Saturday, November 15, 2008

Right now, we need Summers

Jeff Frankel bets Obama will pick Summers for Treasury. I know there are many in the progressive blogosphere with strong negative feelings about Summers but I have to say that I think it would be a wise choice by Obama --assuming Obama feels he can personally get along with him.

The bottom line for me is that right now, the Treasury Secretary will likely be the second most powerful position in the administration. During this period of financial crisis we need someone who has a deep intellect and a sophisticated understanding of the interplay between macroeconomics and financial markets. Right now, we simply cannot afford to have anything less than the best person for the job. If we just focused on this criteria and put aside Summers' history of making offensive comments I think there's a compelling case for Summers.

Summers is by all accounts one of a small group of leading intellectual thinkers about macroeconomic policy. For those who are Krugman fans, Summers is one of a few who are at Krugman's level of intellect. (Krugman, in my view is simply not at all temperamentally well suited to be a Treasury Secretary). In addition to his intellect, Summers brings tremendous real world experience having already served at Treasury during the peso crisis and during the Asian financial crisis. Although he bears some responsibility for being involved in some of the missteps of the 1990s e.g. the financial deregulation that helped lay the foundation for the current financial crisis, I think that he probably has a deeper understanding of these mistakes than most of his critics and is not ideologically driven to defend them or repeat them.

I was somewhat reluctant to write this post not only because of Summer's controversial comments but also because I doubt it will make all that much difference to the currently severe economic conditions we are facing. Summers will certainly not be a savior. I see Summers as more of an insurance policy, as a way of minimizing the downside risks rather than dramatically changing the current situation. Two years from now we do not want to be engaged in second-guessing whether or not Obama picked the most capable person for the job.

Until recently, my feeling has been that if there was a fresh young talented person who say resembles a Larry Summers of 20 years ago who could serve as a strong Deputy under a Volcker or Tyson, that this might be a satisfactory alternative. Maybe such a person exists but I certainly don't know who it is. As for Geithner --he wouldn't be bad but I think we're well served with him remaining at the Fed.


Jennifer Imazeki said...

My guess is that economists did not get as upset over Summers' unfortunate comments about women in science as did those who are less familiar with statistics. But if there are any who believe that is a reason to keep him out of Obama's administration, they might be interested in the letter from Linda Bilmes and other prominent Harvard women, lauding Summers as an outstanding mentor for women.

pants said...

I will add to that an article by Sheryl Sandberg--

I'm definitely a Krugman fan but he himself has said he is tempermentally unsuited to be in a presidential administration :)

One of the biggest criticisms I have heard is that he was part of the push for deregulation, but some have put him on the same level as Alan Greenspan, which I think is insane. At any rate, I like that Summers has shown a willingness to change his positions and adapt to new circumstances, judging by his columns in the FT.

I like Geithner too but I think the NY Fed needs him.