Brad Delong is shockingly stupid where Larry Summers is concerned

(written by lawrence krubner, however indented passages are often quotes). You can contact lawrence at: lawrence@krubner.com

For me, this ends my willingness to read Brad Delong. I became aware of him back in 1996 when we both participated in the discussions on The Left Business Observer run by Doug Henwood. Some people on that list accused him of being a right-winger, but when Delong got all huffy and quit because someone said something mean, I think Henwood summed it up pretty well by saying “Delong is an elite social democrat.” When Delong first got a weblog he said interesting things and I read him everyday for several years. However, at least since 2008, and I think a bit before that, he has increasingly adopted a tone of “I am just a moderate and I take moderate right-wing concerns seriously and watch how very moderate I can be — I can get along with the powers that be.” Strangely, he adopted this tone about when it was going out of style in the rest of the progressive movement. For progressives, the long era of “the right seems to be popular so we must all struggle to understand why” lasted from 1994 to 2006. Delong has written that he is a moderate left economist who was born to have debates with moderate right economists — but what sane individual wants any kind of opponent, outside of games? I may wish to play chess against someone who is good at chess, but in real life I would prefer it if I never had to face any opposition at all. Opposition is something I sadly accept, not something I actively crave. Anyone who wants to debate moderate right wing economists is someone who wants moderate right wing economists to exist, and is wishing for the existence of a right wing. That’s not very progressive.

If I had to pick one word to describe the change in Delong’s tone, I would pick “pompous”. He has an interest in history, which is a good thing, but he quotes Roman historians and Machiavelli as if he himself were somehow a great historical figure, living a life full of drama and intrigue.

A few years ago I stopped reading him on a regular basis, though I still subscribe to his RSS feed and I go read him whenever Paul Krugman links to him.

His support of Larry Summers is, for me, the final straw. I will not again read him except when someone like Krugman is quoting him.

This is the nonsense that Delong thinks sounds like wisdom:

If times were normal, my first choice among the Fab Five would be obvious: Ms Yellen. Back in 1994, the Clinton administration pulled Ms Yellen out of the academy and on to the Fed. She was a brilliant choice, with a profound understanding of economics and a proven record as a consensus-builder. She is often the most insightful person in the room, but does not feel the need to constantly prove herself such – and she has a 15-year record of success in Washington.

But these are not normal times. In normal times, the “short run” in which the economy remains below its normal relative level of activity is a year or so. It has been five years since we saw normality, and few would lay long odds that we will escape without a lost full decade.

In normal times the Fed’s senior policy makers are economic priests following a settled gospel of technocratic economic management. But right now, as John Maynard Keynes said in a similar crisis in the 1920s: “no one has a gospel”. Therefore, Keynes said then, “the next move [must be] with the head …” And the Fed, over the next four years, is the best place to do the thinking that must be done to recover and rebuild.

And this is why my preference is for Mr Summers. He is the most creative thinker around. If I prepare for four hours for a one-hour discussion with Mr Summers, it takes him 15 minutes to get up to speed, for the next 30 minutes I am holding my own, and for the last 15 he is coming up with insights that I would have missed had I spent 12 hours thinking the issue through. Unless things start getting better faster, in a year or two it will be clear that the Fed’s current policy consensus is past its sell-by date. And in that case a lot of outside-the-box thinking will be called for.

Could a Summers appointment be a mistake relative to a Yellen pick? Yes. If you told me that the next four years would be placid and that the current Fed consensus were close to optimal, would I still prefer Mr Summers? No. Would the Federal Open Market Committee be a calm and happy place under him? Unlikely, but it wasn’t calm and happy under Paul Volcker either. Does Mr Summers’ failure to maintain the confidence of the Harvard faculty when he was its president weigh against him? Yes. But does Mr Obama believe Mr Summers served him well as chair of his National Economic Council? Yes.

So the benefits to that move of a Summers appointment do, I think, outweigh the risks. My preference for Mr Summers over Ms Yellen is a very narrow one. If I weighted consensus and creativity differently – as other people, quite reasonably, do – I would come out on the other side. And I think Ms Yellen would, in any case, be an excellent choice. Any of the five would. It’s just that I believe Mr Summers would be slightly more excellent.

Here is a reminder of the many problems with Larry Summers:

This is the testimony that says to me, in no uncertain terms, that Summers cannot be put in charge of something politically sensitive:

Summers said conflict-of-interest “issues,” in his Washington experience, were “left to the lawyers.” He said he was sensitive to “ethics rules,” but testified that “in Washington I wasn’t ever smart enough to predict them . . . things that seemed very ethical to me were thought of as problematic and things that seemed quite problematic to me were thought of as perfectly fine. . . .”

Summers violated the conflict of interest rules that he had agreed to. Go read the whole extended thing:

So why did Summers lose his job at Harvard? It was because of his protecting a buddy, a fellow economist at Harvard named Andrei Shleifer.

Andrei Shleifer managed to get put in charge of helping Russia privatize stuff in the mid 1990′s. His mission was to make things more useful and transparent to the infant capitalist system. Through his wife and friends, Shleifer instead orchestrated a boondoggle on Russia. He invested money through his wife and helped his friend Jonathan Hay and his lover and friends invest theirs, and set up the very first mutual fund as well as thwarting the efforts of other people to set up their own funds. All of these things were strictly against the conflict of interest policy they were working under.

