The campaign against Larry Summers

January 6, 2010

A quick exit for Larry Summers? That’s the goal of an incipient whispering campaign within segments of his own party. Detractors of the superstar White House  economic adviser blame his deficit-phobia for a skimpy stimulus and resulting jobless recovery in the United States.

Many Democrats fret that a toxic tandem of so-so economic growth and stubbornly high unemployment could cause huge losses in November’s midterm elections, perhaps even a loss of the House of Representatives. So let the Blame Game begin. In particular, an amalgam of influential liberal bloggers, New York Times columnist Paul Krugman, and even nervous White House and congressional politicos have concluded that the Obama administration erred in not pushing for a 50 percent larger stimulus plan than the $800 billion effort in early 2009 — or for a massive second dose of steroids since.

Summers has been central to those decisions. He has argued that while government can partially fill the economy’s output gap, overdoing spending — and borrowing to fund it — would spook global bond markets. Such reasoning annoys Washington liberals, as it did during the Clinton years when much of the left-wing, “Putting People First” agenda lost out to the deficit reduction advocated by Treasury Secretary Robert Rubin, Federal Reserve chairman Alan Greenspan and, yes, Summers. A near-trillion dollar stimulus plan and trillion dollar deficits apparently just aren’t enough when you have visions of coast-to-coast high-speed rail and a modern-day WPA program dancing in your head. Given the kvetching on the left, you would almost think Summers was pushing for a crash balanced budget.

It’s the same brand of deficit hawkishness liberals see at work in the healthcare reform process. (Amazingly, a $900 billion plan that will almost certainly expand the budget deficit is still too fiscally strict for these folks.) Many Dems also sniff at Summers’ past employ at hedge fund DE Shaw. Hey, what value could experience outside of academia and government possibly have, right?

But Summers is certainly right to focus on controlling government deficits. Uncle Sam has at least $10 trillion in new debt to sell over the next decade and needs to maintain investor confidence. Bond fund giant Pimco, for instance, is already cutting back on Treasuries because of the flood of new issuance.

Even dyed-in-the-wool Keynesians should also concede that government borrowing can become excessive. A stunning new study by Carmen Reinhart and Kenneth Rogoff found that when government debt-to-GDP levels rise above 90 percent in advanced economies, annual GDP growth falls by one percentage point or so. The International Monetary Fund projects that America’s debt-to-GDP ratio will reach 94 percent this year.

Summers isn’t going anywhere right now. Imagine the strange optics of axing the White House’s economic guru just when President Obama is arguing that his policies are slowly righting the ship. But should the economy dip again or November’s elections prove disastrous, there will be a political price.

And while the high-profile Summers is near the top of the list to pay it, he might not be the only one. The left, brimming with anti-Wall Street fervor, would also like the president to give Treasury Secretary Timothy Geithner his walking papers. An obvious replacement would be JP Morgan CEO Jamie Dimon.

But liberals want no part of ex-Wall Streeters or ex-Clintonites. So who would that leave to replace Summers or Geithner? Who would be on the liberal short list for an Economic Policy Dream Team besides Krugman and Biden adviser Jared Bernstein?  (Certainly no one in favor of cutting taxes.) Financial markets would probably love to know.

Of course, the real problem for the anti-Summers crowd is Barack Obama himself, the man “progressive” columnist David Corn said has already left liberals “alienated from politics today.” Obama’s instincts, along with real political and fiscal limitations, seem to consistently push him toward center-left economics. But the White House isn’t like a baseball team where it’s far easier to fire the manager than get rid of problem players.


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Are the wheels coming off the Obama administration? I’ve said all along this guy would be a one-term wonder – events are now confirming it.

Posted by gotthardbahn | Report as abusive

[…] some thoughts on today’s piece by the conservative Reuters columnist James Pethoukoukis called The campaign against Larry Summers and tax cut propaganda.The socialism propagandaJimmy P. was on Larry Kudlow’s show last week as […]

Posted by The Democratic Party meltdown of 2010 – Credit Writedowns | Report as abusive

[…] Democrats Say – NY Times The $175 Razor: A Sign of Economic Recovery in Retail? – Time The campaign against Larry Summers – Reuters […]

Posted by Morning Links | Report as abusive

Romer before Obamanomics, “Government spending does not reverse a recession. ”
Romer after Obamanomics, “Government spending is the only way to reverse a recession. “

Posted by EconRob | Report as abusive

The dems realize they have a problem looming in coming elections. They are blocked by the Republicans from now adopting a policy of fiscal responsibility. Their only chance is to double down and go for a stimulus package so huge that it will finance enough corruption to buy their way back in. Look for a lot of well placed earmarks in coming legislation.

