A longtime leading man of economics is no longer making America’s policies. He’s still driving a critical conversation around them.
- Published June 25, 2021 Updated July 6, 2021 (NYTimes.com)
Larry Summers has split his pandemic time between houses in Massachusetts and Arizona. He also seems to live inside the collective mind of the Washington economic establishment.
When the 66-year-old veteran of the Clinton and Obama administrations talks, Washington’s policy apparatus — journalists and think-tank types, economists and communications people, administration researchers and Capitol Hill staff — stops to listen. It disputes, debates and ultimately disseminates his ideas. Sometimes, it does so almost in spite of itself. Deploring the way he dominates the narrative is its own catalyst to his dominance, though his critics often miss the paradox.
Mr. Summers spent his last White House stint as a top economic adviser, when the administration settled for a smaller Great Recession stimulus package out of political practicality, and has since disputed criticism by saying he favored more spending then. He has spent 2021 protesting that the $1.9 trillion spending package the Biden administration passed in March was too large for reasons both political and economic, while fretting that the Federal Reserve will be too slow to sop up the mess. The result, he has warned, could be an overheating economy and runaway inflation.
Other respected academics were repeating variations on the same theme, though most economists argued that a 2021 price pop was more likely to be short-lived. But it was Mr. Summers, a longtime Harvard professor, whose brash declarations worked a sort of nerd magic, drawing the boundaries of the debate and forcing the White House — one he largely supports — on the offensive.
Mr. Summers had combined the swagger of a former Treasury secretary with the gravitas of a respected academic and punchy lines — the stimulus wasn’t just a bad idea, according to him, it was the “least responsible” policy in four decades — to set off a national conversation that was hard to ignore. Reactions spilled out of the White House and Janet Yellen’s Treasury, which voiced respectful but firm disagreement. Republican lawmakers now invoke the stalwart Democrat’s wisdom. Liberal commentators on Twitter smart at his statements.
“He has always attached a large magnitude and a lot of force to whatever he’s arguing at any point in time,” said Jason Furman, a Harvard colleague who was also an Obama administration official.
He said Mr. Summers’s recent concerns about economic overheating were a “combination” of helpful and harmful. They raised a valid worry, Mr. Furman said, but in a way that “polarized the debate.”
Being divisive makes Mr. Summers no less relevant, and maybe more. President Biden talked with him last month, The Washington Post reported. White House officials respect his opinion and regularly engage with him along with a variety of other economic thinkers, an administration official said.
When Mr. Summers began to warn about overheating early this year, it appeared, for a moment, that his clout might crack. Leading Democrats dismissed his ideas, and his loudest critics labeled them the dying gasp of a failed ideology of economic centrism, coming from a man who found himself disempowered in a more progressive Democratic administration.
“Larry Summers Is Finally, Belatedly, Irrelevant,” The New Republic declared. The American Prospect labeled his arguments “churlish payback” from an egotist who didn’t get a big administration job. (Mr. Summers, who was Treasury secretary from 1999 to 2001 and director of the National Economic Council from 2009 through 2010, has said he didn’t want to work in the administration.)
8 Signs That the Economy Is Losing Steam
Card 1 of 9
Worrying outlook. Amid persistently high inflation, rising consumer prices and declining spending, the American economy is showing clear signs of slowing down, fueling concerns about a potential recession. Here are other eight measures signaling trouble ahead:
Retail sales. The latest report from the Commerce Department showed that retail sales fell 0.3 percent in May, and rose less in April than initially believed.
Consumer confidence. In June, the University of Michigan’s survey of consumer sentiment hit its lowest level in its 70-year history, with nearly half of respondents saying inflation is eroding their standard of living.
The housing market. Demand for real estate has decreased, and construction of new homes is slowing. These trends could continue as interest rates rise, and real estate companies, including Compass and Redfin, have laid off employees in anticipation of a downturn in the housing market.
Start-up funding. Investments in start-ups have declined to their lowest level since 2019, dropping 23 percent over the last three months, to $62.3 billion.
The stock market. The S&P 500 had its worst first half of a year since 1970, and it is down nearly 19 percent since January. Every sector of the index beyond energy is down from the beginning of the year.
Copper. A commodity seen by analysts as a measure of sentiment about the global economy — because of its widespread use in buildings, cars and other products — copper is down more than 20 percent since January, hitting a 17-month low on July 1.
Oil. Crude prices are up this year, in part because of supply constraints resulting from Russia’s invasion of Ukraine, but they have recently started to waver as investors worry about growth.
The bond market. Long-term interest rates in government bonds have fallen below short-term rates, an unusual occurrence that traders call a yield-curve inversion. It suggests that bond investors are expecting an economic slowdown.
But Republicans seized on his arguments as evidence of the administration’s imprudent largess. Inflation became a primary political talking point on the right, and as the data confirmed that prices were rising — widely expected, albeit not so rapidly — the White House was forced to answer question after question about them.
“I want to ask you about some of the criticism by one of your former colleagues, Larry Summers,” was how one reporter put it, among the several who invoked him by name.
Mr. Summers became “a political problem to deal with,” said Jeff Hauser, director of the Revolving Door Project, a progressive advocacy group. His ideas can influence moderate congressional Democrats and make it harder to pass administration policies, Mr. Hauser explained.
“Summers is not irrelevant,” he said.
All evidence suggests that the Biden administration has accepted Mr. Summers’s role as unofficial economics whisperer and frequent gadfly. While it has disputed his most damning critiques — “It’s just flat-out wrong that our team is, quote, ‘dismissive’ of inflationary risks,” the economic adviser Jared Bernstein protested during a February news conference, referring to a particularly snippy Summers-ism — his students and protégés pepper its ranks.
