NEW YORK, August 23, 2013 — Larry Summers is President Barack Obama’s likely nominee for Federal Reserve chairman, despite the disapproval of Congressional Democrats. Obama has dismissed the criticisms by Congress as a “Washington exercise”. Yet Summers’ reputation among economists, women and black professors warrant further examination. These groups like those on Capitol Hill believe that Summers’ record should disqualify him from running the Fed.
As former Secretary of the Treasury and Director of the National Economic Council, Summers seems capable of fulfilling the Fed’s dual mandate- to promote maximum employment and ensure price stability. Nevertheless, his reputation as a deregulator has mobilized Capitol Hill against him.
During the Clinton administration, as head of the Treasury, Summers actively supported the repeal of the Glass-Steagall Act and promoted the passage of the Commodity Futures Modernization Act. Both actions are claimed to exacerbate the 2008 financial crisis.
Glass-Steagall prohibited banks from taking part in speculative trading by separating investment banking and commercial banking. Once it was repealed commercial banks were able to invest in mortgage-backed securities and collateralized debt obligations. The Commodity Futures bill allowed financial derivatives to be traded without any oversight or regulation.
Summers has a Harvard Ph.D. in Economics, yet Republican Senator Pat Roberts said that he would not hire him “to mow my yard”.
Senate Democrats agree with Roberts’ sentiment. Nineteen of them plus one independent signed a letter and sent it Obama urging him to nominate Janet Yellen, currently vice chairwomen of the Fed. Yellen is view as another front runner for the position.
“There’s a lot of concern among a lot of Democrats about an appointment of Larry Summers to that long-term position as Fed chairman,” said Senator Tom Harkin (D-Iowa) who signed the letter.
To be appointed Fed chair requires a Senate confirmation after the presidential nomination.
Democrats hold the majority of the Senate seats, but it is doubted that all the members of Obama’s party will support a Summers appointment. There are 54 Democrat and 46 Republican Senators. If he is select, a few Republican votes would be needed.
Summers is more likely to be a target among Republicans who opposed the 2009 fiscal stimulus. As Obama’s director of the National Economic Council, Summers worked on the $800 billion bailout package.
Economists and other academics
Outside of Washington, Summers faces criticism from academia.
According to Reuters, more than 30 law and economics professors sent letters to the President and Harry Reid, Senate Majority Leader advising that Yellen should be nominated over Summers. The academics voiced the same concern of those in Congress regarding Summers’ role in blocking the regulation of derivatives and supporting the end of Glass-Steagall. Yellen was highlighted for her foresight in the housing bubble with warning about its risks in 2005.
Jeffery Sachs and Laurence Kotlikoff, renowned academic economists wrote in the Huffington Post that financial integrity should be a requirement for Fed chair. They claim this quality is absent from Summers’ resume with citing that he went from working for the White House to working for Wall Street.
After crafting the fiscal stimulus which bailed out Citigroup and other Wall Street firms, Summers was hired by Citigroup and similar financial services firms in an advisory role.
Economics professor, John Pinske at Duke University says Summers is “very pro-deregulation, pro-Wall Street, and is pretty much the embodiment of the attitudes that precipitated the last crisis… and will most likely precipitate whatever the next one will be.”
Summers became synonymous with the word ‘sexist’ when he made remarks about women’s innate abilities while president of Harvard University. At the 2005 National Bureau of Economic Research Conference, he present a speech saying that biological differences between genders explains the shortage of women faculty members in science and engineering at top universities.
“It does appear that on many, many different human attributes—height, weight, propensity for criminality, overall IQ, mathematical ability, scientific ability—there is relatively clear evidence that whatever the difference in means—which can be debated—there is a difference in the standard deviation, and variability of a male and a female population” said Summers.
The speech led to his resignation at Harvard in 2006, despite that Summers apologized.
Since then critics point to his working relationship between Christina Romer and as another example of Summers’s anti-women attitude.
Romer, the chair of the Council of Economic Advisers was marginalized by Summers when he worked for the Obama administration according to Noam Scheiber’s book The Escape Artists. Romer resigned due to her frustrations with Summers who collaborated with other male staffers to prevent her from presenting a $1.2 trillion fiscal stimulus proposal to Obama. Summers thought her proposal was not politically feasible.
These accounts prove to be sufficient evidence against Summers for UltraViolet, a feminist group and The National Organization for Women. Shaunna Thomas, co-founder of UltraViolet warned, “Women will not soon forget if President Obama picks Mr. Summers for such an important post”.
Black professors at Harvard University
The African and African American Studies Department was known to be a source of controversy against Summers during his term as Harvard’s president. Cornel West and Kwame Anthony Appiah, two of the department’s top professors left to work at Princeton University due to clashes with Summers. Henry Louis Gates Jr, head of the department also considered leaving at the time.
In a 2001 Boston Global article, senior black faculty members reported that Summers was abrasive. Some black professors are reported to have said that Summers behaved like ‘a bull in a china shop’ towards them. Poor relations with black faulty members started the summer of 2001 when Summers declined to make a strong statement in support of affirmative action at a meeting which disappointed many of his colleagues.
West left the following year, but says Summers continued to have problems with the department throughout his tenure as Harvard’s president.
The academic resigned after Summers accused West of not behaving as a Harvard professor. Summer disapproved of West recording a rap album, heading a political committee to support Rev. Al Sharpton’s potential presidential campaign and writing books unlikely to be reviewed by academic journals.
Department head Professor Gates and Summers have drastically improved their relationship since that time. “Larry Summers is a brilliant man… I have no doubt that he would be a brilliant chair of the Fed,” said Gates.
Popularity is outside the job description of Fed chair. Since the appointment is a political issue, public opinion against Summers may lead the President to nominate someone less controversial.
Selecting Summers means that the President must defend Summers and his decision beyond Washington. Summers’ technical qualifications may not reduce the political risks that the Democrats would carry if the economist has another public relations debacle as Fed chair.
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