The Fortune interview: Larry Summers

October 31, 2013, 10:36 AM UTC

Combining time in the academy and in government for the past 30 years, economist Lawrence Summers has a résumé with extraordinary range. His estimable intellectual gifts, particularly the ability to explain the arcana of public policy, have been matched only by his gift for ruffling feathers. The talents are probably related.

Many people like the 58-year-old Larry Summers — and many do not. That was in evidence last summer when his name surfaced as President Obama’s top choice to be the next chairman of the Federal Reserve. Summers withdrew in mid-September, citing the likelihood that his confirmation process would be “acrimonious.” Fed vice chairwoman Janet Yellen was nominated by the President last month.

The son of two economists and the nephew of two Nobel laureates in economics (Paul Samuelson and Kenneth Arrow), Summers has long revered rationality as the means by which “to make the world a better place.” It is fearlessness fueled by acute analytical skills that helped him in 1983, at 28, become one of the youngest tenured professors ever at Harvard.

In 1993, Summers joined the Clinton administration as a Treasury official, then Treasury secretary; he was a key architect of the financial deregulation that critics said helped cause the meltdown of 2008. Following Clinton’s second term, Summers became president of Harvard for five years — a tenure marked by complaints about his abrasive style. In the most notorious episode, during an academic conference in 2005, he asked whether innate gender differences might explain the underrepresentation of women in math and science. After the Harvard presidency, he made millions of dollars as a part-time adviser at the hedge fund D.E. Shaw. In 2009 he joined the Obama administration for two years as the President’s chief economics adviser. Since his departure he has taught at Harvard, in addition to returning to D.E. Shaw and serving on corporate boards.

Summers recently sat down in Manhattan with Fortune’s David A. Kaplan and talked about markets, globalization, and technology — as well as Harvard, Silicon Valley, The West Wing, the Alamo, Hillary, and why he’s “impatient” with “piffle.” Edited excerpts:

Fortune: You just flew in on the dawn shuttle from Boston and were offering me an economist’s tip for air travel.

Summers: If you never miss a flight, you’re spending too much time in airports. From time to time I do miss a flight.


After so many great gigs, why would the Fed job have been appealing?

My view is if the President of the United States asks you to do something important …

C’mon, you had a prior interest.

My area is economics, and I’ve gotten a great deal of satisfaction from public service. What the Fed does is obviously involved with central economic questions. I was prepared to do the job enthusiastically, but I’ve moved on and enjoy being a free man.

To the extent that tax policy is made by the elected branches of government, why is monetary policy set by an independent entity?

The answer economists give is the idea of dynamic consistency — that a central element in monetary policy is that if you print more money than people expect, you’ll goose the economy and expand it. If people come to expect that a lot of money is going to be printed, you get inflation. So an expectation of high inflation proves to be self-fulfilling without any economic benefit. So one wants to insulate decision-making from temporary political pressures that would be present for elected officials. Almost every country has an independent central bank.

We don’t even have inflation these days.

The situation is extraordinary, unlike any the U.S. has faced since the Second World War: Inflation is below a target level of 2%, and we have high unemployment. The low, and on some measures falling, rate of inflation demonstrates that it’s lack of demand, not supply, holding the economy back. That’s why the austerity fetish of recent years has been so costly.

What’s the correct way to think about financial crises?

Fundamentally they’re about confidence. Restoring confidence is the cheapest form of stimulus. Above all it means recognizing the central irony of financial crisis: While it’s caused by too much confidence, lending, and spending, it’s only resolved with more confidence, lending, and spending.


You have three children of your own and three stepchildren. Do they think you’re misunderstood or caricatured?

You’d have to ask them. They’re loyal kids and tend to be on my side.

For example?

A few months after my speech on women and science, my son Harry was in a ninth-grade diversity seminar at his school. They showed a film that totally distorted what I’d said, making me out as a misogynist. The school had the good grace to apologize. I worried Harry would be upset. But he called me up and said, “You taught me that if you never say anything that upsets people, you are not being challenging enough.”

Did your kids have to bid on TV time, like when you were growing up?

