There exists a paradigm of the perfect economy, a place where a dismal scientist may even lay down his HP-19B calculator because analysis is superfluous in a land where supply and demand are calibrated, inflation is checked, growth steady, the workforce fully employed and the stock market bullish. For the moment, the U.S. may be that perfect economy, and that means the greatest challenge for Larry Summers, 44, the new nominee for Secretary of the Treasury, will be not to muck things up.
That's harder than it sounds. After all, when Seinfeld went off the air, NBC couldn't run a test pattern, and by the way, now that Michael Jordan has retired, how are the Chicago Bulls doing? Summers, currently the Deputy Secretary, is following a similarly tough act. Robert Rubin, perhaps the most popular Treasury Secretary in the postwar era, redefined that Cabinet post from discreet adviser and signatory of our currency to a sort of global emissary and projection of American geopolitical clout as it is expressed now--not in warheads or throw weights but in loan guarantees and bailout packages.
With Rubin's resignation and Summers' ascension, the question arises: To what extent did Rubin's personal strengths make possible the enlarging of the Treasury Secretary's mission? The former Goldman Sachs partner spent years as head of the firm's arbitrage desk, a position in which he had to make billion-dollar bets based on inadequate information, the kind of predicament that he says often confronts public officials. To him, the decision-making process should focus on probabilities rather than the absolute nature of any choice. "It's not that results don't matter," he says. "But judging solely on results is a serious deterrent to taking the risks that may be necessary to making the right decision." And the smooth-talking Rubin was one of the few men who could pick up a phone, as he did in late 1997, and persuade his brethren at banks and trading firms up and down Wall Street to keep their money invested in South Korea, an economy that at the time was melting down faster than a scoop of ice cream on a hot asphalt road.
Certainly, Summers has the intellectual rigor to succeed Rubin. He is often described as being the smartest guy in the room--and generous enough to let you know it. Rubin, on the other hand, may actually have been the smartest guy in the room without letting anyone else know it. And right there is the difference between an academic and a bond trader.
Others in the economists' fraternity say that some portion of Rubin's success can be attributed to the man who now replaces him. In part because Rubin dislikes travel, it was often Summers who was dispatched to hot spots to prescribe tough fiscal and monetary medicine. "He's been the point man in Asia," says Kobsak Chutikul, director general of economic affairs at Thailand's Foreign Ministry, "pushing a lot of very sensitive and controversial policy measures," including stiff interest rates.
Summers came in for some of the stern criticism hurled at the IMF, which follows the Treasury Secretary's lead, as Asian officials complained that the IMF's austerity measures were aggravating the crisis. "The handling of the crisis was a disaster in the beginning," says Andy Xie, chief China economist at Morgan Stanley Dean Witter in Hong Kong.