Natasha Sarin, one of his co-authors, is a deputy assistant secretary for economic policy at the Treasury Department. Brian Deese, the head of the National Economic Council, was one of his aides during the 2008 financial crisis. The White House also benefits from Mr. Summers’s support for Mr. Biden’s infrastructure spending push.
Many people who have served in top government jobs do stick around, commenting favorably on how their former team is doing. Others, like the former Treasury secretaries Timothy F. Geithner and Steven Mnuchin, fade out of the limelight. Few remain as front and center as Mr. Summers, or as apolitical and provocative.
“He’s driven toward trying to find out what’s true rather than to give the politically correct answers,” said Ray Dalio, founder of Bridgewater Associates, the world’s largest hedge fund. “That’s caused him a lot of trouble, but I like it.”
There is a logical reason to stay in the mix. He has devoted his professional life to economic policy. There are also speaking fees.
“He takes pleasure in being not just a voice on issues, but also being a bit bombastic,” said Julia Coronado, founder of MacroPolicy Perspectives. She noted that doing so “serves him well economically”: Mr. Summers, like many academic economists, makes some of his money from consultancies and speeches, which tend to pay more for in-demand headline makers who have reputations as big thinkers.
Yet some blast Mr. Summers’s overheating crusade as an intellectual flip-flop.
After the Great Recession, Mr. Summers regularly acknowledged that the government’s spending response had been too meager. After that, he argued for years that the global economy was confronting a serious problem. Demand was too low, savings too high, and inflation and growth destined to be tepid — a phenomenon he called “secular stagnation,” borrowing from an economist who was prominent during the 1930s.
The State of Jobs in the United States
Job gains continue to maintain their impressive run, easing worries of an economic slowdown but complicating efforts to fight inflation.
- June Jobs Report: U.S. employers added 372,000 jobs and the unemployment rate remained steady at 3.6 percent in the sixth month of 2022.
- Care Worker Shortages: A lack of child care and elder care options is forcing some women to limit their hours or has sidelined them altogether, hurting their career prospects.
- Downsides of a Hot Market: Students are forgoing degrees in favor of the attractive positions offered by employers desperate to hire. That could come back to haunt them.
- Slowing Down: Economists and policymakers are beginning to argue that what the economy needs right now is less hiring and less wage growth. Here’s why.
Stimulus stokes demand, and offered a hope out of the lackluster economic trap, so it seemed as if he should support it.
The “entire secular stagnation schtick has been turned on its head without explanation,” Mr. Hauser said.
But Mr. Summers has said he takes issue not with the idea of spending aggressively to break the economy out of a malaise, but with the magnitude and style — the trillions spent to combat the pandemic downturn exceeded the size of the hole it blew in the economy, basically. He seemed to worry that if he didn’t speak out, there would be too little discussion of the risks.
“Outsiders like me can make a positive contribution by raising concerns and being a bit of a pressure point against inertia,” Mr. Summers said, speaking at a May Atlanta Fed conference.
In early June, The New York Times surveyed the economics departments at a handful of universities with notable economics programs — Princeton, Harvard, Berkeley, the University of Chicago, the Massachusetts Institute of Technology and Ohio State University — and many academics do share Mr. Summers’s concerns. A sizable minority said they worry that inflation will rocket higher. And about half of respondents who work in macroeconomics agreed that the latest stimulus package was “significantly” too large.
That’s the view inside the academy. The message from economists currently in power is different. Top Fed officials have said that sustained high inflation is not likely, and that they expect temporary data quirks and bottlenecks will fade.
“A pretty substantial part — or perhaps all — of the overshoot in inflation comes from categories that are directly affected by the reopening of the economy,” Jerome H. Powell, the Fed’s chair, said during congressional testimony on Tuesday.
The White House also accepts that inflation could soar too high, a point the Biden economic team began making more explicitly after Mr. Summers expressed his concerns. But that is not their forecast, and it wasn’t enough to keep it from passing its $1.9 trillion stimulus.
Nor has it rocked the Fed meaningfully from its patient course: Mr. Summers has called for the central bank to stop buying mortgage-backed bonds. While the Fed has said that it’s now talking about slowing those purchases, it hasn’t yet. Fed officials did pencil in possible rate increases for 2023 at their June meeting, and they marked up their estimates of inflation this year.
Mr. Summers takes comfort in the attention the Fed has recently paid to inflation risks. But he had previously said there was a one-third chance that the Fed would allow inflation to run out of control, a one-third chance that it would cause a recession by lifting rates to curb price gains, and a one-third chance that everything would turn out fine — and, he said in an interview, he still thinks that assessment is basically correct.
Mr. Summers could turn out to be right. Inflation has moved up faster than economists anticipated this year. But he could yet be proved wrong, since part of the increase in prices was broadly expected and much of the rest came from categories affected by reopening wiggles, like airplane tickets and used cars. If price gains fall back into line after a bout of pandemic weirdness, there’s little reason for them to be destabilizing or problematic, from the Fed’s perspective.
Whether or not Mr. Summers turns out to be the sage of Scottsdale and Brookline, his staying power is perhaps best understood as a statement about what he represents: the belief that government spending has real if hard-to-know boundaries, and that trying to measure and work within economic and practical limits can lead to better policymaking.
Those ideas are out of vogue among progressives, who embrace deficit spending and assessments of policy success that put more weight on the risk of underreacting. But Mr. Summers’s continued resonance in Washington — his words shaping policy debates that he is no longer, technically, integral to — shows that going out of fashion isn’t the same as going extinct.
