Reuters logo
7 years ago
Special Report: In the White House, economics is a contact sport
June 22, 2010 / 3:58 PM / 7 years ago

Special Report: In the White House, economics is a contact sport

22 Min Read

<p>Larry Summers, an economic advisor in the Obama administration, watches as U.S. President Barack Obama and Vice President Joe Biden speak in the East Room of the White House in Washington, January 30, 2009.Jason Reed</p>

WASHINGTON (Reuters) - Blunt, brash, brainy and occasionally self-mocking. Larry Summers, the White House economic adviser, is all of these things. In a career spanning academia, government and finance, he has rubbed some people the wrong way and infuriated others.

So when President Barack Obama named him director of the National Economic Council, skeptics could be forgiven for wondering how Summers would fit in with the "No Drama Obama" management style. Eighteen months later, the question persists.

But on the eve of a key G20 meeting, Summers appears comfortable with his role in tackling the world's Hydra-like economic problems.

Sitting in a wingback chair in his office overlooking the White House Rose Garden, the 55-year-old former Treasury Secretary said he has worked to soften some of his rougher edges. He acknowledges he is still "maybe a little blunter than would sometimes be ideal."

That may be an understatement.

Debates within Obama's economic team can approach a World Wrestling Federation smackdown. In stories leaked to the press, Summers has been accused of shutting key people out of meetings, including Paul Volcker, Council of Economic Advisers Chairman Christina Romer and CEA member Austan Goolsbee.

In his book, "The Promise: President Obama, Year One," Jonathan Alter describes an especially heated exchange between Summers and Romer. "Don't you threaten me!" Summers blurted at Romer, who shot back: "Don't you bully me!"

Such reports have helped to fuel speculation about Summers' clout within the administration. His past foibles and successes have made him a particularly intriguing figure in Washington's favorite parlor game of guessing who's up and who's down.

Is he likely to leave the administration, as some bloggers suggest, or is he going to stay on for a while, as many close associates now insist?

Is he losing sway to people like Timothy Geithner, the current Treasury secretary, or to Volcker, the former Federal Reserve chairman and an outside adviser to Obama?

"The conventional wisdom seems to be that Summers' power has faded somewhat as Geithner has burnished his image and Volcker has taken on more prominence," said Stephen Stanley, chief economist at Pierpont Securities. "He has generally been much lower profile in 2010 than in 2009."

But that view fails to take into account the breadth of Summers' portfolio within the White House, not to mention the amount of face time he has with Obama.

The reality is that, as the administration grapples with a host of prickly economic issues -- financial reform, soaring budget deficits, high unemployment, a fragile U.S. recovery, Europe's monstrous debt crisis -- Summers' influence remains undiminished, according to many insiders.

He leads a daily economic briefing for the president most mornings and weighs in on a plethora of issues, from international economics and financial regulation to healthcare and energy policy.

His position at the NEC, though, is far more of a behind-the-scenes role than his old job at the helm of Treasury. He has been selective about his public appearances. When he gives interviews or speeches, he measures his words carefully, a caution he seems to have mastered after hard lessons.

The Obama administration is also especially careful to reserve the role of economic spokesman for Geithner, who had a rocky debut stemming from issues with his personal taxes that surfaced at his confirmation hearings and, later, a botched initial rollout of Treasury's plan to stabilize the banks.

But that suits Summers just fine.

Too Close to Wall Street?

As a senior figure at Treasury during all eight years of President Bill Clinton's administration, Summers is credited with policies that helped to fuel the '90s economic boom and record budget surpluses.

Working alongside former Treasury Secretary Robert Rubin, he was seen as the intellectual force behind interventions that helped to quell major financial crises, including turmoil in Mexico, Russia, Asia and the collapse of the giant hedge fund Long-Term Capital Management.

In 1999, his role as a financial firefighter helped to land him on the cover of Time magazine, where he was hailed along with Rubin and former Federal Reserve Chairman Alan Greenspan as part of a "Committee to Save the World."

But Summers, who eventually succeeded Rubin as Treasury secretary, is also closely associated with the broad financial deregulation passed under his watch. As a result, he has been vilified by some on the left as too close to Wall Street.

Then there was his stormy five-year tenure as president of Harvard University. He had disputes with some faculty members and sparked a firestorm after raising the question in an academic discussion of whether differences in aptitude contributed to the underrepresentation of women in top careers in science and engineering.

The controversies led to his resignation in 2006. He was later hired by the hedge fund D.E. Shaw and began writing a column for the Financial Times while continuing to teach at Harvard.

But Washington would soon beckon again.

