Towards a Climax

Gene Sperling, 55, President Obama’s top economic counselor, will be leaving his job as Director of the National Economic Council at the end of the year, the White House announced last Friday.  Named to replace him was Jeffrey Zients, 46, who until April served as acting Director of the Office of Management and Budget.

Did Sperling jump, or was he pushed?  We can leave the question to the well-sourced Ezra Klein, of The Washington Post.  A Yale Law School graduate, Sperling entered national politics in 1993 as deputy to National Economic Council director Robert Rubin. He met his wife, Allison Abner, while she was writing episodes for the TV series The West Wing. They have a five-year-old daughter and a bi-coastal marriage, according to Wikipedia. To my mind that’s more than enough reason for Sperling to want to quit his high-pressure job after three years (and two before that at the Treasury Department).

But it is also the case that, as NEC director, Sperling orchestrated the highly-public run-off between Lawrence Summers, his long-time mentor, and Federal Reserve Board vice chair Janet Yellen, over the nomination to the head the Fed.  With the appointment of Zients, Obama gets a neutral manager and a source of disinterested advice. A graduate of Duke University, who rose rapidly through the ranks of Mercer Management Consulting, Bain & Co., and David W. Bradley’s highly successful Washington consulting firms, Zients has no ties to Summers.

The competition to succeed Fed chairman Ben Bernanke when his term expires in January has become a major headache to the White House. Zients, who left his White House post as acting budget director only in April, may already have begun to reframe the choice.  The Wall Street Journal reported Saturday that mounting opposition among Senate Democrats signifies that Summers’s prospects have dimmed.

Meanwhile, Alan Blinder, of Princeton University, a former vice chairman of the Fed himself, circulated a letter signed by some 300 economists urging the president to nominate Yellen. Her candidacy is widely viewed by students of the Fed as a more reasonable proposition than that of Summers. She may not be a force of nature, like Paul Volcker; a magician, like Alan Greenspan; or a student of history, like Bernanke. Or so the argument goes.  But she is a superior intellect who has met every challenge she has faced in order to rise to the top of the profession, in an era when opportunity customarily was denied to women.

If there’s a criticism of Yellen, other than looking like a kindly grandmother, it has to do with her identity as a product of the somewhat amorphous “Yale school” of macroeconomics. (See David Colander’s interviews in Inside the Economist’s Mind for background)   A proud tradition associated with influential figures of the 1960s such as Arthur Okun, Henry Wallich and James Tobin (the Nobel laureate  whose student and collaborator Yellen was), Yale macro today also includes Robert Shiller, William Nordhaus, Ray Fair and William Brainard. (CORRECTION: Lael Brainard, currently Treasury Undersecretary for International Affairs, mentioned recently as a possible Fed governor, is not Brainard’s daughter, as earlier asserted here.  They are not related.) The problem is, having defined itself long ago in contradistinction to Irving Fisher – the legendary Yale economist who went broke in the Great Depression – present-day Yale dogma is thought, at least by many financial macroeconomists, to have ignored or misunderstood key aspects of the recent crisis. (Robert Dimand’s presidential address to the History of Economics Society last summer dealt with some of these issues.) In other words, there is plenty of discussion among experts about how to lead the Fed forward, based on what we know now.  Both Yellen and Summers have their partisans; so do others who loom just out of the spotlight.  Former Fed vice chairman Donald Kohn has been mentioned by the president himself.

In the background is Jon Hilsenrath, chief economics correspondent for The Wall Street Journal.  Last week he was in Durham, North Carolina, leafing through the trove of letters the late Paul Samuelson deposited in the Duke University library. In A Close Bond and a Shared Love for ‘Dismal Science’, in the WSJ Saturday, Hilsenrath ranged widely over over Summers’s relationship with his two famous uncles, Samuelson and Kenneth Arrow, both Nobel laureates. At one point he described a letter from Samuelson to his former colleague Stanley Fischer.  Hilsenrath wrote:

Mr. Samuelson expressed mixed feelings about the relationship between Mr. Summers and Robert Rubin, a former US Treasury Secretary who would become a Summers mentor in the Clinton administration.

“Rubin taught Larry some tact – but nobody could keep his shirt tails firmly tucked in,” Mr. Samuelson said of his famously argumentative sloppily dressed nephew….

But Mr. Samuselson believed Mr. Rubin, who was a member of Harvard’s governing board, had failed to properly advise Mr. Summers when he was Harvard president, In particular, his uncle was upset about the handling of economics  professor Andrei Shleifer, one of the issues that contributed  to faculty unhappiness with Mr. Summers….

“Rubin should have compelled Larry to stay out of the Andrei Shleifer Moscow business,” Mr. Samuelson confided to Mr. Fischer.

Mr. Summers and Mr. Shleifer didn’t comment on the Samuelson letter.

As a journalist, part of my job has been to keep alive the memory of Summers’s role in Harvard University’s Russia scandal.  In that strange affair, Shleifer and his wife were caught trying to go into the Russian mutual fund business for themselves in 1996, while leading a Harvard team advising the Russian government on market design on behalf of the US Agency for International Development. Summers, their close friend, was deputy secretary of the Treasury at the time and, sson thereafter, Secretary. Harvard defended Shleifer to the hilt, both before and after Summers returned to the university as president. (At a certain point, Summers recused himself from the matter.) In 2004 a federal judge ruled that both Harvard and Shleifer had breached their contract to provide disinterested advice.  He ordered the university to return its fees.

By now, even the most casual reader of newspapers will have noticed that Harvard’s Russia scandal doesn’t come up in most discussions of Summers’s fitness to lead the Fed. Only the WSJ, which originally reported the story, has kept up with it.  The New York Times and The Washington Post didn’t cover the fracas, so they have no fistful of clips from which to reason now. The Financial Times, which hired Summers as columnist after he was forced out of Harvard, has likewise given the story a good leaving-alone. So have the authors of many books on the privatization of the economy of the former Soviet Union during the 1990s, none more conspicuously than Strobe Talbott, onetime Time magazine Moscow correspondent, in The Russia Hand: A Memoir of Presidential Diplomacy, his account of his years as Deputy Secretary of State from 1994 to 2001.  Today Talbott is president of the Brookings Institution. It’s this very invisibility that, to my mind, is the best argument against letting Larry Summers anywhere near the Fed.

.                            xxx

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2 responses to “Towards a Climax”

  1. Would you ever write anything like “If there’s a criticism of Yellen, other than looking like a kindly grandmother” about a male economist?

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