Lawrence Summers - Director, National Economic Council
(Non-Cabinet-Rank Member, National Economic Council)
Former Treasury Secretary, Clinton administration
Former Chief Economist for the World Bank
Former President and current professor, Harvard University
Appointed: November 24, 2008
Obama’s comments:
“Larry Summers…brings a singular combination of skill, intellect, and experience to the role he will play in our Administration.
“As Under Secretary, Deputy Secretary, and then Secretary of the Treasury, Larry helped guide us through several major international financial crises—and was a central architect of the policies that led to the longest economic expansion in American history, with record surpluses, rising family incomes and more than 20 million new jobs. He also championed a range of measures—from tax credits to enhanced lending programs to consumer financial protections—that greatly benefitted middle income families.
“As a thought leader, Larry has urged us to confront the problems of income inequality and the middle class squeeze, consistently arguing that the key to a strong economy is a strong and growing middle class. This idea is the core of my own economic philosophy and will be the foundation for all of my economic policies.
“And as one of the great economic minds of our time, Larry has earned a global reputation for being able to cut to the heart of the most complex and novel policy challenges. With respect to both our current financial crisis, and other pressing economic issues of our time, his thinking, writing and speaking have set the terms of the debate. I am glad he will be by my side, playing the critical role of coordinating my Administration’s economic policy in the White House—and I will rely heavily on his advice as we navigate the uncharted waters of this economic crisis.”
Others’ comments:
“Summers’ critics contend he played a role in the current financial crisis. They cite, among other things, his support for the Commodity Futures Modernization Act, which allowed many derivatives—like the credit default swaps that have rocked markets this fall—to go unregulated.
“‘The policies he promoted as Treasury Secretary and in his subsequent writings led to the economic disaster that we now face,’ wrote economist Dean Baker, a director of the liberal Center for Economic and Policy Research.”
—CNNMoney.com
“[Summers had a] destructive performance as president of Harvard University, a rocky term he finally sabotaged by revealing his opinion that women lack the mental aptitude to succeed in science.
“But there is a lesser known episode in Summers’ past that further highlights his reckless tendencies….
“On December 12, 1991, while serving as chief economist for the World Bank, Summers authored a private memo arguing that the bank should actively encourage the dumping of toxic waste in developing countries, particularly ‘under populated countries in Africa,’ which Summers described as ‘UNDER-polluted.’ Summers added that public outrage over the heightened rates of prostate cancer caused by his proposed dumping would be mitigated by the fact that poor people in developing countries rarely live long enough to develop prostate cancer.
“When the Summers memo leaked to the public in February 1992, Brazil’s Secretary of the Environment, Jose Lutzenburger, responded with an indignant missive. ‘Your reasoning is perfectly logical but totally insane,’ Lutzenburger told Summers. ‘Your thoughts [provide] a concrete example of the unbelievable alienation, reductionist thinking, social ruthlessness and the arrogant ignorance of many conventional economists concerning the nature of the world we live in... If the World Bank keeps you as vice president it will lose all credibility.’
“If Obama nominates Summers [as Treasury Secretary], he will send a dispiriting message to governments of developing countries—especially in Africa—just as they have begun to look at the United States as a beacon of hope.”
—The Nation
“As the incoming Obama administration prepares to find a way out of our latest economic mess, it is worth recalling the forgotten relationship between the man who seems to be a leading candidate for treasury secretary, Lawrence Summers, and the collapse of Enron, which in many ways presaged our current economic crisis.
“The supporting role that Summers played in Enron, including his reassuring correspondence with Ken Lay and his laissez-faire approach to the California energy crisis of 2000 and 2001, indicates why he may not be suited to steer the nation through the troubled economic waters that lie ahead.
“In his book about Enron, Conspiracy of Fools, Kurt Eichenwald describes Summers’ role in the early stages of the California energy crisis when the state was suddenly faced with power shortages and energy costs that were soaring up to 20 times normal levels. Then-Governor Gray Davis, convinced that Enron and others were manipulating the market, begged the federal government to intervene.
