Monday, September 2, 2013

David Warsh Nails It

There will probably not be many more chances to blog about Larry Summers and the Fed, since Obama's decision is probably near. On the other hand he has a few other things on his plate over the next week or two, so maybe he can keep the Fed appointment up in the air awhile longer.

David Warsh's column today ends with a point that explains my exasperation over the possibility (nay, the likelihood) that Summers will be appointed to the Fed. After all, I am in no position to comment on monetary policy, or even to have any credibility on the question of whether the infamous Harvard debt swaps were a bright idea or not. They say you need steady hands at the Fed, and I can attest to the fact that Summers's smartest-guy-in-the-room instincts are uncontrollable, but other people say they'd rather have the smartest guy anyway. 

I keep coming back to the Shleifer affair, about which I was one of the first people at Harvard to speak out, and which, after all these years, continues to be about the last think any journalist brings up about Summers. Here is Warsh's bottom line on it.
Finally, there is an issue of serious corruption.  Harvard’s Russia scandal isn’t on the order of a paid toast at a dinner for Bashar al-Assad [which Ezra Klein joked might be the only thing that could keep Obama from nominating Summers]– it’s more serious. Summers’s best friend and foremost protégé, Harvard professor Andrei Shleifer (and Shleifer’s hedge-fund operator wife) attempted in 1996 to steal from better-qualified competitors Russia’s first license to sell mutual funds – all the while leading Harvard’s State Department mission to teach Russians American-style market fair play. The mission was shut down amid much embarrassment after their actions were revealed; the US Justice Department sued Harvard and Shleifer and got its money back. Summers’s role in the affair and the subsequent investigation, heretofore almost completely ignored, presumably is about to get a good going over in the administration’s “vetting” of his candidacy, in the newspapers, and in whatever comes next. …
I don’t mean to be apocalyptic. Yellen may be chosen. Whatever her shortcomings may be as a battle captain, she is a proven leader within the Fed. Summers may be nominated and confirmed. The sun will come up every morning if he is. There will be plenty of good stories for those who cover the Fed. He may even serve with distinction; the risky course sometimes works out.  But even if Summers succeeds, United States prestige will have been diminished by the rise of a man who, when his friends cheated the government they represented and got caught, backed them to the hilt and, unrepentant, still climbed to the top.
That last sentence is the killer for me. The real reason I hate to see Summers ascend to be the head of the Fed is not even the fate of the country; I have to take others' word for his qualifications as an economist. It's that he is a terrible example to our students for how they should live their lives. He loves to split legalistic hairs, and denies that ethical conduct exists outside the context of such hairsplitting. And he is living proof that if you do something wrong and simply refuse to acknowledge it, never apologizing and, when put on the spot, wriggling out of the question on the pretext of technicality, you can live to succeed and rise to power once again. Students are no fools; they see what grown-ups say and do and how it pays off. It will be bad enough if Obama appoints Summers, but the panting adulation he will receive in Harvard publications and Web pages will be powerful signals to Harvard students to go and do likewise.


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  2. As you've been so thorough in making clear, if it weren't for Larry Summers' hubris, the U.S. and world economies would undoubtedly be in a very different financial condition, and the same can be said about his role at Harvard. The Federal Reserve Chairman's ideological predispositions, policy initiatives, and even seemingly trivial utterances can have a very large impact, so anyone with the traits displayed so repeatedly by Summers would seem to be a bad fit.