HIS BRIGHT IDEA?:

The Return of Larry Summers (DAVID LEONHARDT, 11/26/08, NY Times)

Over the last two years, Mr. Summers has carved out a role unlike anyone else’s in the Democratic Party. He has been something of a shadow economic minister, laying out in real time how a Democratic administration would have responded to the financial crisis. When other economists and policy makers have questions, they often call Mr. Summers.

He is also the centrist who has made it safe for other centrist Democrats to move to the left. Both times I’ve interviewed Mr. Obama this year, he has brought up Mr. Summers, unbidden, and pointed out that Mr. Summers was now writing a lot more about the plight of the middle class than about budget deficits. At Monday’s news conference, Mr. Obama called him “a thought leader.”

Below is an issue-by-issue guide to Mr. Summers. Before we get to it, though, there is a broader point.

Years ago, Henry Kissinger suggested that Mr. Summers be given a White House post in which he was charged with shooting down or fixing bad ideas. Mr. Summers’s loyal protégés — Timothy Geithner, who beat him out to become the next Treasury secretary; Peter Orszag, the next budget director; Sheryl Sandberg, the chief operating officer of Facebook; and others — say that Mr. Summers can make them smarter in ways that almost no else can. [...]

On to the issues:

THE FINANCIAL CRISIS Back in December 2007, when officials at the Federal Reserve and in the Bush administration were saying a recession was unlikely, Mr. Summers gave a speech with a different forecast. He said that it was “distinctly possible we’re headed into a period of the worst economic performance since the stagflation of the late 1970s and recessions of the early 1980s.” More recently, he predicted that the financial markets wouldn’t return to normal for a long time.

Expect him to urge Mr. Obama to be aggressive and creative in trying to jump-start lending — and to avoid the rosy predictions that have made the Bush administration appear to be out of touch. Mr. Summers likes to say that there is no silver bullet. He is instead likely to argue for trying many different things and erring on the side of overreaction.

(One example: Unlike many Democrats, he is a longtime critic of Fannie Mae and Freddie Mac. Yet he still says they need to get even bigger during the crisis, to keep mortgage lending flowing.)

The lesson of the Depression and of Japan’s “lost decade,” Mr. Summers says, is that governments facing a credit squeeze are usually too meek. If you wait to take radical action, like the new $800 billion program to promote lending, until it seems unavoidable, you have usually waited too long.

More, faster. Sadly, the guy has never grasped political realities.

Posted by Orrin Judd at November 26, 2008 8:32 AM