Shleifer got in trouble, and the U.S Government sued and won against Harvard and Shleifer. From the article:

The judge determined that Shleifer and Hay were subject to the conflict-of-interest rules and had tried to circumvent them; that Shleifer engaged in apparent self-dealing; that Hay attempted to “launder” $400,000 through his father and girlfriend; that Hay knew the claims he caused to be submitted to AID were false; and that Shleifer and Hay conspired to defraud the U.S. government by submitting false claims.

On August 3, 2005, the parties announced a settlement under which Harvard was required to pay $26.5 million to the U.S. government, Shleifer $2 million and Hay between $1 million and $2 million, depending on his earnings over the next decade. Shleifer was barred from participating in any AID project for two years and Hay for five years. Shleifer and Zimmerman were required by terms of the settlement to take out a $2 million mortgage on their Newton house. None of the defendants acknowledged any liability under the settlement. (Forum Financial also settled its lawsuit against Harvard, Shleifer and Hay under undisclosed terms.

Summers and Shleifer

Summers was good friends with this criminal, and used his position to protect him. From the article:

Shleifer remained close to his friend and mentor Summers; they talked to and saw each other frequently and continued vacationing together in the summer on the Cape. Then it became known in early 2001 that Summers was on the short list of candidates to succeed Neil Rudenstine as the president of Harvard University. Shleifer and Zimmerman began campaigning for Summers to get the Harvard post, giving meet-and-greet parties for him at their home. Summers stayed with them when he visited Harvard.

In March 2001, Summers was named president of Harvard. Shleifer, who had been courted by New York University’s Stern School of Business, decided to stay put.

Having his close friend as his boss would turn out to be quite helpful to Shleifer. Summers asserted in his deposition that he recused himself from any involvement in the university’s handling of the Shleifer matter, but the new president stayed involved anyway. Early in his presidency he told the dean of the faculty of arts and sciences, Jeremy Knowles, to keep Shleifer at Harvard.

“I expressed to Dean Knowles,” Summers testified in a deposition in 2002, “. . . that I was concerned to make sure that Professor Shleifer remained at Harvard because I felt that he made a great contribution to the economics department . . . and expressed the hope that Dean Knowles would be attentive to that. . . . I think he recognized and shared the concern.”

“Conflict of interest issues should be left to the lawyers” says Summers

This is the testimony that says to me, in no uncertain terms, that Summers cannot be put in charge of something politically sensitive:

Summers said conflict-of-interest “issues,” in his Washington experience, were “left to the lawyers.” He said he was sensitive to “ethics rules,” but testified that “in Washington I wasn’t ever smart enough to predict them . . . things that seemed very ethical to me were thought of as problematic and things that seemed quite problematic to me were thought of as perfectly fine. . . .”

More intervention on behalf of Shleifer

Maybe you’d think that getting sued by the US Government and losing $40 million might lose your job as a Harvard Professor. But you’d be wrong:

Knowles tells Institutional Investor that he does not remember Summers’ approaching him about Shleifer. “I don’t recall this particular conversation, but the president and I shared the goal of recruiting and retaining the best faculty, so it would have been perfectly natural for us to mention to each other the names of people that we certainly wouldn’t want to lose.” However, not long after Summers says he intervened on the professor’s behalf, Knowles promoted Shleifer from professor of economics to a named chair, the Whipple V.N. Jones professorship.

Shleifer’s legal position changed on June 28, 2004, when Judge Woodlock ruled that he and Hay had conspired to defraud the U.S. government and had violated conflict-of-interest regulations. Still, there was no indication that the Summers administration had initiated disciplinary proceedings. To the contrary, efforts were seemingly made to divert attention from the growing scandal. The message from the top at Harvard was, “No problem — Andrei Shleifer is a star,” says one senior Harvard figure.

The Summers-Shleifer friendship flourished. They spoke on the phone more than once a day, on average. Two months after the court ruling against Shleifer, he hosted Summers at a break-the-fast dinner on Yom Kippur.

One instance was a meeting early in the academic year that began in September 2004, less than two months after the federal court formally adjudicated Shleifer’s liability for conspiring to defraud the U.S. government. A faculty member asked Kirby why Harvard should defend a professor who had been found liable for conspiring to commit fraud. The second confrontation came early in the current academic year when another professor asked Kirby why Harvard should pay a settlement of $26.5 million and legal fees estimated at between $10 million and $15 million for legal violations by a single professor and his employee, about which it was unaware. On both occasions Kirby is said to have turned red in the face and angrily cut off discussion.

On at least one other occasion, Summers himself told members of the faculty of arts and sciences that the millions of dollars that Harvard paid in damages did not come from the budget of the faculty of arts and sciences, but didn’t say where the money came from. Those listening inferred he meant that the matter shouldn’t be of concern to the faculty and that they shouldn’t raise it, a curious notion, given that Shleifer was one of their own.

A spokesman for Summers said he was “unable to schedule” an interview with Summers for II in December, when this article was being prepared. As the lawsuit was against the university, not just the faculty of arts and sciences, the settlement came from “university funds available for these purposes,” the spokesman added.

Shleifer has never acknowledged doing anything wrong. Summers has said nothing. And so far as is known, there has been no internal investigation or sanction. “An observer trying to make sense of the University’s position on Shleifer, Ogletree and Tribe is driven to an unhappy conclusion. Defiance seems to be a better way to escape institutional opprobrium than confession and apology. . . . And most of all being a close personal friend of the president probably does one no harm.”

The article gets Summers fired

An anonymous person got a bunch of copies of the II article and stuck one in every Harvard faculty’s mailbox the morning of the no-confidence vote that got Summers ousted.

And just in case you’re wondering, here’s the website of Sheifer, still on faculty of Harvard.

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