't push Summers through the nomination process (a procedure which is increasingly starting to resemble the process by which a python digests a pig).

Bait, meet switch.

That last possibility is the one we should really be worried about. The last time Summers was up for a White House job, we got Geithner instead. He was worse than Summers would have been, at least on policy. But the White House was able to tell several key constituencies "We heard you," while actually selecting an even more pro-Wall Street candidate.

Don't discount the possibility that we'll see a similar bait and switch routine here. The President and his team could bypass both Summers and Yellen, toss a Geithner type in our lap (it might even be Geithner himself), and score a political victory while tacking further right on economic policy.

That's not a reason to embrace Summers, but it means his opposition should be tempered with a clear message: The next chair must give the Fed's job-creation responsibilities much higher priority than Ben Bernanke has done. So far the Summers resistance has been closely linked with pro-Yellen sentiments, which is good, but it should also be made clear that a Geithner-like surprise nominee would be an equally unacceptable choice.

We're not saying that a bait-and-switch will happen. But if it does, remember: You read it here first.

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