Posted by willis | Report as abusive

The campaign against Larry Sumners is of his own making and the sooner it ends with either his resignation or forced ouster the better. While he may be an academic genius as so many people are eager to drop to their knee’s and exclaim, his judgements have fallen far short of his billing. You might remember Greenspan and Rubin were once thought of as ‘market gods’ before unfolding events proved them to be charlatans.

James, perhaps if you were more interested in fighting for the citizens of our country with the critical minds eye expressed through your keyboard instead of a veiled political undertone, you would realize that Sumners is no different than Rubin or Greenspan, one of the three blind mice who have have lead this country into economic ruin.

Posted by Craig Teuber | Report as abusive

Obama is not left enough and he best get rid of the right thinking idiots he has in Summers, Geithner, and Gensler and replace with Elizbeth Warren or Sheila Bair. Get the insiders out of the chicken coup or you will never be able to clean the coop.

Posted by Janet | Report as abusive

I think that lots of campaign promises have not lived up to what was expected. What should have been promised was a thorough investigation of the financial misdealings with the leaders who were responsible being brought to justice. I do not think Mr Obama has the backbone to stand up for his ideals, and it will surely shorten his tenure in office. I also think that he is looking more at party politics and making everyone happy than doing what is right for the country. By not standing up he has lost the support of his party.

Posted by Fred Belz | Report as abusive

“Such reasoning annoys Washington liberals, as it did during the Clinton years when much of the left-wing, ‘Putting People First’ agenda lost out to the deficit reduction advocated by Treasury Secretary Robert Rubin, Federal Reserve chairman Alan Greenspan and, yes, Summers”

Hey, they’re free to advocate whatever they want. But in that case, minimal honesty demands that they not bash the GOP by holding up the Clinton years as a model.

Posted by Bob | Report as abusive

Summers needs to go. He’s been told that before – notably at Harvard after, among numerous other gaffes, nearly ruining them financially. From his income statements, Summers definitely looked out for Number One while there, just like his buddy Andrei Schliefer did to Harvard and to all of Russia. Now that fat incompetent Summers is doing it all over again at the expense of just about everybody else in the United States.

If it’s about handicapping the Obama administration, Larry Summers is a bipartisan boat anchor who should be fired at once and along with him, whoever thought it would be a good idea to hire him in the first place.

If it’s about comparing Washington to baseball, imagine if Pete Rose were nominated to the post of Ethics Commissioner. That’s Larry Summers in a nutshell. Any more questions?

Posted by The Bell | Report as abusive

The Bell: Yes, one more question. Is this the best you can do? Maybe Summers should be let go, but you’re not making much of a case.

Summers was forced out of Harvard due to political correctness run amok and not, as you state, for his financial stewardship. His financial strategy made Harvard a hell of a lot of money. Sure, that may have been pure luck, but he can hardly be blamed for the fact that his successors didn’t have sufficient brains to change his strategy when the financial conditions also changed. Frankly, if I were him, I’d think Harvard had it coming.

But hey, he’s fat, so kick him out!

Posted by Alice | Report as abusive

Larry summers helped in the killing of Y.S.Rajasekara Reddy an indian chief minister of Andhra Pradesh on september 2nd of 2009. He was involved with the biggest giant Mukesh Ambani. All involved in his death should be hanged all over.

Posted by Rohan Mark | Report as abusive

Larry Summers ran over my dog!

Posted by B. Salem | Report as abusive

[…] Democrats Say – NY TimesThe $175 Razor: A Sign of Economic Recovery in Retail? – TimeThe campaign against Larry Summers – Reuters […]

Posted by Wednesday morning links | Finance Blog | Report as abusive

[…] I want to talk about the drubbing the Democrats are going to take in this year’s elections and what it means, if anything.  As a sort of pre-amble, I will lead into this with some thoughts on tax cut propaganda and today’s piece by the conservative Reuters columnist James Pethoukoukis called The campaign against Larry Summers. […]

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