Back in the 1980s, two young Harvard professors trying to reinvigorate the Democratic Party would meet at the Wursthaus restaurant in Cambridge, Mass., to have lunch and argue with each other. They must have made for an entertaining sight, one of them bearish and the other less than five feet tall, debating each other in a dark Harvard Square dive. The argument, in a nutshell, came to this. The smaller man — Robert Reich, a future secretary of labor — argued for something that he called “industrial policy.” Since the government couldn’t avoid having a big influence on the economy, he said, it should at least do so in a way that promoted fast-growing industries and invested in worthy public projects.
The bearish professor was Lawrence H. Summers, who was then the youngest person to have received tenure in the modern history of Harvard University. He loved to tackle big, broad questions, and, by his lights, industrial policy amounted to another version of the governmental meddling that had helped consign the Democratic Party to opposition status. How could bureaucrats know which industries and projects to support with tax credits? The better solution, Summers responded, was to get the economy growing fast enough that the problems of the middle class would begin to solve themselves. And the way to do this was to slow government spending and raise taxes on the wealthy, which would bring down the Reagan-era budget deficits and, eventually, interest rates. Once that happened, the American economy would be unleashed.
The debate, friendly as it was when Summers and Reich were having it, would come to dominate the struggle over domestic policy within the Democratic Party for more than a decade. Bill Clinton ended up embracing the centrist, business-friendly ideas of Summers and his mentor, Robert Rubin, and the situation played out just as they had predicted: interest rates fell, and along came a boom that helped almost everyone. In the late ’90s, the wages of rank-and-file workers rose faster than they had in a generation. A frustrated Reich left the Labor Department after Clinton’s first term, while Summers eventually ascended to the top job at the Treasury Department.
All of which makes it rather fascinating to listen to Summers talk these days. Having left the presidency of Harvard after a rocky five-year tenure, he has turned his attention back to economics. But he doesn’t sound like a triumphant Clinton alumnus who simply wants the country to return to the policies of the 1990s. He sounds, strangely enough, a little like Bob Reich.
On Oct. 30 of last year, Summers made his debut as a monthly columnist for The Financial Times. The column was titled “The Global Middle Cries Out for Reassurance.” He began by noting that the world’s economy had grown faster over the previous five years than at any other point in recorded history. “Yet in many corners of the globe there is growing disillusionment,” he continued. The main reason seems to be that the benefits of growth are flowing largely to only two groups: previously impoverished residents of Asia and an international elite. Summers’s favorite statistic these days is that, since 1979, the share of pretax income going to the top 1 percent of American households has risen by 7 percentage points, to 16 percent. Over the same span, the share of income going to the bottom 80 percent has fallen by 7 percentage points. It’s as if every household in that bottom 80 percent is writing a check for $7,000 every year and sending it to the top 1 percent. This is why the usual assurances that come from people like Summers — that an open, technologically advanced global economy is inevitable and good — feel, as he himself wrote in The Financial Times, like “pretty thin gruel.”
Dealing with this anxiety — making globalization work for the masses — has become the central economic issue of the day in Summers’s mind. And since his Harvard presidency ended a year ago, he has set out on a search for solutions. To him, it seems like a natural sequel to the policies he pushed in the 1990s. To liberal Democrats, it seems long overdue. “I breathe a great sigh of wistfulness and relief and say, ‘Finally, they’ve come around,’ ” Reich says. “It was, I think, a fundamental failure on the part of the Democrats in the late ’90s not to face the structural changes that needed to be faced.”
Summers recently joined the board of Teach for America, in large measure to think more about education reform. He has also joined an advisory board of Blue Cross and Blue Shield of Massachusetts, the state at the center of health care reform. (His gut instinct is that Massachusetts’s universal-coverage plan isn’t radical enough.) He has re-engaged in academic life, becoming the co-editor of a journal partly so he can nudge other economists to do research on big policy issues. With the Democrats back in control of Congress, he has testified at hearings and met privately with members to talk about inequality. His old friends and colleagues from the Clinton administration have now spread out to the Federal Reserve, Capitol Hill and, of course, Hillary Clinton’s campaign. In effect, Summers is assembling a virtual think tank. “I think the defining issue of our time is: Does the economic, social and political system work for the middle class?” he told me. “Because the system’s viability, its staying power and its health depend on how well it works for the middle class.”
