Globe Editorial

Summers prepares to exit, but his policies may yet bear fruit

September 23, 2010

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PRESIDENT OBAMA’S chief economic adviser, Lawrence Summers, announced his resignation, effective at year’s end, while his policies are under siege but also showing some signs of working. The timing of Summers’ announcement — before an expected Republican victory in the midterm elections — seems to acknowledge Obama’s rocky road: Summers is letting everyone know now that he’s planning on leaving, because if he waited until after the election, it would look like he was pushed out.

But the outspoken former Harvard president may have less to fear than it currently appears. The verdict on Summers’ policies, from bailing out the auto industry to imposing curbs on the financial-services industry to greenlighting a nearly $800 billion stimulus plan, will be delivered in the next few years, not months. And there’s still plenty of reason to believe those policies helped the economy.

Paradoxically, Obama’s and Summers’ most unpopular program — the Troubled Asset Relief Program — is the clearest success. The plan, initiated by former President George W. Bush and continued with crucial support from Obama and Summers, has succeeded in stabilizing the banking industry, thereby stemming far more serious job losses. This accomplishment is invisible, since the much-worse economy that it prevented never materialized. But most of the funds paid out by the government have already been returned, attesting to the improved health of the banks, and taxpayers will likely be out under $100 billion, far less than predicted. Most economists and policymakers agree that the program averted a catastrophe.

Obama has reaped almost no credit, while suffering enduring political damage. For this, Summers may be partly to blame. Summers, along with Treasury Secretary Timothy Geithner, reportedly discouraged Obama from criticizing failed banks too sharply out of fear of alienating the business community. When, early in his presidency, Obama took aim at the financial industry’s multi-million-dollar bonuses and paychecks as an affront to taxpayers, Summers and Geithner reportedly reined him in. They feared that businesses would be destabilized and less likely to hire new workers.

Whether those fears were valid is a matter of debate. But Obama’s reluctance to criticize the banks contributed to widespread perceptions of TARP as helping the same fatcats who were responsible for the financial meltdown. The result is that many middle-income voters view Obama’s Democrats as the party of corporate America, giving Republicans an undeserved boost, especially given TARP’s GOP roots and the role of the party in advocating for banks in the financial-reform bill.

Still, Summers can leave office with his head high. He served as the chief presidential economist during a period of historic turbulence, and did much to stabilize the economic ship. Whether it sails onward or not will determine how Summers’ tenure, and Obama’s, is viewed by posterity.

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