summers of our discontent

Was Larry Summers’s Fed Flop the End of America’s Most Powerful Economic Clique?

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For more than two decades, Democratic economic policy has been dominated by a very small coterie of free-market centrists. Their common link is their mentor: Clinton Treasury secretary and ex–Goldman Sachs co-chair Robert Rubin. This group of friends, which includes Jacob Lew, Gene Sperling, and Tim Geithner, is called the Rubinites, or, alternately, the Clintonites. And since the early nineties, they’ve scooped up nearly every position of influence they’ve set their eyes on.

Larry Summers, who took his name out of the running for the Federal Reserve chairmanship yesterday, was the perfect Rubinite. He served under Rubin in the Clinton cabinet, went off to run Harvard during the Bush administration, then kept himself close to the nexus of power in the Obama administration, where Rubinites were again put in charge. He did everything right, politically, to tie up the Fed position. So what went wrong?

One possibility, as my colleague Jonathan Chait suggests, is that the Summers backlash was a kind of proxy battle between President Obama and his left-wing skeptics. Another possibility is that the flop was Summers’s fault alone — that his muddy views on monetary policy, Wall Street ties, and gender-insensitive comments at Harvard made him too politically toxic to survive a confirmation battle.

There’s another, broader take on the Summers Fed flop, which is that the entire Rubinite coalition is being forced out of political respectability over the issue of financial deregulation, and that Summers was just one casualty in a larger purge.

At its core, Rubinism is about much, much more than deregulating Wall Street. But in the fight over Summers, nothing else seemed to matter. Summers’s progressive policy views were overshadowed entirely by the fact that he had helped pass a law repealing the Glass-Steagall Act, a cornerstone of banking regulation since the Great Depression. Everyone opposing Summers’s candidacy — from the Times editorial board to Bette Midler — zeroed in on his deregulation efforts as his weak spot, the one disqualifying trait amid a sea of minor sins. To the intellectual left, Summers’s Rubinism boiled down to the fact that, in their eyes, he’d helped Wall Street run amok.

It’s been noted that almost everyone involved in pushing Summers as the top pick for Fed chair was part of the same deregulatory efforts. In addition to the usual Geithner-Lew-Sperling trio, there were people like Jason Furman, the chair of the Council of Economic Advisors, and Erskine Bowles, former Clinton consigliere and deficit grand bargaineer. These people haven’t lost respectability inside the Oval Office, but they also don’t carry support from the Democratic base the way they once did.

Lew, currently the highest-ranking Rubinite in government, very nearly got derailed by his past. In his confirmation hearing, Lew was harangued by Senators Bernie Sanders and Kent Conrad over his assertion that deregulation had not been “a proximate cause” of the financial crisis. He escaped and was voted in over the howls of some left-wing advocates. But Summers wasn’t so lucky. Unlike Lew, Summers was directly involved in setting the Clinton economic agenda, and although he had backed off his support of deregulation in recent years, it wasn’t enough to placate his critics, who were able to turn public opinion against him through weeks of scathing op-eds and political back-channeling. (“His great ‘achievement’ as secretary of the Treasury,” wrote Joe Stiglitz, “was passage of the law that ensured that derivatives would not be regulated — a decision that helped blow up the financial markets.“)

The Summers backlash may be a one-off occurrence. But I doubt it. The current ranks of economics policymakers include fewer Rubinites than at any point in the last two Democratic administrations. Geithner is out. Bowles, who headed up the failed Fix the Debt movement, no longer holds any real position of influence. Sperling, a former Clinton aide who became President Obama’s top economic adviser, announced last week that he’s leaving the administration. His replacement, Jeffrey Zientz, is not a Rubin protégé and was nowhere near the Glass-Steagall repeal or any other nineties deregulation.

The people who were part of the Rubin brigade, including Summers, are finding that their past is becoming radioactive. Whether because of the increasing influence of reformers like Elizabeth Warren, or simply the left’s growing unease with the economic status quo, Rubinites are no longer being reflexively trusted with the country’s economic and monetary policy. And President Obama — who, from all appearances, still believes in the power of his Clinton-era brain trust, including Larry Summers — might have to start looking elsewhere for appointees.

Summers Flop: End of the Rubinites?