By Dan Kervick
James K. Galbraith presents a summing up of the recent public debate over President Obama’s consideration of Lawrence Summers to replace Ben Bernanke as Fed Chair. These are the key observations:
Summers drew immediate fire, mostly from liberals. Some were from Harvard, where, as president, he’d alienated many faculty with, among other things, his ill-chosen remarks about women and his handling of a U.S. government lawsuit over dealings between Harvard and Russia. Some foes focused on his time at Treasury under Bill Clinton, when the Glass-Steagall law regulating banks was repealed and the Commodity Futures Modernization Act, which outlawed regulation of derivatives, was passed. Some judged him for his income from Wall Street, including his huge speaking fees and the money he made working for a hedge fund. And his abrasive personality and bruising personal style didn’t make him many liberal friends.
In the field of bank regulation, Summers’ record is awful. But there is another reason why liberals dislike him. Some progressives are drawn to symbolic solutions, to sexy reform proposals that can be written up as bills. Campaigns to bring back the Glass-Steagall Act and the Volcker Rule are recent examples of this. Summers does not play that game.
In his book “The Escape Artists,” Noam Scheiber portrayed Summers as a force for restraint in the 2009 stimulus debates. That too cost him — unfairly — some liberal support. It now seems clear that he was a strong advocate of expansionist policies, though with tactical reservations that muddied the view from outside. On the other hand, there were esoteric matters relating to the bailouts — the Summers-Timothy Geithner toxic-assets plan for the big banks, for example — that might have brought deserved criticism had they been better understood.
The other front-runner, Yellen, doesn’t have Summers’ enemies, but there is little difference in their views on money. One point of divergence seems to be that Summers is more skeptical of the powers of quantitative easing. On that point, in my judgment, he’s right. Quantitative easing helps the banks but does little for the economy.
So the battle was symbolic, a fight of outsiders against insiders, of Wall Street allies against regulators, prosecutors, women and populists.
I can’t agree with Galbraith that the debate was entirely symbolic. Summers’s track record as a friend of Big Finance with a laissez faire attitude toward regulation was serious reason for substantive concern about the dangers of putting him in charge of the nation’s banking system. The efforts of Summers’s supporters to argue that he was now a reformed man and a firm friend of serious regulation were unconvincing. There was little they could point to other than some relatively lame and dispassionate echoings of the new conventional beltway wisdom.
But I do agree with Galbraith that a lot of the debate was symbolic. And that is fine; because in the realm of politics and high-profile appointments, symbols matter a great deal.
Summers is a symbol of the Clinton administration; of the Washington Consensus; of the neoliberal era of free markets and loose rules; of the global and domestic expansion of the US financial system and its perverse over-financialization of our economy; of the “world-saving” neoliberal troika of Greenspan, Rubin and Summers; of the crony capitalist ethos of the revolving door, with its high-paid former and future government stars raking in big bucks from the businesses they treat as “customers” while wearing the regulatory hat; of the relentless and brutal drive toward the reduction of labor power and the growth of inequality. If Obama had selected Summers, that would have signaled to the US and the world that our society was recommitting itself to a regrettable era and its philosophy, instead of moving beyond that era. The signals sent by leaders matter. People take their cues from the top, and the cue Americans and global observers would have taken from a Summers appointment is that the pre-2008 economic order was open for business once again. That would have been a terrible signal to send.
Janet Yellen was also in the Clinton administration, but she has never been as closely associated with those grand neoliberal trends and movements as is Summers. And above all, she hasn’t cashed in the way Summers has.
Is Summers history’s greatest monster? No. But he had his shot on the historical stage. He put his large, assertive stamp on an era of market fundamentalism and deregulation, and helped build a system that collapsed catastrophically in 2007 and 2008, and has left deep, damaging craters in the social landscape forged both before the collapse and in the aftermath. The philosophy of the Summers era has been revealed to be a key contributing cause of the many social and economic problems we now face. That’s why it was time for Summers and the other votaries of the neoliberal god that failed to move aside.
Cross-posted from Rugged Egalitarianism