The episode would teach Summers painful lessons about the differences between politics and academia, and about the limits of public debate. In the field of economics, such a provocative argument was well within the bounds of acceptable discussion. Unsettling conversations challenged the status quo and promoted new ways of thinking. But in Washington, the suggestion that the memo was merely an academic exercise didn’t fly. It made no sense to float ideas that you didn’t really believe, because special interest groups would inevitably seize upon your words for political advantage. Some debates were so emotionally charged, you couldn’t even conduct them—and certainly not in public. And if one insisted on having such discussions, better not to write them down. Indeed, in the years to follow, Summers became conspicuous for never leaving a paper trail.
Summers also learned how tone and diction can shape public reaction to an economic argument. While the language of the memo, as The Economist conceded, was “crass,” its content was not as offensive as it appeared at first reading. If you believed that poor countries needed capital to generate economic growth and increase standards of living, then, as paradoxical as it sounded, taking in other countries’ pollution might have its positive side. (After all, relatively affluent American states routinely send their garbage to poorer ones, and some environmentalists argue that a marketplace for “pollution credits” would lead to a cleaner environment.) The argument of the memo might have been flawed or even wrong, but it wasn’t, as its critics charged, inherently immoral. It was just that, in its clinical language, it sounded that way.
Six years later, in a 1998 New Yorker profile of Summers, Lant Pritchett admitted publicly for the first time that he had authored the memo, and he credited Summers with selflessly taking the blame. But the true story might be more complicated. After leaving Washington, Pritchett wound up teaching at Harvard’s Kennedy School of Government, and in the winter of 2002 he invited Summers to appear in his class. The week before Summers’ visit, Pritchett asked his students not to question Summers on the memo, saying that it was a sensitive topic. The truth, Pritchett said, was that he had always wanted to announce that he’d written the memo, and Summers was receptive to the idea. But others at the Bank advised Summers that if he pointed the finger at Pritchett, he’d look like he was trying to pin the blame on a subordinate, which would make him appear weak. If he took the blame, he’d get hammered by critics outside the Bank. But internally, he’d come across as a stand-up guy, and people would remember that he’d fallen on his sword to protect an aide. (More recently, Pritchett reacted with frustration when asked about the memo, saying that it happened a long time ago and he was tired of the subject. “I feel like Bill Buckner,” he said, referring to the Red Sox first baseman whose infamous error may have cost his team the 1986 World Series.)
Summers worked assiduously to transform a painful incident into a humorous, self-deprecating anecdote. As he said at a lecture in January 2000, “I am sometimes asked by friends about the differences between academic life and life as a public official…. As an academic, the gravest sin one can commit is to sign one’s name to something one did not write. As a public official, it is a mark of effectiveness to do so as often as possible.”
In the short term, though, Summers’ association with the memo hurt his career. After the election of Bill Clinton in November 1992, Summers hoped to be appointed chairman of the White House Council of Economic Advisers, the three-member board that advises the president on economic policy. (His mentor Martin Feldstein had held the post under Ronald Reagan.) But Summers never got the job; Al Gore, the environmentally minded vice-president, was reportedly so offended by the World Bank memo that he blocked the appointment. “Gore was really pissed off,” Summers would later tell students in a Harvard seminar.
Instead, Treasury Secretary Lloyd Bentsen asked Summers to join that department as undersecretary for international affairs, and Summers agreed. In one sense, Treasury was a logical step. The department helps determine the American government’s economic policy, and the international affairs section coordinates United States representation in the World Bank and the International Monetary Fund. But in another way, Summers’ decision to take the job at Treasury was more radical. Harvard allows tenured professors to take leaves of absence for only two years before they must resign their professorships. So the thirty-eight-year-old Summers, one of the youngest professors ever tenured at Harvard, became one of the youngest professors ever to resign his tenured position.
In the academic world, Summers’ decision raised eyebrows. At some point in their careers, most high-level economists engage in public service, often in Washington. In the Harvard economics department, it’d be hard to find an economist who didn’t shuttle back and forth between Boston and the nation’s capital for a year or so. But such stints are viewed as a temporary respite from academe. The really interesting work—the really hard work—is the life of the mind. Moreover, in any academic discipline, it doesn’t take long for those who momentarily step aside to start falling behind. The professor who becomes a dean, a university president, or a Washington official will find it difficult if not impossible to return to scholarship. If Summers were to spend more than a few years away from his discipline, then in terms of being a serious intellectual, he would be leaving economics forever.
And so Summers’ decision to stay in Washington prompted conversation and gossip. His detractors speculated that he was leaving academia for the same reason he’d switched from mathematics to economics—because he suspected that he couldn’t compete at the highest level, the very thin air where great economic minds pondered and clashed. Summers’ defenders pointed to his healthy ego and said they doubted very much that he lacked confidence in his abilities. Of course Paul Samuelson’s nephew would be interested in a public role, they argued. And anyway, if anyone could play catch-up after years away from academia, it would be Summers.
