Being a difficult, occasionally bullying, intellectual powerhouse, Larry Summers has always drawn fierce attacks: political, personal or otherwise. And his time at the White House has been no different: whether for backers of outgoing CEA chief Christine Romer on the left or former OMB head Peter Orzag on the right, Summers became the touchstone for activists, pundits and politicians who wanted to see a different approach to handling America’s financial crisis.
The effect has been to exaggerate Summers’ perceived authority for administration policies. The left says his time at hedge fund D.E. Shaw explains why financial regulatory reform wasn’t tougher on Wall Street and they blame him for keeping the initial stimulus bill too small and for preventing a second one late last year. The right blames him for the ill-defined version of socialism they see lurking under their beds at night, and for driving the huge increase in debt that the stimulus effected.
Two facts about the Obama administration’s handling of the financial crisis undercut both sides of that shouting match. First, the practical differences among the left and the right at the White House were not particularly large, and as often as not, Summers was in the middle of the spectrum; second, the over-arching determinant of policy in the financial crisis has been gettable votes in the Senate, and there was almost nothing Summers could do about that other than letting other, more likeable members of the administration do the lobbying on the Hill, which he did.
On the original stimulus, for example, it is true that Christine Romer, a dedicated Keynsian counter-cyclicalist, wanted a bigger number. But the decision about the final size of the package was not made at the White House in some knock-down drag out fight between her and Summers, but rather in closed door negotiations between Senators Joe Lieberman, Harry Reid and Susan Collins about what number she would accept to vote for the bill. Likewise, late last year, when there was talk of a second stimulus, it was not the White House and Larry Summers that killed the idea, but rather Reid, who decided that the best way to get the money through the Senate was to break it up into pieces, a judgment that underestimated the anti-spending backlash around the country.
Summers’ exceptional ability to rankle people simply amplifies one of the most common fallacies among Washington watchers: assuming that the White House has more power over money matters than Congress.
