Rolf Englund IntCom internetional
Larry Summers, director of the US president’s National Economic Council
As Summers puts it, “The global imbalances have to add up to zero and so, if the US is going to be less the consumer importer of last resort, then other countries are going to need to be in different positions as well.”
Summers leads a daily economic briefing for the president, has seemed to emerge as the strategic mastermind of the administration’s macroeconomic response to the biggest crisis since the Depression.
His tumultuous leadership of Harvard University may be the first time in a golden career when something went wrong for Summers.
With a slight grimace – the question has been asked many times before – Summers offers his standard, Kissinger-esque line: “Harvard and Washington are both political environments and I’m not sure that Washington is the more political of the environments.” Beyond that, he allows that the “negative” lesson he learnt at Harvard was the need to “maintain focus on your top priorities and avoid diversionary controversies that were apart from the agenda”, a possible reference to comments about women and science that helped to scupper his already-troubled tenure.
The chief intellectual casualty of the current crisis has been the “efficient markets” school – the theory, associated with such erstwhile laisser faire gurus as Alan Greenspan, that market participants are governed by rational expectations and markets are self-correcting. As an academic economist, Summers has studied the shortcomings of that approach but, working on Wall Street gave him, he says, a more visceral understanding of the “self-referential” character of markets: “Markets are concerned with the ultimate health of economies and the like but they’re equally or more concerned with what the likely judgments of other market participants in the short run are.”
This new American economy, Summers hopes, will be “more export-oriented” and “less consumption-oriented”; “more environmentally oriented” and “less energy-production-oriented”; “more bio- and software- and civil-engineering-oriented and less financial-engineering-oriented”; and, finally, “more middle-class-oriented” and “less oriented to income growth that is disproportionate towards a very small share of the population”.
As Summers puts it, “The global imbalances have to add up to zero and so, if the US is going to be less the consumer importer of last resort, then other countries are going to need to be in different positions as well.” On this possibility, Summers is bullish. “The very great enthusiasm for accumulating reserves that one saw globally is likely to be a smaller factor over the next decade than it has been in recent years,” he predicts.
Harvard president warns on global imbalances