He’s Out

09.15.13

The Larry Summers Whodunit: Who Killed His Shot at Running the Fed?

Daniel Gross narrows down the list of suspects, from Elizabeth Warren and Wall Street to the brilliant economist himself.

On Sunday night, Larry Summers—brilliant economist, former Harvard president, former Treasury secretary—withdrew his name from consideration for the post that would top off one of the Western world’s great résumés: chairman of the Federal Reserve Board.

Superficially, it’s obvious who—or what—killed the Summers nomination: the candidate himself took his name out of consideration. But at second blush, this situation is a little like an Agatha Christie mystery. There’s a victim (the dead nomination) and a host of suspects.

First, there’s President Obama. Of course, all the inside reporting tells us that Obama really wanted Summers in the post. They worked together in the crucible of the first years; they’re both Harvard men. But the president has a strange way of showing his favor. Decisive as a campaigner, Obama has been oddly indecisive and passive when it comes to emphatically naming nominees and then pushing aggressively and relentlessly for their approval. From the beginning, he has been slow to name judges and push for their confirmation, slow to name Federal Reserve governors and push for their confirmation, and slow to name nominees for Treasury and other departments. And rather than come out and declare that Summers was the man to replace Bernanke, that he should be confirmed quickly, and that he would brook no dissent, Obama simply sent out smoke signals about his preference.

Second, there are the congressional Democrats. In the Senate, Republicans can be counted on to filibuster everything, including lunch. So in order for a nominee to get approved, the 53 Democrats and the two independents who generally caucus with them have to stick together and then persuade five Republicans to let a vote proceed. Then they have to ensure that the 53 Democrats will actually vote for approval. But as time went on, and as President Obama dithered, opposition to Summers began to bubble up from within the Democratic Party. It started in the House, as the Democrats who form the party’s left wing began to agitate against Summers, citing his Wall Street ties, his support for deregulation, and the fact that he would be displacing Janet Yellen, who, if nominated, would be poised to be the first woman to head the Fed. Then last week, three Democratic senators signaled their opposition: John Tester of Montana, Sherrod Brown of Ohio, and Jeff Merkley of Oregon. Elizabeth Warren, an icon for the left wing of the Democratic Party and a former colleague of Summers at Harvard, was also said to be reluctant. Such opposition from within the Democratic caucus made Summers’s position untenable.

Putting someone in charge who is a part of the system was always going to be a problematic proposition.

Third, there are congressional Republicans. If left-wing Democrats were suspicious of Summers for being too centrist and too close to Wall Street, right-wing Senate Republicans were suspicious of Summers for being too much of a socialist. After all, he was in the White House when the stimulus and Obamacare were conceived. So Texas Sen. John Cornyn said preemptively that he wouldn’t support a Summers nomination. And given that a few Democratic senators on the Senate Banking Committee had said they’d oppose Summers, he was going to need at least a couple Republican votes to get out of committee. But as of the first week of September, as The Wall Street Journal reported, “No Republican has publicly expressed support so far for any potential White House nominee for Fed chief.”

Fourth, there was Wall Street. Five years may have passed since the Lehman Brothers debacle, but that’s not enough time for the nation to forget the pathologies of the finance industry that did so much damage to the U.S. economy. And Summers, far more than Yellen, is identified with modern Wall Street. He was in the Clinton administration in the 1990s and was an advocate for deregulation. He worked for a hedge fund, D.E. Shaw, where he made a ton of money. He’s consulted for big Wall Street banks and has gotten paid to give speeches to banks. And he has been essentially unrepentant about it. Even without a Wall Streeter in charge, the Federal Reserve is always going to be overly solicitous of the financial sector’s needs. And so putting someone in charge who is a part of the system was always going to be a problematic proposition.

One more thing. To a degree, Summers has been punished for the shortcomings of President Obama and Wall Street. But he’s also been punished by his own shortcomings. Let’s be clear. Larry Summers has all the academic, professional, government, and intellectual credentials and skills necessary to run the Fed. Had he been appointed and confirmed chairman, he would doubtlessly have been an excellent one. But the job is a multifaceted one. It’s not enough simply to be the smartest economist around. You have to be a consensus builder, you have to demonstrate a capacity for empathy, to take the feelings, sensitivities, fears, of all sorts of actors into consideration.

And you have to possess a certain amount of humility—or at least try to feign it from time to time.