Larry Summers To Go

Hurrah.

I am not a fan of Larry Summers. I will not miss his ego, his stifling presence, and his lack of progressive attitude. He served at a time when we needed strong action to put the economy back on a more sustainable path following decades of neglect and deregulation. His primary contributions were to water down the stimulus; to fend off stronger bank regulation; and to throttle the voices of those with a less market oriented viewpoint. All in all a weak performance.

In particular he acted as enabler of the continual search for middle ground that has undermined the economic policy process under Obama. There was no middle ground to find. The alternatives were clear. We could continue along free market deregulated path such as that of Reagan and Bush; or we could restore balance and acknowledge the crucial role that governments play in the stabilization of economies. We continue to watch volatility increase or we could work to mitigate it. We could reduce inequality or we could be indifferent to it. And so on.

Summers was an exponent of free market economics in his first foray to Washington. When the free market magic started to fade he modified his views, but at no point did he fully embrace the alternative. Thus, when the stimulus was being put together he supported the smaller package as being sufficient to stop a free fall, even though he knew full well that it was insufficient to kick start a strong recovery. Why did he get stuck in this middle ground? Because he is still a free market solutions guy. His conversion to interventionist economics is only skin deep. He believed that all the government should do was to limit the damage. After that the markets would recover and we would take off back on track. He was terribly mistaken. That decision alone contributes enormously to the frustration we all feel as the economy continues to drift.

Add to this his extraordinary hubris, in his own mind he is a towering figure in the trade, and we arrive at a relatively unsavory character given the context within which he worked.

I welcome his departure.

That, of course, immediately opens the discussion as to a replacement. Already we are being prepared for the selection of a more corporate biased person to help salve the criticism that Obama is somehow anti-business. It should be no surprise that I sincerely hope such a selection is the pipe dream of the Chamber of Commerce rather than a true possibility. We do not need more pandering to business. We need someone with solid crisis fighting credentials. Someone who is not beholden to corporate or any other special interest. Most importantly we need someone who can explain why it is that we need to put the government back into the economy where it belongs. The free for all that produced the crisis does not need another apologist. Nor do we need another retread from the Clinton era – Clinton was a committed free market type too, as the financial deregulation of his tenure attests. Finally whoever gets the job must be able to articulate the delicate balancing necessary to undo the fiscal debacle of the Reagan Bush regimes – the long term deficit is their construction – and yet protect the short stimulus still needed to prevent our slide into a Japanese style malaise.

Given the counter intuitive nature of the policies we need, and the ongoing popularity of the anti-government, tax cutting approach that created the crisis, I do not envy the person who steps in. That Summers didn’t do as much as he should to lay the groundwork only makes the task more difficult.

While there are plenty of people capable of doing the job,two questions pop up:

Do they want to step into the muck while the political will for change is so sorely lacking?

Has Obama the courage to select a strong pro-government player?

I wouldn’t; and he hasn’t.

Summers replacement will be a fudge.