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Urban Policy Would Also Hurt Under a Summers-Led Federal Reserve

Four reasons why cities should beware if Larry Summers were to become the next Federal Reserve chairman.

Larry Summers at a presentation in Canada in 2012. Credit: Canada 2020

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If Ezra Klein proves as prescient as he is nerdy, then economist and former Treasury secretary Larry Summers will be the next chairman of the Federal Reserve.

In a Tuesday post on Wonkblog, Klein laid out the reasons why he believes Summers is the new frontrunner to replace outgoing Fed chairman Ben Bernanke. The speculation set off a bout of panicking in some corners of the Internet, with The New Republic’s Noam Scheiber calling for everyone to calm down, nothing’s been decided yet.

But if Summers were to lead the Fed in the final years of the Obama administration, what would that mean for on-the-ground urban policy in U.S. cities? We found four main reasons why cities should beware if Klein’s prediction were to come true:

  • He helped enable the foreclosure crisis. As Matt Phillips explains on the business reporting website Quartz, Summers was instrumental in the passage of a 1999 law that “effectively did away with the Depression-era protections that separated commercial banks… from Wall Street trading houses that engaged in riskier activities like bond trading and underwriting corporate debt.” Deregulation was par for the course in the late ’90s, but signing off on the policies that let irresponsible borrowing and lending flourish shouldn’t put too much hope in a post-recession frame of mind.
  • In the words of Rep. Peter DeFazio, he “hates infrastructure.” While serving as director of the National Economic Council, Summers advised President Obama on the creation of a stimulus package (which would eventually become the American Recovery and Reinvestment Act, passed in the administration’s second month). While others called for a more Keynesian approach to economic recovery by advocating for infrastructure spending, Summers remained steadfast in extending tax cuts. If he had gotten his way, the stimulus may not have included key components that help American cities, such as TIGER grants.
  • He has an outdated view on housing. In an October 2011 Reuters editorial, Summers argued that the cure for an ailing housing market is to carry on the unsustainable practices of yesteryear. “The central irony of financial crisis is that while it is caused by too much confidence, too much borrowing and lending and too much spending,” he wrote, “it can only be resolved with more confidence, more borrowing and lending, and more spending.” He put forth a five-point solution for reviving the market, but what was the standard of measuring success? Housing starts on single-family homes. He mourns for the days of 2005, when starts on single-family homes stood in the 1.7 million range. This sort of large-scale, sprawling development hurt cities and directly precipitated the housing crisis.
  • He doesn’t like hip hop. Or, at least, Cornel West’s rap album. While president of Harvard University in 2001, Summers rebuked West for a number of perceived infractions, leading to the celebrated author decamping for Princeton. One of the complaints that sent West packing? That the professor’s hip hop effort, Sketches of My Culture, was an “embarrassment.” To be fair, the 10-song album has gained some pretty negative customer reviews on Amazon.

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