“Even as blackouts shut down dialysis machines and traffic lights from Sacramento to San Diego, Summers and the Federal Reserve chairman, Alan Greenspan, decided to take a few moments to teach the California governor a lesson or two about free markets. In an emergency meeting the day after Christmas 2000, Summers and Greenspan, responding to the governor’s complaints about corporate tampering, lectured the governor that price manipulation was only possible because California had improperly regulated its markets. They urged the governor to take it easy on Enron and the other power companies because, in effect, being too critical of them might make them reluctant to do business in California. Summers and Greenspan pressured the governor to remove state caps on consumer rates.
“A second meeting took place a few weeks later, via video teleconference, with Summers, California’s governor, and energy providers—including Enron’s Ken Lay. This time, Summers not only called for consumer rate increases, he also urged the governor to reassure the markets by relaxing environmental controls (Ken Lay’s suggestion) so that more power plants could be built quickly.
“Once again, [Davis] protested, refusing to raise electricity rates for consumers, declining to eviscerate environmental controls, and instead requested federal price caps on the electricity that power companies sold to California. Remarkably, Summers defended the energy executives, including Ken Lay, as doing ‘a pretty good job’ of serving California, and dismissed the possibility that they were colluding to drive prices up—even though, as we know now, that’s precisely what they were doing, Summers disparaged the governor’s plan; it wouldn’t work because such government intervention would inevitably ‘distort the market,’ he said.
“Nonetheless Summers’ nearly religious faith in deregulation and the purity of market models blinded him to the reality of what was really going on. He assumed that there was an imbalance between supply and demand when, in fact, absent market manipulation conducted by the very people Summers was defending from further regulations, California had a sufficient supply of electricity.
“Summers saw government interference in the crisis, as he put it, as ‘market distortion.’ Yet disturbingly, Summers remained relatively unconcerned about the ‘distortion’ caused by the market power of companies like Enron who, through collusion and predatory behavior, caused prices to soar.
“Indeed, he may have been blind to the possibility. After all, in pure economic models, there is no room for manipulation because all information is known. But one thing we have learned in the early days of the recent economic meltdown is that Wall Street—like Enron—has found enormous profits in muddy markets of loan bundles whose very architecture is designed to hide the truth about their risk.
“With Enron, Summers also showed a political tin ear. Imagine a Democratic treasury secretary telling a Democratic governor to pollute his state, gouge his constituents, and make nice with the businessmen who were profiteering on the misery they were causing.
“The Enron example suggests that Summers is not inclined to speak truth to power. Just the opposite. Even as Summers, in recent days, claims to have embraced more government intervention, his past actions suggest that his change is not the kind we can believe in. Speaking power to truth is not the quality the Obama administration needs as it tries to clean up a financial world mired in mendacity, arrogance, and greed.”
—The Daily Beast
Approved: Appointment did not require Senate approval.
Appointment Impact:
“The NEC, created by Bill Clinton in 1993, coordinates economic policy between the Treasury, Labor, Housing and Urban Development and Health and Human Services Departments, as well as independent agencies such as the Federal Deposit Insurance Corp.
“Its first director, Robert Rubin, who later became Treasury secretary, built the post into a power center. But under the Bush White House, its authority has waned.
“As a White House appointee, Mr. Summers, a former president of Harvard University, won’t have to put his famously prickly —some say imperious—personality on display in Senate confirmation hearings. But he will get to flex his elbows behind closed doors to ensure the NEC is returned to its place as the clearing house for policy ideas and initiatives. And the nature of the economic challenges—slowing growth, rising unemployment, a housing crisis, surging health care and education costs and rising ranks of the uninsured—lend themselves to cross-government solutions.
“The new economic team emerges from the Democratic Party’s moderate flank, with Mr. Rubin as the common denominator. Mr. Summers was Mr. Rubin’s longtime deputy at Treasury and then succeeded Mr. Rubin as Treasury secretary. Mr. Geithner was a senior aide at Treasury during this period.
“‘Summers is the thinker, the ideas guy,’ said one Obama economic adviser. ‘Geithner is the implementer.’”
—The Wall Street Journal