Larry Summers to Lead Obama’s Economic Council

With his appointment Monday to lead the National Economic Council, the brainy but abrasive Lawrence H. Summers ’75 is set to become a key ideas man for President-elect Barack Obama as he labors to keep the economic crisis from spiraling out of control.

The job may prove a suitable perch for the 53-year-old Summers, who served as Treasury secretary in the last year and a half of the Clinton administration and later as the embattled president of Harvard University before assuming his current post as university professor at Harvard’s Kennedy School of Government.

As director of the council, Summers would be a conduit to the president. It’s a weighty role that maximizes his strengths in summoning intellectual firepower and minimizes his weaknesses in playing well with others. Summers will be able to offer his often-blunt policy prescriptions to Obama behind closed doors, while not having to run a federal bureaucracy, where tact and diplomacy would be required.

“This puts him in the position of being an adviser in the best sense of the word,” said Donald Klepper-Smith, chief economist for the research firm DataCore Partners in New Haven. “Let’s face it, there’s no owner’s manual out there on how to fix these problems, so you need somebody who can think on the fly.”

By naming Summers director of the council, a position created by former President Clinton in 1993, Summers will avoid Senate confirmation hearings that could prove contentious or embarrassing as he and Obama scramble to revive the economy.

Some critics of Summers question whether his brusque manner could be an impediment in his new role, which also involves coordinating economic policy with Obama’s Cabinet secretaries.

During his tenure as Harvard president, a position he resigned, Summers was embroiled in conflict with faculty members and prominent women in science. One hot-button incident was his suggestion that innate gender differences might help explain why fewer women than men succeed in math and science.

“It concerns me that he could be the filter between other officials and the president, because this is a man who only listens to what he wants to hear,” said Nancy H. Hopkins, a biology professor at the Massachusetts Institute of Technology who walked out of a 2005 meeting in protest after Summers made his remarks about gender distinctions. “Does Obama care that someone says 50 percent of the population is genetically inferior to the other 50 percent?”

Summers has said he was only putting forward hypotheses based on the scholarly work assembled for a conference, not expressing his own judgments. In fact, he said, more research needs to be done on these issues. Days after he made the statement he wrote, “I especially regret the backlash directed against individuals who have taken issue with aspects of what I said.”

There has been speculation that Summers’s new role could be a steppingstone to eventually chairing the Federal Reserve, the US central bank that sets interest rates and monetary policy. The term of current chairman Ben Bernanke, appointed by President Bush, expires in 2010. Already, economists and market professionals are listening carefully to Summers’s public remarks on the economy.

Summers, a protege of former Treasury Secretary Robert Rubin, for whom he served as deputy during much of the Clinton era, offered some insight into his thinking during two speeches last month.

Addressing the Greater Boston Chamber of Commerce on Oct. 30, Summers, who championed market deregulation during the 1990s economic boom, called for aggressive government intervention now to stimulate a faltering economy. “Markets always overreact, so policy has to overreact if we are to restore the economy,” he said.

Earlier, in an Oct. 14 keynote speech to Harvard Business School’s Centennial Global Business Summit, he described “a vortex of five vicious cycles” threatening the economy, some of which already had taken hold, and others that were looming on the horizon.

Among other warnings, he spoke of the potential for a “Keynesian” cycle, named for economist John Maynard Keynes, where less spending leads to jobs losses, lower income, and still less spending, and a “panic” cycle, in which depositors withdraw money from banks, putting the banks in more trouble and causing more withdrawals.

As part of the incoming Obama administration, Summers’s task will be to avert those vicious cycles. To do that, he’ll not only need the new president’s ear, but he’ll also have to collaborate effectively with the secretaries of the Treasury, Labor, Housing and Urban Development, and Health and Human Services, and with independent agencies.

“He can engage people in good discussions, almost to a fault, where people can feel like he’s challenging them,” said Ross Gittell, professor at the University of New Hampshire’s Whittemore School of Business and Economics. “Obama knows what he’s getting himself into. One of his challenges is to have Summers working with others as part of a team and not dominating economic policy making.”