(Crossposted to European Tribune, in Orange and at my blog)
Let me put this bluntly: A good way to think of Larry Summers is to take Paul Krugman, up the arrogance tenfold and deduct 99% of the intelligence. He should never be allowed within a thousand yards of the Federal Reserve.
Felix Salmon hits most of the high points here — his destruction of Glass-Steagal, his sandbagging of Brooksley Born’s efforts to regulate derivatives at the CFTC, his all-world incompetence in screwing the finances of Harvard when he was its president, his protection of scumbags on the Harvard faculty in the face of their participation in the rape and pillage of post-Soviet Russia, his half-assed scholarship and accompanying sexism regarding women in the hard sciences, and — most of all — his utter refusal to admit that any of this might have been a mistake on his part.
I’ll add a bit. Let’s journey back.
One of the main reasons I was for Obama over Clinton in 2008 was due to a desire to keep the Clinton economic team, who I hold responsible for much — not all, but much — of what happened in the crash and whose perceived expertise on economic matters in the minds of voters and pundits is almost entirely mythical, away from power. I was cool with Paul Volcker; Austan Goolsbee seemed fine, if a bit milquetoast and dopey; and I like Christy Romer.
So I voted for Obama, and he won. And then he promptly sent Volcker and Goolsbee off to god-knows-where; gave Romer a token position that appeared higher up than it actually was; and he brought in…the quintessential Clintonista fuck-up. It is among my biggest disappointments with the Obama administration, and it cost us all a much more robust recovery from the recession.
In addition to his deregulation fetish while at Treasury, which should be more than sufficient to disqualify him given the Fed’s key role in oversight, Summers — along with Rubin and Greenspan — helped build the unnecessary budget surpluses of the late Clinton years that assisted in incentivizing the enormous household leveraging that ultimately led to the crash and our current struggle to recover. That one of the architects of the disaster escaped sufficient criticism to keep him out of the rebuilding effort is a testament to the intellectual garbage that passes for thought on the DC cocktail circuit.
Having screwed us on the front end, Summers got his shot at redemption under a new administration. (Even I personally was willing to give him a shot. I suck.) He promptly used that shot to screw us on the back end.
Back in the early days of the Obama administration, when the President first introduced the stimulus bill, something catastrophically stupid happened. Obama claimed his economic advisors told him that the bill needed to be anywhere from $800bn to $1.6tn. Nobody — nobody — I know of could figure out why somebody would tell him it could be as low as $800bn. Everybody who did the math said at least $1.5tn would be needed to restore low unemployment, assuming reasonable multipliers. The shortfall in GDP appeared to be approximately $1tn/year. Assuming a multiplier of 1.3-1.5, a simple back-of-the-envelope calculation suggested the stimulus needed to be between $700bn and $800bn per year for two years, not the $780bn over 2+ years that we got.
From Nouriel Roubini to Joe Stiglitz to Paul Krugman, the consensus was that the $780bn plan would stabilize the economy and add a little bit of employment, but not enough to get us back on track. We would thus spend years “bouncing along the bottom,” to borrow (as I recall) Stiglitz’s description, as households couldn’t generate sufficient demand (since they were rebuilding their balance sheets) to justify businesses reinstating production and investing in new ventures.
And that is exactly what’s happened.
(For deficitphobes: That $1.6tn sounds like a lot of money, and it is; but no, it is not an amount worth worrying about in a $16tn economy which controls its own currency. Paired with TARP, the automaker restructuring, and other emergency policies, this would temporarily blow up the deficit. But as the private sector recovered, new income and corporate tax generation would ramp up. Paired with a natural decline in spending as the emergency programs unwound, the deficit would rapidly fall. This is, in essence, what’s happened with the deficit in the last couple of years. The key difference is that in the actual case, we did all of this without restoring employment to pre-recession levels. What’s more, the more rapid recovery from the proper-sized stimulus would likely result in a lower deficit over the cycle than what we’re getting.)
The person who came up with the $800bn figure was, of course, Larry Summers. The person who came up with the $1.6tn figure was Christy Romer (along with, I suspect, Volcker and Goolsbee and others). The facts speak for themselves on who got it right. Summers claimed the $800bn plan would be sufficient to achieve “escape velocity” from the economic trap we were in. I am not aware of any body of literature in macroeconomics — orthodox, heterodox, whatever — that would justify such a claim. “Escape Velocity” is the closest any (nominally at least) liberal economist has come to producing an idea as stupid as conservative economists’ Confidence Fairy in recent years.
Larry Summers is not qualified to run a McDonalds, let alone the Fed.
Janet Yellen would not be my first choice for the Fed job. Most of my picks (Mike Woodford, a reappointed Bernanke, Romer, etc) would likely not be interested. Others much smarter than I can, and have, furnished longer lists, and I defer to them on the merits of those potential candidates.
Bernanke has been far from perfect, as I think he would acknowledge. I wish he’d been more aggressive, but he nevertheless deserves a lot more credit than he’ll ever get. He’s had to put up with a lot of horseshit over the last several years — from the nonsensical criticisms of the likes of Ron Paul to irrational inflationphobia at the FOMC and in academia to threats of violence from various nutcases on the right. Through all that, he’s worked to keep us above water, and Yellen has been his righthand gal in the ongoing effort to convince the inflation hawks at the FOMC to see the light of day; and going by the comments of some of those Fed presidents, she has had some degree of success.
She’s not my first pick, but next to Summers, Yellen is Keynes reincarnated.
