5 Questions You’ve Got About Larry Summers, Answered

You've probably heard by now that Former University President Larry Summers has withdrawn his name from consideration for the Chairmanship of the Federal Reserve. But you may be wondering why so many people at Harvard care, or perhaps you're just curious about what the Fed Chair does, anyway. You shouldn't have to ask those questions out loud, so Flyby's asked them for you here; and better yet, we've provided answers.

First of all, what does any of this have to do with Harvard?

Although Summers went to college at the trade school down the river, he has spent most of his academic career in and around Harvard Yard. One year after getting his PhD in Economics from Harvard, Summers became one of the youngest tenured professors in the University’s history at the tender age of 28. In 1993, Summers won the John Bates Clark Medal, a prestigious award given every other year to a prominent American economist under 40 (and often called the “Baby Nobel”). From 2001 to 2006, Summers served as Harvard’s President, a role in which he oversaw a massive expansion of financial aid and the original planning of an expanded campus in Allston, among other projects. Summers is now a University Professor, a title given to Harvard’s most prominent faculty that allows them to research or teach at any of the University’s schools. As far as undergraduates are concerned, he's set to teach two economics courses in the spring: Econ 1400: "The Future of Globalization" and Econ 1420: "American Economic Policy."

Being the President of Harvard seems pretty cool. Why didn’t he just keep doing that?

There’s really no simple answer to this question, and, in some sense, it depends on who you ask. Summers resigned after the Faculty of Arts and Sciences scheduled a vote of no confidence in his leadership, which would have been a huge blow to the University’s reputation and stability, not to mention to Summers personally. The faculty took action after rumors circulated that Summers had fired former FAS Dean William C. Kirby. He also, in many faculty members’ eyes, had failed to defend himself and the University sufficiently against federal fraud charges related to economics professor Andrei Shleifer ’82, who still teaches in the same department.

While those two controversies most immediately preceded Summers’s resignation, they were far from the only clashes with faculty that plagued his tenure, which was the shortest of any Harvard president since the Civil War. Former University Professor Cornel R. West ’74 left for Princeton after he said Summers criticized him for activities unrelated to his teaching, such as making a rap album. And, in what has become the most infamous episode of his presidency, Summers made widely derided (and often misquoted) comments about the underrepresentation of women in higher education at a National Bureau of Economic Research event.

Wow, it sounds like a lot went wrong. How did he end up being considered for one of the nation’s most powerful positions—the chair of the Federal Reserve?

Despite all of the controversy, many believe Summers to be one of the most brilliant economic minds of his time, and his resume certainly supports that. In fact, his experience on the Potomac may be even more impressive than his accomplishments on the Charles. Summers sat on the Council of Economic Advisers in the Reagan Administration, served as Chief Economist of the World Bank in the early 90s, and led the Clinton Administration’s Treasury Department as both the Deputy Secretary and Secretary. After his Harvard presidency, Summers returned to D.C. in 2009 as Director of the National Economic Council under President Obama. In the latter role, Summers was heavily involved with Obama’s stimulus package responding to the 2008 financial crisis. And Obama is widely reported to like the guy, which the President made public when he defended Summers in front of a group of House Democrats in July. Summers’s defenders have rightly pointed out that, even though he wasn’t involved directly in the Federal Reserve, Summers has held several of the very highest economic positions in the executive branch.

Wait, is the Federal Reserve not in the executive branch? Is it not in the government? And what’s the big deal about being the chair, anyway?

The Federal Reserve is the central bank of the United States, created in 1913 by the Federal Reserve Act. That law assigns the Reserve what is often known as as “dual mandate” (which also corresponds generally to questions of monetary policy): low unemployment and low inflation. But its relationship to the government is a bit odd, even among central banks. (The Reserve’s website calls it “independent within the government” rather than “independent of government.”) Neither the President nor congress have direct control over its activities, which include targeting interest rates, supervising and providing financial services to banks and the government, and maintaining the stability of the American financial system. But the President and congress do get to nominate the Reserve’s Board of Governors, including its chair. Because the chair is the executive officer of the body that sets monetary policy, many consider him (or, perhaps very soon, her) the second most powerful person in the United States.

So, now that Summers is out, what happens next?

The White House has said that President Obama will make an announcement of his nomination this fall, which would presumably give the nominee enough time to clear the senate confirmation process before current Fed Chair, Ben S. Bernanke ’75, ends his term in January. Only the President and his team know what that announcement will be, if anyone knows at all. But many believe that it will be current Fed Vice Chair Janet L. Yellen, who would be the Reserve’s first female leader. Yellen is an attractive choice for many reasons, not the least of which is her extensive experience in both monetary and fiscal policy. She would also likely face a much easier confirmation than Summers would have, and many senators have already backed her in a letter to Obama. Dark horses are not out of the race, however—Obama has mentioned former Fed Vice Chair Donald L. Kohn as a possible successor to Bernanke—and it could still be weeks before Obama reveals his decision.

When he does, at least you’ll know a little bit more about what it means.