Larry Summers, who is 68, is not young. Yet in the extended lifetime of American political players, he may have another 15 years of relevance ahead of him. After all, Joe Biden is 80. Summers’ career of public service, as Americans like to call it – or of political power, as cynics might – is already three decades long, but is currently in abeyance. Having served as Bill Clinton’s treasury secretary at the end of the 1990s, and as director of Barack Obama’s national economic council eight years later (running Harvard University for five years in between), Summers has not found a role in Biden’s government. He has instead become a prominent judge of its economic policies while retaining a professorship at Harvard.
Summers became chief economist of the World Bank in 1991, at the age of 36, eight years after becoming one of the youngest tenured professors in Harvard’s history (Summers started his degree at MIT at 16). Academic brilliance ran in the family. His father’s brother was Paul Samuelson, the “father of modern economics”; his mother’s brother was Kenneth Arrow, another Nobel prize-winning economist. Summers lacks a Nobel of his own – unlike his great contemporary and rival, Paul Krugman – but is famous for his abrasive intellect. “Larry’s impressed by no one and never was,” a fellow economist told the New Yorker in 2009.
The economic world Summers graduated into half a century ago was a far more equal place than it is today, a fact he emphasised when we spoke in February. That has changed his worldview, although he does not think his values have changed. “The market is generating more natural inequality,” he told me over video link from Boston, “so even if your values don’t change, your judgement about the appropriate size of government has to go up. The level of redistribution that is appropriate is greater.”
The populist movements of recent years have also moved Summers. “I don’t think 30 years ago that I would have had the degree of focus on place-based policies, and investing in communities, that I do today.” Reflecting on his time working in (and later running) Clinton’s Treasury department, he told me that he and Clinton “didn’t pay enough attention to the importance of building support for a pro-globalisation strategy, by acting strongly to prevent local disintegration in what some would call the heartland of the country, or others would call the ‘Rust Belt’. We were overly attuned to coastal elite concerns.”
“There’s something wrong with the fact that children of the most affluent US families pay taxes at a lower rate [than poorer ones] on their property,” Summers added, “and still also get more enriched classes in their schools for their children”. (As the affluent live together and school finance is local.)
“We did too little to increase the level of public investment [in the 1990s],” he now thinks. “At a moment when the economy was doing very well, we didn’t do enough fixing of the roof.”
Summers sounds like he has shifted to the left, having long built a record as a force on the right of the Democratic Party. (“Larry Summers hates infrastructure”, a Democrat congressman said in 2010.) If he now believes in greater redistribution and investment, then who should pay? “We need to raise taxes in general,” Summers believes. “The place to start is on the wealthy. There is capacity to raise revenue from the wealthy on a quite substantial scale – far more than is politically imaginable – without doing any appreciable damage to economic growth,” he was keen to stress.
The “wealthy” would include Summers. After serving as Treasury secretary, his net worth surged. Summers reported less than $1m in assets in 1999, and between $17-39m when he re-joined the government a decade later. Advising financial institutions after serving as treasury secretary is a valuable proposition. “I have been very, very fortunate in life,” he said when I raised this, but added that “my principal employer has always been a university or the government”.
We turn to the UK (which Summers likened to a “submerging market” during the Truss era). In 2016, the day after the EU referendum, he described Brexit as “the worst self-inflicted policy wound that a country has done since the Second World War”. His view has not changed. “I thought it was going to be very costly for Britain,” he told me. “And so far, it appears to have been very, very costly. I wish I understood better why that took place. I think I probably underestimated the extent to which it would burden British businesses that had previously had to work within one regulatory framework – where a competitively-minded Britain had important influence in setting the rules – and now has to work with two separate regulatory frameworks, the more onerous of which no longer reflects British influence.”
I pressed Summers on geopolitics. Has China, I asked, been mis-sold as America’s great competitor in the 21st century? “I would much rather be playing America’s economic hand going forward, for all our problems,” he replied. “I think a lot of the money China has lent out through the Belt and Road programme is not going to come back to China, and is not in fact going to work out as a source of economic strength.”
What of Russia? When we spoke, Summers noted that its GDP has, despite sanctions, “declined by much less than it did when they had a financial crisis in 1997”. I asked whether America could have done more to aid Russia’s development away from autocracy in the Nineties. “Between 1990 and 1992,” Summers thinks, “was the moment when Russian democracy was in an embryonic form and was most malleable and the course could be set”. But the response from the West, he laments, “was really quite limited and stingy through that period”. He thinks something of the order of the Marshall Plan – America’s post-war financial support plan for Western Europe – would have been wise, but such utopianism seems uncharacteristic of him.
Later in the Nineties, for instance, Summers was a noted opponent to Clinton’s involvement with the Kyoto Protocol; an early attempt by developed nations to curb greenhouse gas emissions. “I thought that it was imperative to reach a workable climate agreement,” he told me in justification. “I thought that the Kyoto treaty would set back the cause of climate [change] reduction, because it would be immediately repudiated by the Congress [the Senate rejected the idea by a 95-0 vote in 1997]. The consensus was not there for a binding set of commitments undertaken on a treaty-like basis by only a subset of countries that were going to account for a minority of emissions.”
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Summers is equally criticised by some today for pressing Obama to adopt too small a fiscal stimulus in 2009. Perhaps, I offered, the intellectual atmosphere of the time was not conducive to such largesse. Summers was more direct: “There weren’t constraints in the air, there were constraints. There was a need to legislate through Congress. In the end, the stimulus passed by one vote. To suggest that somehow the size of the stimulus was constrained by the administration’s concerns [or his own] about the deficit is just wrong.”
But what of the banks? How did they escape the consequences of their failings so completely? “With the benefit of hindsight, having seen that confidence was restored, it is easy to go back and say that in various ways, more pain should have been put on the financial institutions,” Summers conceded. The government could have taken greater warrant positions in the banks it aided, so they could have benefitted “much more heavily” as banks recovered. But the priority, at the time, Summers stresses, “was preventing the Depression replay that many thought likely”.
I asked him to answer those among his critics who point to his failure to regulate the derivative market as treasury secretary. He conceded the point, while offering three counterpoints, as is his wont. At the time, “the credit default swap [an essential part of the later financial crisis] was completely in its infancy”, he stressed; “the Bush regulatory authorities did not use more than a small fraction of the powers they had open to them” as derivatives spiralled out control; and the “warnings we gave about a whole range of predatory mortgage practices were essentially ignored by Congress and other regulatory agencies”.
Summers’ primary concern today is that inflation will not return to its target rate of 2 per cent “without unemployment substantially increasing from its current level”. He thinks a “nearly painless disinflation” remains unlikely, and still criticises Biden’s 2021 stimulus for supercharging prices.
But he is most exercised by the possibility of Trump, or someone like him, winning power in 2024. (He expects Biden, who he ultimately supports, to run.) I am surprised: was Trump so destructive? “I think he was profoundly destructive,” Summers told me, with real feeling. “I think a Trumpist winning in 2024 would be catastrophic for the United States and for the world, and would raise questions about the viability of capitalist democracy.”