Grooming Mr. Summers

Wall Street will take a long, hard look, of course. It should. The Street had, in Rubin, a rare anchor of trust--a traders' trader in an era when economics is far less important to Washington's policymakers than the ability to anticipate market psychology. Summers once called the crisply barbered Rubin "the coolest person under pressure I've ever seen," and he lent confidence by just being at his desk every day. In October 1997, for example, when the market dropped 550 points in a day and Asia had turned into a contagion, Rubin strolled down the steps of the Treasury and made a deft statement of confidence in the U.S. economy's "fundamentals." Some doubt that Summers, even today, could bring that off with such panache.

On policy, Rubin and Summers achieved a kind of mind-meld during their years together, by all accounts. But some differences remain. Summers, while a political centrist like Rubin, tends to favor intervention in markets slightly more. His old academic work often focused on market imperfections; in the 1980s he even proposed a transaction tax on short-term trading (which, at the time, Rubin was doing for a living). And last year Summers pushed the views of the liberal Harvard economist Dani Rodrik--who believes in more measured globalization--on Clinton and Rubin. That helped influence the president's new approach last fall, when he began to talk of global social safety nets and tougher market regulation. On Social Security reform, however, it is Summers who is pushing for market-based individual investment accounts, while Rubin frets about their impact on the administration's tight fiscal policy.

Other officials insist there's little daylight on policy between Summers and Rubin. Both have come to hold a hard pragmatists' view of what works and what doesn't--and both agree there is no safe way to control "hot" or speculative money, the main culprit in the Asia crisis. In any case, says Bruce Steinberg, chief economist at Merrill Lynch, in the event of a market collapse, Fed chairman Alan Greenspan will be the one most on the spot. Players know, too, that Summers brings a deep network of Washington relationships to the job--especially with Greenspan and Stanley Fischer, his old teacher at MIT, now the second most important figure at the International Monetary Fund (Summers got him the post). "He has all the skills that could be needed," says Fischer, adding archly: "Some of them he's acquired more recently." Summers is also said to have a wonky rapport with Clinton--the two can talk for long hours--that Rubin himself never achieved.

Summers's biggest challenge will be to rein in his ego, which like his intellect seems as inexhaustible as a national resource. Not all foreign governments are as sanguine about him as Chernomyrdin. Some Asians still resent Summers's lead role in torpedoing a Japanese plan in the fall of 1997 for an Asia rescue fund, which, considering what happened afterward, might have been a good idea. And on a trip to Japan a year ago, the local press derided Summers as a General MacArthur for dictating banking reform to them. Summers took the same line with the Mexicans during the peso bailout in '95--though his many defenders point out his advice worked.

Fortunately for Summers, the Treasury post brings with it some built-in humility. For there is no tougher act to follow than Rubin, who says his first action upon leaving Washington will be to go fishing--in Alaska. Summers knows as well asanyone, of course, that Rubin has set the bar high. Last week he complained to his aide, Howard Schloss, that replacing Rubin "is a little like following Joe DiMaggio in center field." Schloss replied, "Larry, you know who followed DiMaggio--Mickey Mantle." Summers, a baseball fanatic who was raised in Yankee country, New Haven, Conn., replied with a grin, "Yeah, I know."

Debra Rosenberg in Washington

© 1999