Back in the Fray

The story of how Summers came to work for Obama goes back to late July 2008, when storm clouds were gathering over the financial markets less than two months before Lehman Brothers imploded.

Having clinched the Democratic nomination after a bruising primary battle with Hillary Clinton, Obama had just returned from a weeklong trip to the Middle East and Europe. Worried about turmoil at mortgage finance giants Fannie Mae and Freddie Mac, Obama's then small group of economic advisers sought to broaden their circle.

Rubin, Volcker and investor Warren Buffett attended the gathering at the Omni Shoreham hotel in Washington, along with Summers, who had remained neutral during the primary. Summers, who had been warning in his FT column and some speeches about the dangers of the building crisis, made an impression on Obama for his ability to distill the comments around the table and frame the issues.

The campaign began reaching out to him to participate in a series of conference calls, which occurred often daily in the aftermath of Lehman's collapse. Summers was frequently asked to open the calls. As the market crisis worsened, he had conversations with then Treasury Secretary Henry Paulson and advised the campaign to seek flexibility in the structure of the financial rescue package that was taking shape.

Summers dove into policy mode. "It's in his blood," said Jason Furman, his deputy at NEC, who during the campaign was the point person for coordinating economic advice for Obama.

When Obama was elected and was preparing to choose a Treasury secretary, Summers was seen as a leading candidate for the job. It went instead to his protege, Geithner, then the president of the Federal Reserve Bank of New York.

Summers was offered NEC instead. Friends of both men say this led to some initial awkwardness in the relationship but that they seem to have moved past it.

No Shrinking Violets

Summers is hardly the only strong personality on Obama's economic team and within the top ranks of the White House. Romer, Goolsbee, Geithner, Volcker and White House budget director Peter Orszag are not shy about expressing their views in closed-door meetings. Nor do any of them hesitate to challenge Summers if they disagree with him.

On the political side, Rahm Emanuel is nicknamed "Rahmbo" for his hard-charging style. David Axelrod, senior adviser to Obama, has a lower-key manner but is not one to hold back his opinions.

There will be some changes on the economic team soon. By many accounts they have nothing to do with personality clashes but rather are part of the turnover that often occurs in administration's around the two-year mark.

Orszag plans to leave in July. There could be other departures, too, but contrary to some reports, Summers isn't going anywhere, say his associates.

Goolsbee said that given the gravity of the issues the economic team has had to confront, it's not surprising there have been debates. "We faced borderline catastrophic crises in the housing market, financial markets, the job market, the macroeconomy and several others," he said. "Things had to be done with a kind of speed that just ripped up the normal playbook of Washington."

Jared Bernstein, who participates in the economic briefings as the chief economic adviser to Vice President Joseph Biden, said Obama is not only comfortable with the vigorous debate on the economic team, "he kind of insists on it. The thing Obama doesn't like is if he feels like he's not being given the full picture and all sides of an argument."

Bernstein said economic meetings aren't always contentious and that there are some lighter moments. "There's a lot of joking about how wonky we all can be," he said, noting that Axelrod and the other political advisers poke fun at the pointy-headed tendencies of the economists. "Guilty as charged," Bernstein said.

Yet, Summers still stands out in this crowd.

Like many academics, he's a night owl who stays up reading. NEC meetings are sometimes convened as late as 10:30 p.m. and his staff are never surprised to receive emails from him at odd hours like 1 a.m.

He often runs late, regularly showing up for chief of staff Rahm Emanuel's 7:30 a.m. morning staff meeting at 8 a.m. He keeps a refrigerator of Diet Cokes in his office and drinks them throughout the day. In a few instances, he has dozed off in meetings.

During the '90s, reporters frequently contrasted the heavyset, slightly rumpled Summers with the fit and impeccably groomed Rubin. A similar contrast exists between the lean Obama, who rises at 6 a.m. every morning to work out, and Summers, who can be fiercely competitive at his hobby of tennis but jokes that his game is pretty good by a "physique-adjusted" measure.

Both Obama and Summers are Ivy League-educated, cerebral and gravitate toward big-picture ideas. "There's a respect there between them," Axelrod said. "(Obama) has no problem challenging Larry and Larry accepts the president, not just as a president, but I think as an intellectual peer. The president gets this stuff at a very high level and when Larry makes a presentation the president always has some pretty penetrating questions for him."

