The Reeducation of Larry Summers

Still, there are signs that Summers really is learning to play well with others. When Carol Browner was EPA chief in the Clinton administration, she clashed with Summers—Browner pushed for greener policies while Summers argued that they'd hurt the economy. But now that Browner is chief environmental adviser in the Obama administration—and Obama has made clear his pro-green views—Summers is working closely and, by early accounts, harmoniously with her. And he played the consummate politician in forays to the Hill to sell the stimulus package in recent weeks, listening with patience to the sometimes economically illiterate arguments of senators and congressmen. "It's remarkable how totally accessible he is, even more than others" in the administration, says Sen. Max Baucus, chairman of the Finance Committee. "He's very patient, answering everyone's questions. I remember thinking, holy mackerel, he must be asking himself, 'When can I leave?' "

Recalling Summers's pitch for the stimulus bill at a recent Democratic retreat, along with those of Geithner and budget director Peter Orszag, Baucus says, "He was so articulate. I stood up and said, 'This is all very reassuring,' and I was thinking, Larry in particular." All in all, it was a remarkable change from the scruffy Treasury undersecretary who used to treat important legislators like the hapless foils he once trampled as a national debate champion. "He listened more than he talked, and said, 'I don't have all the answers.' Which, if you know Larry Summers, wasn't always the case," says a senior congressional aide.

When Geithner rolled out the Treasury Department's bank-bailout plan two weeks ago, Wall Street was underwhelmed. Bankers—and not a few ordinary citizens—asked: where are the specifics? It was widely speculated that Geithner was being intentionally vague because he could not publicly concede that many big banks were insolvent and might have to be nationalized. Summers denies this, insisting that the administration still had to take the full measure of the crisis through "stress testing" the banks. But humbly, being the "new Larry," he doesn't dispute suggestions that the Obama economic team could have done a better job managing market expectations.

Summers's greatest test will be persuading Congress to vote for "entitlement reforms"—i.e., cutbacks and/or higher taxes on Social Security and health benefits for the poor and elderly. In his interview with NEWSWEEK, Summers made clear that he will urge the president and Congress to venture into an area where politicians have long feared to tread, the so-called third rail of politics (touch it and you're dead). Necessity requires it, he says—if the United States cannot curb its spending and debt, interest rates will soar and the economy will plunge once more. Summers will make the arguments used by Keynes that changed circumstances call for changed views. He will have to make the argument a little less haughtily than Keynes did, however—or than the new Larry sometimes still does.

© 2009