At age 52, Larry Summers has already finished his first three careers. The son of two economists at the University of Pennsylvania and the nephew of two Nobel-winning economists, he enrolled at M.I.T. when he was 16. Then came the swift rise to tenure at Harvard, a flurry of research papers on seemingly every major topic in economics and an award called the John Bates Clark Medal, given every other year to the best economist under 40. “I’ve been around some pretty smart people,” said Jonathan Gruber, an M.I.T. economist and a former student of Summers’s. “But it’s a different level with Larry.”
The rap on him — in academia and later in Washington, where he moved in 1991 to become the chief economist of the World Bank — was always that he knew he was the smartest guy in the room and acted like it. At faculty seminars, he would sometimes interrupt another professor a few minutes into a presentation, succinctly summarize the undelivered portion, poke holes in the argument and offer suggestions about how to make the same points in more compelling fashion. To the great amusement of his colleagues at Treasury, he occasionally did the same thing to officials from foreign governments who had come to call on him.
But the notion that Summers can be a bully misses one thing: he likes it when people fight back. As Treasury secretary, he encouraged his own staff to disagree with him when they thought he was wrong. “He was incredibly open to people pushing back and challenging him,” said Timothy Geithner, the current president of the Federal Reserve Bank of New York, who worked under Summers at Treasury. “It’s what he desires most. It’s how he thinks through things.” During a conversation I was having with him one morning in a Senate cafeteria, in the midst of explaining why he thought the pay of chief executives was economically rational, Summers stopped and said, “When I’ve thought about possible explanations for this, one is that I’m wrong.”
As a result of this intellectual playfulness, many people find it thrilling to talk with him. He loves to examine an idea from every possible angle, searching out the weaknesses in order to arrive at a better conclusion. Henry Kissinger has said that Summers should be given a permanent White House job, a sort of fixer of flabby policy ideas. Of course, Summers’s style, or lack of it, is also at the root of his well-publicized missteps.
By most accounts, he did learn to soften himself while in Washington, which helps explain his successful decadelong run there. Shortly after Clinton left office in 2001, Summers was given the most prestigious job in higher education. It’s hard to think of anyone else in public life today who has reached the pinnacle of three different careers. And Harvard was supposed to be the end of the Summers story. Given his age and his ambitions — his plans to invest hundreds of millions of dollars in the life sciences, eliminate tuition for lower-income students and reinvigorate undergraduate education — he seemed destined to lead the university for the next 20 years.
But back in academia, where social skills are not a prerequisite for success, he seemed to forget that his new job had more in common with being a cabinet secretary than with being a professor. Most famously, he wondered aloud at an academic conference in 2005 whether innate differences helped explain why men dominated the top ranks of research science. He never recovered.
The most obvious place to land would have been Wall Street, and he talked with Goldman Sachs and Citigroup. But he instead took a lucrative part-time job at a big hedge fund, D.E. Shaw. Summers’s main professional home remains, surprisingly, Harvard, where his wife, Elisa New, is a literature professor and he holds a distinguished endowed chair.
On a recent spring afternoon, he was the surprise guest speaker for the final meeting of a lecture course called Morality and Taboo, taught by Alan Dershowitz, the law professor, and Steven Pinker, the psychologist. They were prominent supporters of his presidency, and the occasion seemed ripe for self-justification. Summers has always kept the support of Harvard’s undergraduates, and when he was introduced, the students in the classroom gave him a 20-second ovation. Some stood. In his introduction, Dershowitz defended Summers’s remarks about gender and science as honest intellectual inquiry. But Summers wouldn’t have it. “I think it was, in retrospect, an act of spectacular imprudence,” he told the class. He still maintains that some critics mischaracterized his remarks, but the bottom line is that girls around the world came to think that the president of Harvard believed they couldn’t be scientists. “There are enormous benefits to being a leader of a major institution, but there are also costs and limitations,” he continued. “I thought I could have it both ways, and I was wrong.” Even when someone is defending him, Summers can’t hold back from a debate.
In many ways, the political path that he has followed over his career is also the path of his party. The decades after World War II were dominated by the Keynesian notion — shaped in part by one of his Nobel-winning uncles, Paul Samuelson — that government was good. But the stagflation of the 1970s caused a whole of generation of economists to look instead toward the market, which seemed far more efficient at allocating resources. Today Summers says he believes in markets as much as ever, and he begins almost any discussion of globalization by pointing out its benefits. Food, clothing, furniture and dozens of everyday items are more affordable than they once were. Interest rates are low, as is inflation, and recessions come less often. Bringing down the deficit in the ’90s, he argues, helped make this possible.