<p>Larry Summers (R), an economic advisor to U.S. President Barack Obama, and Treasury Secretary Tim Geithner attend the announcement of the President's Economic Recovery Advisory Board in the East Room of the White House in Washington, in this February 6, 2009 file photo.Jim Young</p>

Summers presents Obama with scenarios, said White House deputy communications director Jen Psaki. "What will happen if we do X? What will happen if we do Y? What will happen if we do Z? Here's the answer to the seventh question you will ask."

Obama likes to look at issues from all angles and during meetings will sometimes zero in on the person in the room who has said the least. He will try to draw that person out to make sure he hears from a variety of perspectives.

People who worked with Summers at Treasury say he conducted meetings in a similar manner, often seeking out the views of even junior staff members if he thought they had particular insights. The flip-side of that is that he does not give deference to titles or areas of expertise if someone offers an idea he does not think is well thought out. "He listens to others who he thinks are worth listening to," said Ted Truman, who worked with Summers at Treasury during the Clinton years.

"If he thinks you have something useful to say in a meeting, he will seek you out for that reason. It doesn't matter what your rank is," Truman added.

Truman sees that trait as a virtue and others tend to agree. Former Secretary of State Henry Kissinger once said that Summers should be given a permanent post in the White House with the role of shooting down bad ideas.

"A Different Model"

In the interview, Summers said his approach stems from a belief that "before you do a consequential thing, you need to have thought it through as carefully as you can."

"We're not going to get every recommendation right. We are not going to get every decision right," he added. "The only thing that is a certain failure is if we make a decision or a policy and then something happens or some concern is raised or some issue arises that we didn't anticipate in our deliberations."

If somebody recommends a course of action, Summers rarely asks them why they favor that policy. Instead, he will ask: what are the three best reasons not to do it?

But people sometimes find Summers' style intimidating. To some, Summers' outspokenness seemed to make him an odd choice for NEC, a role that involves coordinating economic advice to the president. The job was created by Clinton, and Rubin, who was the first to hold it, was seen as the quintessential "honest broker" in the sense that he diligently gathered all points of view but often remained neutral in policy debates.

When Summers was hired, there was never any expectation he would approach the job that way. He doesn't refrain from offering his own recommendations but he does synthesize arguments for Obama, including those from Republicans and liberal economists like Joseph Stiglitz and Paul Krugman, who have criticized some of the administration's policies.

Last year, Stiglitz and Krugman had publicly urged the administration to consider nationalizing banks. Obama invited the two Nobel Prize winners, along with other economists, to a dinner at the White House.

He listened to their views on the banking sector but ultimately sided with Summers and Geithner, who warned that nationalization was risky and were convinced that the banking sector could be restored to health without it.

Romer says Summers is definitely a "different model" than some past NEC directors. "The president knew what he was getting," she said. "He knew that Larry was a brilliant economist and would bring ideas to the table. Larry does try very hard to make sure everybody gets heard."

Axelrod, when asked who is the "architect" of Obama's economic policies, pointed out that the same question is frequently asked about Obama's foreign policy.

"The real answer is that (Obama) is a pretty independent thinker and he synthesizes things that he reads, things that he hears, things that he's learned over time. He's developed his own world view," Axelrod said. "The economic policies we're pursuing reflect his point of view, not Larry's point of view or Tim's or anyone else's."

<p>U.S. President Barack Obama (L) and Chairman of the White House's National Economic Council Larry Summers leave an announcement on their meeting with the ranking members of the Senate Banking and the House Financial Services Committees at the White House in Washington, in this February 25, 2009 file photo.Jim Young</p>

Health Care Numbers

Even within the Obama administration, there is a certain mystique about Summers. When the president decided to go ahead with a push to revamp the nation's healthcare system, a debate followed about whether to account for the full cost of the plan in his budget document.

Arguing for transparency, Summers backed putting the full cost in the budget while some administration officials favored putting in only a symbolic amount, fearing that "sticker shock" over the cost might cause the public and Congress to balk at the initiative.

Some of the most passionate supporters of healthcare in the administration worried that Summers had an ulterior motive, speculating that his backing for putting real numbers in the budget was aimed at surreptitiously killing reform.

But Summers turned out to be a strong supporter, viewing universal coverage as a crucial goal and agreeing that the administration's first year was the right time politically to push for it. When there was some discussion within the White House, in August of 2009, of scaling back the cost of the healthcare proposal, Summers turned out to be on the side of keeping the bill intact.

"At the end of the day, the president was really motivated by cutting healthcare costs and Larry had an actual view this was an important marker," said Neera Tanden, a former policy adviser to Obama who is now chief operating officer at the Center for American Progress, a Washington think tank.

Ultimately, she said, Summers "played a pretty constructive role" on health care.