Whichever the case, the move to Treasury proved to be a very successful decision. Over his eight years there, Summers acquired new stature, new skills, and a new education, becoming, said one observer, “a new kind of geopolitician,” a policymaker who “worries about foreigners’ economic stability as much as about their arsenals.” It is fair to say that even before he was appointed treasury secretary, Summers had become one of the most powerful unelected officials in the world.
Prominently located next door to the White House, the Treasury Department is probably the most elite—and elitist—of federal cabinet agencies. Its vast responsibilities include management of the Internal Revenue Service; the Bureau of Alcohol, Tobacco and Firearms; the Secret Service; the Customs Service; and the Bureau of Printing and Engraving. Treasury also helps to regulate the financial industries and shape international and domestic economic policy. All told, Treasury has about a hundred sixty thousand employees, and the people who work at its highest levels are among the most impressive in government—smart, confident, ambitious, and usually successful in the private sector. Unlike bureaucrats at, say, the Department of Agriculture or the Department of Labor, Treasury aides know that they can quit anytime they want and head straight to a small fortune on Wall Street. As a result, there’s a certain swagger to the department culture. As President Reagan’s onetime treasury secretary, Don Regan, once said of himself, they have “fuck-you money.” And if they don’t, they know how to get it.
In some ways, Summers fit in well at Treasury—he was certainly intelligent and confident enough, and his mastery of policy was unquestioned. He was not, however, easy to work with, and sometimes he seemed to forget that conducting endless seminars was not the point of government. In meetings, one former colleague remembers, “there’d be occasions where Larry would take a position and argue it very effectively. And then the next meeting he’d argue the other side, just as effectively. His job was to win the argument at every meeting, not to arrive at a consensus decision.”
At the end of 1994, Lloyd Bentsen resigned, and Robert Rubin became the new tr
easury secretary. Rubin was a judicious, polished veteran of the New York financial world, a graduate of Harvard College and Yale Law School who became a managing partner at the investment firm Goldman Sachs. Rubin exuded an unflappable confidence, almost a sense of existential serenity. If he ever got fed up with public life, he once said, “I could just say good-bye, put on a pair of frayed khakis, and check into a little hotel in St-Germain-des-Prés.” Few powerful men could make such a claim without sounding ridiculous. Bob Rubin fostered the impression that he’d be only too happy to quit while he was ahead.
Even as Rubin was taking the helm, a financial crisis was simmering in Mexico. Beset by a falling currency and a massive debt burden, the Mexican government was about to default on some $30 billion worth of bonds. While most Americans couldn’t have cared less what Mexico did with its debt, Rubin and Summers knew that a default would have disastrous consequences—other foreign investors would hasten to pull their money out of Mexico, the value of the peso would plummet, and the country could fall into a deep recession. Since Mexico was the United States’ third-largest trading partner, the impact on U.S. exports would be grave, and a rise in Mexican unemployment might prompt a surge in illegal immigration. Nor would the effect be limited to Mexico and the United States: a Mexican meltdown could devastate other developing economies around the world, which would, in turn, hurt American exports even more. Strange as it seemed, Mexico might prove to be an economic domino that would tip the world into depression.
Rubin was sworn in by President Clinton on the evening of January10. When the ceremony was finished, Rubin and Summers lingered in the Oval Office to warn Clinton of the imminent storm. Rubin quickly briefed Clinton, then turned to Summers and said, “Larry, what do you think?” Whereupon Summers spoke for ten minutes on the strategy that he, Rubin, and Federal Reserve Chairman Alan Greenspan had earlier agreed upon.
Clinton immediately understood the urgency of the situation. In the next days, the administration would propose a $40 billion bailout of Mexico. The enormous size of the aid package was a critical psychological component; Treasury wanted to reassure the financial markets that the United States had no intention of letting Mexico go belly-up. In theory, calmed creditors would then stop calling in loans that the Mexican government couldn’t pay. But the public and many members of the Republican-controlled Congress couldn’t understand why U.S. taxpayers should lend $40 billion to a country to which they usually didn’t even pay attention. Said Rubin later, “In 1995, the notion that a poor country’s macroeconomic miscalculations could affect the largest economy in the world simply didn’t register with a lot of people.”
“We felt that by extending a large loan to Mexico—and imposing a set of conditions on that loan—there was a very good chance that we could avert a financial catastrophe with very large consequences for millions of people,” Summers said. But if the policy made sense, the politics were crazy. “Eighty percent of the American people were opposed to any kind of loan, and half of the rest were undecided. The Congressional leadership had positioned itself to share the credit if the loan succeeded and blame the administration if it failed.”
When it became clear that the opposition of congressional Republicans was likely to doom approval of the loan package, Rubin circumvented Congress by taking the money from a Treasury reserve account. The fine print was hammered out by Summers, who secretly flew to Mexico on an Air Force plane to meet with Mexican president Ernesto Zedillo, a Yale-educated economist. As fraught with tension as the situation was, Summers loved it. This was a high-stakes game, and Rubin trusted him enough to dispatch him on a secret mission involving billions of dollars. Summers had enjoyed teaching and research, but this—this was the stuff of life.
