Confidence Wanes in Summers' Chances for Fed Chair

During the 2004 presidential race, political pundits identified Lawrence H. Summers as a likely pick to succeed Alan Greenspan as chairman of the Federal Reserve in the event of a Kerry victory.

Most observers believed that if Kerry had won, Summers’ once-and-future boss—former Treasury secretary and current Harvard Corporation member Robert E. Rubin ’60—would have been the “odds-on favorite” to replace Greenspan, according to Princeton economist Alan S. Blinder.

Yet Summers himself was not far behind in the running. “He would have been a contender,” says J. Bradford DeLong ’82, an economist at the University of California-Berkeley.

DeLong and other friends of Summers speculate that the University president might be persuaded to leave Cambridge behind if he were offered the Fed chairmanship. But the ironic consequence of this year’s flap over Summers’ leadership is that—by dashing his own Fed prospects—Summers might have lengthened his tenure at Harvard.

LOOSE LIPS SINK SHIPS

Greenspan’s current four-year term as Fed chair doesn’t expire until January 2006—and in any event, Summers almost certainly would not be in the running for the post under a Republican president. Any impact that Summers’ January remarks might have on his Fed chair chances won’t become apparent until early 2010—and then only if the Democratic Party wrests control of the White House from the GOP in the ’08 race.

But looking into the crystal ball, Fed watchers wonder whether Summers would still be a viable candidate for the chairmanship a half decade down the road.

“One of the most critical qualities in a Fed chair is to think about how your remarks are going to be heard by other people,” says Washington Post economics correspondent Nell Henderson ’80, who is also a Crimson editor. “It would be disastrous for you to say something that was flippant or ill-informed or facetious and have the markets crash.”

Summers’ reputation for impolitic remarks long preceded his January comments. But during the Clinton administration, observers in the capital thought that Summers—under Rubin’s tutelage—had learned to hold his tongue. “Summers very much went from being perceived as ‘the bull in the china shop’ to ‘the bull who has been housebroken,’” Henderson says.

Now, Fed watchers might be less convinced that Summers has put his loose-lipped days behind him.

A RUBIN IN THE ROUGH

Yet some experts think Summers may still have a shot at Fed chair if a Democrat occupies the White House when the post next becomes vacant.

The Fed head, says DeLong, “is a job in which in general you get little credit—and if anything goes wrong you get a good deal of blame....You don’t want someone in that job who hasn’t demonstrated the ability to survive.”

This spring, Summers survived the Faculty’s challenge to his leadership in part because of his apparent support from the Harvard Corporation—the University’s highest governing board—on which Rubin himself now sits.

“The fact that Summers didn’t lose his job has been taken as a sign that Rubin still supports him,” says Henderson.

And according to Henderson, “any Democratic nominee would want Rubin’s support because it would hark back to the economic glory days of the Clinton administration.”

As a result, the Fed post “would be Rubin’s job for the asking—if Rubin wants it,” Henderson says. But the former Goldman Sachs chief does not have a Ph.D. in economics, and “he may not want to roll up his sleeves and muck around in the data for 14 years”—the length of each of the appointed Fed board member’s terms. In that event, a Democratic president might try to curry Rubin’s favor by appointing Summers, Rubin’s protégé, to the Fed’s top job, Henderson speculates.

But even if the stars align in Summers’ favor, there is no guarantee that he would be willing to climb down from his Mass Hall perch. When asked last week what his ideal job would be, Summers responded: President of Harvard University.

—Staff writer Daniel J. Hemel can be reached at hemel@fas.harvard.edu.