One of the more popular books in Washington these days is an award-winning tome in which economists Carmen Reinhart and Kenneth Rogoff conclude that financial crises like the one in 2008 are followed by economic downturns that are deeper and last longer than typical recessions. This Time is Different: Eight Centuries of Financial Folly is such a hit with lawmakers and the think-tank crowd that you can simply refer to its authors and their findings simply as “Reinhart-Rogoff,” no explanation needed.
And yet Harvard University's Lawrence H. Summers, perhaps the most impressive economist of his generation, doesn't understand the hoopla.
“Rogoff and Reinhart's observation that recessions have historically lasted a long time is like the observation that could have been made in 1955 that Europe never stopped having wars,” he says in an interview.
The comment is a glimpse of what his opponents are in for on Monday when Prof. Summers, the son of two economics professors, will be in Toronto to rebut the notion that North America is doomed to a decade of economic stagnation, as part of the 2011 Munk Debate.
With unemployment still high two years after the recession ended, there is a growing unease that the world's largest economy is trapped in a vicious cycle in which depressed consumers refuse to spend, banks refuse to lend and businesses refuse to invest. The malaise is even more acute in Europe, and this week the head of the International Monetary Fund said that, “if we do not act, and act together, we could enter a downward spiral of uncertainty, financial instability and a collapse in global demand.”
“Ultimately,” Christine Lagarde added, “we could face a lost decade of low growth and high unemployment.”
Prof. Summers is far less fatalistic. “Past need not be prologue,” he says, “especially if people are prepared to learn from it.” His rebuke of Reinhart-Rogoff is the kind of remark for which he is famous, and infamous. A tenured professor by the age of 28, he is renowned for a biting intellect and supreme self-confidence he uses to challenge popular wisdom.
Many people just wish he would launch his attacks a little more diplomatically. Prof. Summers, who until a year ago was U.S. President Barack Obama's top economic adviser, may not have intended to sound so dismissive of such a significant work of scholarship, especially since Prof. Rogoff and he work in the same department at Harvard.
Then again, maybe he did. It's the central dilemma in any attempt to evaluate a man whose career arc bears comparison to that of former secretary of state Henry Kissinger, suggesting that he could be on his way to becoming the most influential American economist yet.
“He is the biggest wielder of power of anyone in our profession,” says Robert Johnson, executive director of the Institute for New Economic Thinking, a think tank started by legendary hedge-fund manager George Soros.
“In many ways, as Kissinger is to foreign policy, Larry Summers is to economics.”
When he was 38, Prof. Summers (who turns 57 this month) won the John Bates Clark Medal, awarded to an American economist under 40 who has made “a significant contribution to economic thought and knowledge.” Eleven recipients have gone on to receive Nobel Prizes, including two of his uncles – as well as Paul Krugman, the Princeton University professor and New York Times columnist who will be Prof. Summers's main opponent in Monday's debate.
Today, they compete for the spotlight, but in 1982, both men found themselves working for then president Ronald Reagan's Council of Economic Advisers. Prof. Krugman left Washington with a distaste of bureaucracy and the process of policy-making, but the young Larry Summers took a liking to the influence business.
He returned to Harvard the next year to join the economics department, and is widely reported to have been a popular teacher. But in 1991, he moved to the World Bank as its chief economist, won the John Bates Clark Medal in 1993 and the following year joined the Treasury Department as undersecretary for international affairs.
A key member of Bill Clinton's economics team, he rose to treasury secretary for the final year of the president's second term in office. So his return to Washington under Mr. Obama caught many off guard. He was seen to be aligned with Hillary Clinton, but as the 2008 presidential campaign drew near, he found his way into the future president's circle of advisers, and was persuaded to trade Harvard for the White House. “It may be corny, but I believe if the president of the United States asks you to use skills you've developed to help your country at a critical moment, you say yes,” Prof. Summers says. “Economics is a discipline that has its roots in the effort to apply scientific methods to make lives better for people. There are many ways as an economist to contribute. I have felt that being in the crucible where public policies are being made is one important way.”