[Laughs.] We had enough televisions that everybody could watch the program they preferred.

So the rationing was just a function of limited supply?

It was about there being one TV. Different people had arguments about allocating that scarce resource. My father, of course, preferred a price mechanism until he won the bidding for the first 90 minutes of an Alfred Hitchcock movie — and lost the bidding for the last 30 minutes. I explained to him that the market was efficient, even if it wasn’t always nice.

Did he revise the regulations?

He got a second TV.

Is there anything you watch on TV?

The Golf Channel. House of Cards and Homeland a bit. I watched West Wing in the day.

Favorite West Wing character?

The President.


What are you not asked in interviews that you should be asked?

I’m not sure what animates me comes through in interviews. I’m somebody who has come to believe in the power of careful thought to make the world a better place. When I was young I was involved in the debate team. When I was in high school and college, I studied mathematics and physics. I came out of those experiences with a strong conviction that the scientific method — formulating hypotheses, testing them against data, refining them — was the best way to get to truth, whether it was how best to think about the economy in recession or how a baseball team could best draft players or anything in between. It is the authority of ideas, not the idea of authority, that represents the best way forward.

Though your wife, a literary scholar, would probably say there’s no technocratic way to evaluate good poetry and bad poetry.

My wife and I have different epistemological stances towards the world. While I’ve tried to do many different things, what’s brought them together is the idea that rigorous argument can get you to better judgments.

That’s an articulate defense of rationality. But sometimes that MO has gotten you in trouble — like with the remarks about women. Why?

I have enough trouble figuring out my own views without trying to figure out why other people take the views they do. Look, I’ve got an accomplished wife, two daughters, and three stepdaughters. I’ve been proud to promote the careers of talented women — like Sheryl Sandberg in the early stage of her career. I was proud to appoint Elena Kagan as the dean of Harvard Law School, which helped to propel her to the Supreme Court.

So why did people say what they did?

I also stressed in that speech a set of things to promote careers. I remarked on the fact that most universities give faculty significant financial support for sending their children to college, but no financial support for sending their children to day care. And that’s got something to do with the fact the system is set up more in mind with older male faculty than younger female faculty … Now, obviously, since my words were heard in a very different spirit than I intended them, I made a mistake in the way I expressed myself.

Does that mean there’s always a connection between economics and politics?

It’s my conviction that you get closest to truth and therefore the best outcomes when all propositions are open to debate. That’s not a conviction that’s got to do with economics. And I think that’s a different way than other people sometimes have. Whenever someone says that something must be true or possible, I get nervous because it seems like a substitute for a good argument.

But everybody says, “I make decisions based on their merits.”

I suppose. But I think people who have worked with me in early stages in their careers have found they had many more opportunities to be at the table than they might otherwise have had because I wasn’t concerned with how many degrees they had, but only with the quality of what they thought. There certainly have been occasions where people felt they shouldn’t have to justify their opinions, and I’ve acted as if they did. I’m very impatient with platitude and piffle.

I like that word.

There’s a tendency for people who don’t know me to see me as cold and indifferent. I like to think the experience of those who’ve worked most closely with me has been different. Sure, I’m frustrated sometimes that doesn’t come through.


What do you know now that you didn’t know 30 years ago?

The world’s a more complicated place than I appreciated, so certitude is even less warranted.

I meant about yourself.

That it’s important to think about process. I’ve made mistakes of being focused on getting the right answer rather than on building goodwill that will over time permit more right answers to be implemented. Bob Rubin said something to me that’s stuck: “Not everything can be the Alamo.”

Some would call that “piffle” — spending time building a diverse bunch of opinions to get to what we all knew two hours earlier was the correct decision anyway.

I think it’s certainly the case that I’ve come to value process as well as outcome.

Do you have regrets? Like, “I might still be president of Harvard.”

I don’t think about things in those terms. I do have substantive regrets.

On policy?