But Summers says he now has to reckon with a new reality. Despite good growth over the last four years, the pay of most American workers has barely kept pace with inflation. Technology and global trade are conspiring to let highly skilled workers do more — to be more productive and to play on a bigger stage — while at the same time making millions of other workers replaceable. The middle-class income gains of the Clinton years now look like an aberration, caused by a combination of low oil prices (which allowed a dollar to go further) and a financial bubble that made the job market unusually tight. “I don’t think my general orientation to the world has changed,” Summers says, noting that he favored interventions like tax credits for the poor during the ’90s and continues to worry about the deficit today. “But I think if you look at how the economy is working for average families, the sensible priority has shifted.” Geithner, the New York Federal Reserve president, puts it this way: “The facts have changed a little bit. That’s what Larry’s evolution reflects.”
What’s striking today is how much Democrats on either side of the 1990s debate agree with one another. Most say that globalization itself cannot be held back, because it stems more from the inexorable march of technology than from any change in trade laws. Credit-card call centers have moved to India and Ireland because they can function there, not because a new law allowed them to go. Trying to prevent jobs from leaving will create the problems that protectionism always had, like higher inflation and slower economic growth. But leaving the market to work its magic also won’t do. Even the centrists within the party agree that the government needs to meddle in the economy more than it once did.
The model that most appeals to Summers is, in fact, the United States — in the decades after World War II. At the time, this country was opening itself to more global competition, by rebuilding Europe and signing financial agreements like Bretton Woods. But it was also taking concrete steps to build the modern middle class. In addition to the G.I. Bill, there were the Federal Housing Administration, the Interstate Highway System and a very different tax code. The history of progressivism “has been one of the market being protected from its own excesses,” Summers says. “And I think now the challenge is, again, to protect a basic market system based on open trade and globalization, to make it one that works for everyone or for almost everyone, at a time when market forces are often producing outcomes that seem increasingly problematic to middle-class families.”
A new social contract would look different, of course. The tax code of the 1950s, with a top marginal rate of 91 percent, stifled innovation. Today’s system goes too far in the other direction, Summers says, exacerbating inequality with loopholes and deductions that let a lot of affluent families avoid taxes, and the Bush tax cuts haven’t helped. Health care reform is another obvious priority. In Summers’s view, the current employer-based system, which creates insecurity for many families and big costs for companies, may need to be replaced by one in which the government pays for insurance but individuals choose what plan they want. It would be single payer, but not as England or Canada does it.
Summers becomes really excited by what he sees as the potential for a life-sciences revolution. It will happen only if government again does its part, though, and in the last few years federal support for medical research has failed to keep pace with inflation. A more sensible policy, he argues, has the potential not only to keep people healthy and alive for longer but also to create well-paying jobs. He likes to talk about “clusters” like Silicon Valley — in the life sciences and other areas — where groups of companies can feed off one another to become more productive. Moving jobs to a low-wage country then becomes less attractive. And the government can help create clusters, just as it built the highway system and the Internet. If you didn’t know any better, you might even refer to this idea as industrial policy.
Summers now occupies a funny place in the Democratic constellation. His various dust-ups over the years have left him with a fair number of enemies. But he also has a lot of influential fans, as well as the ability to inject an issue into the public debate merely by discussing it. Under a Democratic president, he would be an obvious candidate to run the Federal Reserve or the World Bank. But a more likely path could be the one taken by Kissinger, who has spent the last 30 years as a force in Republican foreign policy despite having been out of government. Summers may actually be better suited for this role than for some of the jobs he has held recently. It’s one in which the quality of an idea matters more than its delivery.
A freelance career would have its frustrations, but Summers has had some success in persuading others. Bill Gates has said he decided to devote much of his money to global poverty and disease after reading a 1993 World Bank report — a report that Summers instigated. His efforts to recruit poor students to Harvard helped make a national issue of the lack of low-income students at elite colleges. In India, where politicians say he influenced their own approach to trade agreements, they still quote him the way people here quote Alan Greenspan.
“I’m finding my way,” Summers said about his newest career, his fourth. “I think one has to be prepared to accept long causal chains. That is, if you’re trying to think about a problem and propose a solution, it does not happen the next day. But it affects the climate of opinion, and things go from being inconceivable to being inevitable.”
David Leonhardt writes a weekly economics column for The New York Times.