Brilliance Also Means Shiny

With the departure of Lawrence Summers from Pres. Obama's team of economic advisers, we are privy to information that, had it been more widely publicized prior to his ascension to Obama's inner circle, might have prevented much damage.

As a rising economist at Harvard and at the World Bank, Summers argued for privatization and deregulation in many domains, including finance. Later, as deputy secretary of the treasury and then treasury secretary in the Clinton administration, he implemented those policies. Summers oversaw passage of the Gramm-Leach-Bliley Act, which repealed Glass-Steagall, permitted the previously illegal merger that created Citigroup, and allowed further consolidation in the financial sector. He also successfully fought attempts by Brooksley Born, chair of the Commodity Futures Trading Commission in the Clinton administration, to regulate the financial derivatives that would cause so much damage in the housing bubble and the 2008 economic crisis. He then oversaw passage of the Commodity Futures Modernization Act, which banned all regulation of derivatives, including exempting them from state antigambling laws.

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When other economists began warning of abuses and systemic risk in the financial system deriving from the environment that Summers, Greenspan, and Rubin had created, Summers mocked and dismissed those warnings. In 2005, at the annual Jackson Hole, Wyo., conference of the world's leading central bankers, the chief economist of the International Monetary Fund, Raghuram Rajan, presented a brilliant paper that constituted the first prominent warning of the coming crisis. Rajan pointed out that the structure of financial-sector compensation, in combination with complex financial products, gave bankers huge cash incentives to take risks with other people's money, while imposing no penalties for any subsequent losses. Rajan warned that this bonus culture rewarded bankers for actions that could destroy their own institutions, or even the entire system, and that this could generate a "full-blown financial crisis" and a "catastrophic meltdown."

When Rajan finished speaking, Summers rose up from the audience and attacked him, calling him a "Luddite," dismissing his concerns, and warning that increased regulation would reduce the productivity of the financial sector.

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Soon after that, Summers lost his job as president of Harvard after suggesting that women might be innately inferior to men at scientific work. In another part of the same speech, he had used laissez-faire economic theory to argue that discrimination was unlikely to be a major cause of women's underrepresentation in either science or business. After all, he argued, if discrimination existed, then others, seeking a competitive advantage, would have access to a superior work force, causing those who discriminate to fail in the marketplace. It appeared that Summers had denied even the possibility of decades, indeed centuries, of racial, gender, and other discrimination in America and other societies. After the resulting outcry forced him to resign, Summers remained at Harvard as a faculty member, and he accelerated his financial-sector activities, receiving $135,000 for one speech at Goldman Sachs.

All this follows after Summers is described by Charles Ferguson, author of this piece in The Chronicle of Higher Education, as "unquestionably brilliant".

I have to wonder what Ferguson's standards for "brilliance" are. Not only does his public-life c. v. demonstrate a stunning lack of judgment and historical acumen (not to mention any sense of ethical insight or judgment), his tenure at Harvard not only included the aforementioned brouhaha over women in science. He also picked a fight with Cornel West over West's non-academic work, including his appearance on a couple rap albums.

As a commenter at Crooked Timber writes concerning Summers' alleged "brilliance":

And yet he seems to screw up everything he touches.

Robert McNamara was heralded as brilliant. He nearly destroyed the US military in the Vietnam fiasco. He went from there to the Presidency of the World Bank, advocating lending policies to Third World countries that impoverished them and nearly destroyed the Bank. My guess is that Summers, too, will suffer no consequences. Rather, people like Ferguson will continue to note the disaster that follows in his train even as they gaze in wonder at his brilliance.