November 27, 2008
We are now approaching the winter solstice (December 21 – the time at which the sun is at its most southern distance from the equator during the year – a/k/a: “the shortest day of the year” for those of us in the northern hemisphere). President-elect Obama’s appointment of Larry Summers as Director of the National Economic Council reminds me of another definition of the word “solstice”: a turning point. For all his faults (most notably, his infamous remarks as President of Harvard University, about the involvement of women in the study of science) he is no longer considered so much of a “supply sider” as a centrist in the world of economics. Summers has apparently passed a turning point in his economic philosophy.
For those unfamiliar with Larry Summers, David Leonhardt’s article, “The Return of Larry Summers” in the November 25 New York Times is worth reading. I’ve been hearing reverberations of Leonhardt’s commentary throughout the mainstream media lately. Here is an important observation from Mr. Leonhardt’s piece:
He (Summers) 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.”
The “thought leader” remark came up in the following context when Barack Obama announced his appointment of Summers to the National Economic Council post on November 24.
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, vibrant, growing middle class.
This idea is at the core of my own economic philosophy and will be the foundation of 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.
Looking back to June 10, 2007, we find another article in the New York Times written by David Leonhardt, entitled: “Larry Summers’s Evolution”. As we revisit this commentary in light of our current economic crisis, the pronouncements made by Summers seem almost prophetic:
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.”
That essay inspired The Economist to post a piece on its Free Exchange blog on the following day, entitled “Has Larry Summers Gone Soft?”
Nevertheless, conservative writers such as Kevin Hassett of Forbes still think of Summers as an opponent to increased capital gains taxation and hence, an advocate of “supply side” economics. Conservative writer, David Harsanyi of the Denver Post exhibited similar enthusiasm about the appointment of Summers. However, in the November 24 National Review, Larry Kudlow saw Obama’s appointment of Summers as a move to the center:
As for Summers, while he has been mau-maued by Democratic feminists and some of the unions, he is a tough, clear-headed thinker who has for years tried to merge Keynesian and supply-side policies. No mean feat.
At this point, many pundits are attempting to “read the tea leaves” for hints as to whether President Obama will act to reverse the Bush tax cuts or let them expire in 2011. The consensus suggests that he may simply let them expire. This has drawn some anxious criticism from the left. On the November 25 broadcast of the program, Democracy Now, author Naomi Klein made the following remark about Obama’s appointment of Summers: “I think this is really troubling.” However, on that same program, economics professor Robert Kuttner (the chief economics adviser to Rep. Dennis Kucinich) explained that he was “less pessimistic” than Ms. Klein about the Summers appointment:
I think even Larry Summers, because he is such an opportunist, has lately been calling for very large stimulus package, has been calling for tighter regulation of banks.
The influence of Larry Summers on the Obama Administration’s economic policy will be a continuing saga for the next few years. At this point, the “change you can believe in” seems to absorb more than a little input from the center.