Economics Dna

Economics is in Summers' blood. Two of his uncles, Paul Samuelson and Kenneth Arrow, won Nobel Prizes in economics. He spent much of his childhood in Penn Valley, Pennsylvania, a suburb of Philadelphia.

His parents, who were both economists and taught at the University of Pennsylvania, used to give him math problems to solve when they went out.

Summers entered MIT at 16 and did his graduate studies in economics at Harvard. At age 28, he became one of the youngest professors ever to receive tenure at Harvard.

He honed his famous analytical style at MIT, where he was a star on the debating team. Simon Johnson, a former chief economist at the International Monetary Fund, is one of Summers' fiercest critics on the left. Nonetheless, he considers him a top-level thinker.

"He's a fantastic debater, one of the best debaters in public service and so he's a formidable opponent. We are his opponents in many of these discussions," said Johnson, who is now a professor at MIT. "My main complaint is he's very close to Wall Street and he shares the perspective of the biggest banks and he and Tim Geithner have been unwilling to go after financial reform in a serious way."

Eager to apply his study of economics to the real world, Summers got his first exposure to policymaking during a short stint at the Council of Economic Advisers working for Martin Feldstein, a former adviser to President Ronald Reagan. Feldstein had supervised Summers' dissertation and was one of his early mentors.

Not long after getting tenure at Harvard, he had a personal setback when he was diagnosed at 29 with Hodgkin's disease, a form of cancer. After nearly a year of treatments he was cancer free and the disease has not returned.

While still at Harvard, Summers served as an adviser to Democratic presidential candidate Michael Dukakis, working alongside Rubin and other economists who would later go on to join the Clinton administration.

In 1991, he went to work for the World Bank, where he landed in another controversy after signing a memo, meant to be satirical, from a subordinate that said the logic of dumping toxic waste in underdeveloped countries was "impeccable."

The memo leaked, sparking outrage from environmentalists. It also helped cost Summers his chance at the job he initially wanted in the Clinton administration, chairman of the Council of Economic Advisers. He became Treasury undersecretary for international affairs, essentially the point person for economic diplomacy within the administration.

Summers came into his own in that job, said Mervyn King, governor of the Bank of England, who has known him for 30 years. In a crisis situation, King said, "it's not enough to be polite to each other. You've actually got to sometimes decide between two arguments and two positions."

His approach to economic fire-fighting has been compared to former Secretary of State Colin Powell's "overwhelming force" doctrine. It's the idea that when financial markets overreact, policymakers need to overreact, too. "Larry was generally on the side of not falling short, of having enough resources for the country and making sure they followed through with a tough program," said Stanley Fischer, governor at the Bank of Israel.

Welcome Back to Washington

When Obama was preparing to take office at the end of 2008, there was broad agreement within the economic team that the financial crisis required aggressive action.

That drove the decision to support the $700 billion financial rescue known as the Troubled Asset Relief Program, and last year's $862 billion economic stimulus package. The Obama administration credits those actions with helping to stave off another Great Depression.

Many on the right label the stimulus package an example of fiscal recklessness. Douglas Holtz-Eakin, a Republican former director of the Congressional Budget Office, said it sowed the seeds for dangerous budget problems in the future. He said the administration could have gotten more mileage out of a $400 billion tax cut.

Stiglitz and Krugman, on the other hand, felt the administration should have pushed for a larger stimulus than the one that passed last year.

But William Galston, a former domestic policy adviser to Bill Clinton, said that when the history of the Obama administration is written, Summers and his colleagues will get credit for stopping the economic freefall.

"As far as I can tell, Larry and Tim took power with one overriding objective: in medical terms, to stop the bleeding, to stabilize the patient and keep the patient from dying of shock," Galston said. "They threw everything they could think of into the breach and thank God they did."

Last November, when a debt crisis in Dubai briefly unsettled global investors, Summers spoke to top players in the financial markets to get a read on whether the problem would cause wider ripple effects.

He was told not to worry about Dubai but to keep his eye on Greece. Summers and other officials raised the concerns with European policymakers during meetings starting late in 2009 and throughout the first half of this year but he grew increasingly worried.

Some private economists warn that the European sovereign debt crisis could rival or even exceed the post-Lehman meltdown, sending the U.S. economy into another recession.

Summers said he thinks such a catastrophe can be averted. "My sense is that there's an awareness in Europe of the gravity of the issues," he said. "I think people learned a lesson from Lehman that it is much easier to put out a small fire than it is to put out a raging inferno."

Additional reporting by Kristina Cooke and Glenn Somerville, editing by Jim Impoco and Claudia Parsons

0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below