Indeed, the Mexico crisis would become a favorite chapter in Summers’ own subsequent accounts of his career. In later years he was always happy to recount the story of the drama—how it exposed him to the backstabbing, duplicity, and intellectual corruption of Washington. The deal “meant eighteen-hour days and quite vicious attacks, and it was less than totally settling to learn that in a real sense, my human capital was peso-denominated,” Summers quipped. After a lecture Summers gave at the Kennedy School in April 2002, moderator Graham Allison asked him if he could speak “for a couple of minutes” about the Mexico bailout. Almost twenty minutes later, Summers finished his answer.
There is one part of the story that Summers doesn’t tell, however. The success of the Treasury loan package would not be assured for several months, and more than once during that time it appeared that the U.S. initiative wasn’t going to stop Mexico’s slide. In late February, just a few days after the deal had been signed, things looked so grim that Summers walked into Rubin’s office near midnight and volunteered to resign. “He was taking the matter much too personally,” Rubin later said, declining the offer. It was a sign of how serious Summers considered the situation—and how expansive he saw his own role in it.
The process of rescuing Mexico taught Summers another lesson: that some matters were too important to be democratically decided. “The Marshall Plan,” he would say, “was never focus-grouped.” He’d seen how Republican leaders had originally supported the Mexico deal in private, then held their fingers to the wind and demagogued it in public. Congress lacked the guts to pass such an unpopular bill. And why was it unpopular? Because most Americans simply didn’t know enough about international economics to have an informed opinion. If you just put smart men like him, Rubin, and Greenspan in a room and left them alone, they could work things out. They could save nations.
It was hard for Summers to mask his impatience with the imperfections of politics and the legislative process. He was still prone to using language that may have been effective in the classroom but was unusually provocative in the offices and corridors of Washington. He also had an unfortunate habit of stating how he really felt. During a 1997 debate over cutting the federal tax on inheritances, Summers remarked that “when it comes to the estate tax, there is no case other than selfishness.” That didn’t sit well with Republicans, who argued that the estate tax punished families trying to pass on farms and small businesses to their children. “Larry’s brain was like a tank powered by a Lotus engine,” recalled administration colleague Strobe Talbott. “It purred as it rolled over anything in its way.”
It didn’t help that Republicans already disliked Summers because of his role in short-circuiting Congress in the Mexico crisis. In the aftermath of that, some GOP members of Congress pushed for Summers’ resignation. They didn’t get it, and in August, Rubin nominated Summers to be deputy treasury secretary, a position confirmed by the Senate. Twenty-one senators voted against Summers, an unusually large number for what would normally be a routine vote.
“I believe in trying to find the essence of issues, to probe different positions in a very strong way, to discover the right approach,” Summers explained. “I’m sorry when that way of thinking gives offense.” Or, as his mother would tell a reporter, “He wasn’t born to the political arena, where you are always very aware of what you are saying. I think that what many people are seeing is an intellectual form of exploration and underneath is a very kind heart.” But even when he tried to say the right things, it was clear that Summers harbored a deep skepticism of, and maybe even a hint of contempt for, the legislative process.
He could also be a difficult boss. “If you’re in a meeting, whatever you say, he will make you feel like you’re an idiot,” said one ex-Treasury aide who worked for both Summers and Rubin. Summers believed that his style would inspire debate on the issues, but more often it only inspired debate about his style. “What was fascinating was to watch how people just shut down after a couple of meetings with him,” said another Treasury official. “No matter what people said, he would take them on or demean them in some way. Eventually people would just have nothing to say.”
At one point the above-mentioned aide was drafting a relatively minor speech for Rubin. “The Secreta
ry was okay with it,” the aide remembered. “But Summers came in and said, ‘I just read the draft, and we can’t give this speech; this would embarrass the administration!’ Just going apeshit. It came down to changing about three words and deleting a paragraph. But he made me feel like I had written a manifesto for the Shining Path.”
With people on his level or higher, Summers was more deferential; he recognized that in politics he was the odd man out. “When Larry came to Washington, he started off thinking that he was smarter than everybody else, and soon realized that he was smarter than everybody else at things that weren’t always useful in Washington,” said one Clinton adviser who worked regularly with Summers. “We had a lot of eggheads in the Clinton White House, and a lot of them just kept banging their heads against the wall until they gave up. Larry looked at it as a learning process, and he kept banging his head against the wall until he began to understand the game. It was kind of Spock-like. He never quite fit in, but he was able to gather enough data that he could get by pretty well. He didn’t always make a great first impression, but the more we got to know him and the more comfortable he began to feel, the better he did.”
This colleague thought that Summers struggled with the chronic pressure of great expectations. “Al Gore had a similar kind of problem,” the colleague said, “when your parents are going to be disappointed if you don’t grow up to be president. Larry seemed like if he didn’t win a Nobel Prize, he’d be letting down the side.”
Harvard Rules Page 5