The world is a much better place with the kind of regulation on “too big to fail” that’s embodied in Dodd-Frank. If that kind of legislation had been put in place 15 years earlier, we might have avoided some of what took place. Could what happened have been foreseen? What would’ve been possible in the political climate of the 1990s? You can debate that. But I don’t see how anybody who’s worked in the financial area can avoid looking back and thinking about what could’ve been done differently to avert catastrophe.

What about your own part?

I pushed on doing something about Fannie Mae and Freddie Mac, but the political will wasn’t there in 2000. Andrew Cuomo and I pushed hard on predatory lending issues that surfaced with respect to subprime. I wished we had been more effective. On other things we didn’t see the kinds of risks that were coming with respect to derivatives. Whether the warnings that others issued track with the actual problems that took place subsequently is a matter people will debate. You can’t judge just by outcome. Sometimes people draw the inside straight and they win. Sometimes people play the right strategy and they lose.


Did you become an economist because of an intellectual predisposition to rationality, or because you learned early on to see things through the lenses of two parent-economists?

I’ve got two brothers who grew up in the same environment who aren’t economists. One’s a lawyer, and one’s a psychiatrist. Somebody told my mother she had a Jewish mother’s dream: a doctor, a lawyer, and someone to go into the family business. I suspect that what drew me to economics was less the familial connection than a strong interest in policy and a strong interest in the scientific method. Economics combined the two.

Brad DeLong, an economics professor at Berkeley, has said, “Being Larry’s friend is never dull.”

Hope not.

I thought it was a curious remark. What did he mean?

You’d have to ask him. I do try, particularly in private, to bring a fresh perspective to whatever the conversation is about. I lean in to the wind and try to make life interesting for those around me.

Was your professional outlook affected by your bout with Hodgkin’s in your late twenties?

It probably had two effects. I think it caused me to be even more determined, and to make as much mark as I could as quickly as I could. I also think because I was very vulnerable, it made me more focused on others. Knowing that the drugs that cured me had only come along a decade or so before, I pushed even more for biomedical research.


What are you doing these days?

I’m thinking, teaching, and beginning work on a book. As big of a deal as the financial crisis was, far more important is the profound impact on the economy by the fact that machines can now drive a car more safely than a human being, can play Jeopardy better, can manufacture in three dimensions anything that can be imagined. That’s going to bring about changes in the structure of our society as surely as the Industrial Revolution did.

And your work in Silicon Valley?

I spend a certain amount of time there. I serve on the boards of two companies applying information technology in the financial area, Square and Lending Club. I also work with Andreessen Horowitz [the Silicon Valley venture capital firm].

Do you sense the air is different in the Valley?

There’s an enormous rejection of constraints. That’s less present in government and universities. At one level, I love academic life. At the other, I think it’s unfortunate that while their mission in some sense is to be creative and young, universities are among the most tradition-governed institutions in our society.


Clinton vs. Obama in terms of leadership styles?

I’m privileged to have worked for both. They had in common what’s necessary to be a successful president — they were prepared to be political some of the time. They did it so that when it was really important they could do the right thing, whether it was President Clinton deciding to rescue Mexico financially at a time when 80% of the people would have voted against that step, or whether it was President Obama on universal health care.

How were they different?

If you had a 2 o’clock meeting with President Obama, you needed to be in your office at [1:50] because the meeting might start early. And if it was to a 30-minute meeting, you’d better say what you had to say because … at 2:30 you’d be on your way. That was not an issue with President Clinton. Your meeting might begin at 2:20 and it wouldn’t end until 3. President Obama would’ve read and mastered any materials sent in advance; President Clinton was less certain to have mastered the materials you had sent, but would bring his vast curiosity and range to tell stories relevant to the issue under discussion.

Which style did you have a preference for?

I learned from both.

You’re no fun.

You know there’s no way I’m actually going to answer that question.

So, between Clinton and Obama, who would have been the better economics student in Professor Summers’ class?

They’d both be at the top of the class.

See — you have learned some political skills. Would you work for Hillary?

It’s hard enough to predict economics without trying to predict politics. I’ve seen many of my friends who’ve had the opportunity to be in government define their life out of government as waiting to be back in. That was never going to be my way.

This story is from the November 18, 2013 issue of Fortune.