National Economic Council Director Lawrence Summers has been in the news more than usual after a particularly catty piece in National Journal portrayed the veteran Democratic wonk as a status-obsessed complainer. It raised the inevitable Washington parlor-game questions: Is someone trying to oust Summers? Is he frustrated and leaving the administration? Summers won't say, and neither will anyone else, but predictions of his departure continue to surface.
To progressives, that may seem a boon. This is, after all, one of the architects of financial deregulation, whose support of letting derivatives remain unsupervised played no small role in the financial crisis. Progressives have never trusted his association with their bête noir, Robert Rubin, when they both worked for President Bill Clinton. Summers also worked quite lucratively for a hedge fund after he resigned as president of Harvard University, which came in part in response to an offensive remark he made about the scientific abilities of women. (Academic politics played no small part.)
Celebrating Summers' potential ouster is a shortsighted move, though, for a number of reasons. One is that the administration's economic policies, while never as aggressive as progressives recommend, have been, by and large, both effective and liberal. Another is that finding someone more progressive for the position is unlikely. But perhaps most important is this: Summers' views have shifted to the left, even if he won't admit it.
When I recently asked Summers how his ideas had evolved, he launched into a well-rehearsed explanation that begins with the famous John Maynard Keynes quotation, "When conditions change, I change my views." Economic conditions now and when he was last in government differ fundamentally; whereas before deficit reduction would increase investment and growth, now the opposite tack is needed to build infrastructure and stimulate wages.
"I believe the central problems of the economy today and the next several years involve a shortage of demand, whereas in the '90s, they involved confidence and high capital costs. The policy prescription that followed was a different one," Summers says.
While this is all true, there is a sense that Summers' views shifted as well. Many observers point to the op-ed columns that Summers wrote for the Financial Times in 2007 and 2008, which presented a more progressive vision of the economy than he had previously articulated. In one from June 2008, after Bear Stearns collapsed, he noted that "self-regulation is deregulation" -- a shift from his previous position on derivatives -- and called for a new regulatory regime that would end the problem of "too big to fail" by liquidating failing banks.
"One mistake that progressives have made is to not recognize how much the ground has shifted towards progressives in the last 10 years," Lawrence Mishel, director of the progressive Economic Policy Institute says. "Larry has moved along with the center-left."
Consider the idea that our long-term deficit problem is one of health-care cost, not entitlement spending. The concept originated among progressives but is now championed by Summers. He was also a strong advocate of rescuing General Motors and Chrysler, an economic necessity that called for productive government intervention in the economy. Geithner and Summers also clashed over dealing with insolvent financial institutions last spring, with Summers advocating that institutions revealed to be insolvent should face harsher consequences; Obama deferred to his treasury secretary.
I spoke to Jared Bernstein, a former EPI staffer who now serves as Vice President Joe Biden's chief economist and, unofficially, a progressive voice in the White House. He said Summers -- who derided conservative economic theorists as "ketchup economists" in a famous paper -- had a firm grasp of the failures of University of Chicago school economics.
"Larry's acutely aware of the depth of failure of this kind of efficient market ideology, the notion that markets can impose self-discipline and self-correction," Bernstein says. "People talk about Larry Summers as a great economist, and it's absolutely true, but the other thing he understands really well is how government works and doesn't work."
That is perhaps the best reason to keep Summers: He brings a sense of political savvy to the economic policy team. Top Treasury officials have made it clear to reporters they see the need for bipartisan support of financial-reform legislation, which will likely entail a weaker bill. In the White House, though, there is much more confidence in the political benefits of strong financial reform and a sense of relish for a fight with Republicans.
"Our objective is to get the strongest reform we can," Summers told me. "We will oppose attempts to legislate loopholes that undermine the goals of the bill."
Strangely, the one problem even his allies forecast -- that he would attempt to muscle other aides out of the spotlight -- hasn't emerged. Whatever his taste in personal perks, the policy process itself has been effective, sources both inside and outside the White House say.
"Views have been fairly represented to the president, and it's been an honest process," economist Brad Delong says.
Summers is faulted for the impression that Obama's policies have just not gone far enough -- that the stimulus was too small, that jobs are still not enough of a priority, that too many good ideas are being left out of the financial-reform bill.
But the Senate did more to hurt the stimulus than Summers did, stripping out $170 billion to secure centrist votes and including a tax loophole fix. A further $250 billion in funding for state fiscal aid and unemployment relief was included in the president's 2011 budget.
And now, with centrist Sen. Blanche Lincoln reportedly set to release strong derivatives provisions under pressure from the White House (and a progressive primary challenge), there may yet be hope for strong financial reform.
Summers also talks of the need for investment in infrastructure and manufacturing to address the problem of lingering unemployment, especially among undereducated men. Still, critics would like more at a time when the country hovers at 10 percent unemployment and looks set to do so for perhaps another year.
"[Administration officials] claim that unemployment is going to be unacceptably high for the next few years, but if it is unacceptable, then why are we not doing something about it?" Mishel asks. He and other progressives think it is too soon for fiscal retrenchment, given the slow pace of growth in the job market and low economic output.
The government officials and outside observers I spoke to for this story, none of whom can quite envision someone more progressive in Summers' seat, all agreed on one thing: The buck doesn't stop with any one presidential adviser, no matter how famously irascible.
"It's a judgment on the leaders of that team, including the president, who is taking their advice," Mishel says.
