A Pragmatic Certaintist

If you decide to become a professional economist, one of the very first choices you have to make is between certainty and reality. As you work over theories and struggle with statistical models and churn through complex mathematics, you must decide if you are going to argue for the absolute rightness of your ideas or if you are instead going to allow the awkward wiggle of the real world to intrude on the beauty of your creations. From a career perspective, it is better to be a certaintist. No one praises economists for the flexibility of their opinions. Larry Summers was a very successful academic economist before he went into government. He was a very certain man. He came, frankly, from a family of certain men: Nobel Prize-winning economists Ken Arrow and Paul Samuelson were uncles. Summers’ whiz career took him through Harvard (the hedge fund he now oversees) and the Massachusetts Institute of Technology. It brought him the John Bates Clark Medal for Economics when he was 38. And in 1993, it brought him into the U.S. government and into contact with Robert Rubin, the former Goldman Sachs CEO who became treasury secretary.

Rubin was a realist. He had been polished into a glisteningly clever trader by Gus Levy, a Goldman legend. That high sheen came not just from Rubin’s formidable intellect and egoless charm but from a fingertip feel for reality taught by years of market successes and failures. Rubin, Summers told me in the late 1990s, had taught him the discipline of thinking of the world as a set of probabilities. This idea wasn’t new to Summers, of course. In fact, much of his work was based on the notion of trying to decide just how probable an event was. But it was one thing to have the idea to treat the world this way and another to actually do it. Rubin never said something was going to happen for sure. He said it was a 90 percent probability or a 40 percent or whatever. He chose to live his life as a realist, deeply informed by externalities. And Summers, before becoming secretary himself in 2000, abandoned his academic certainty for good and instead embraced a world that was not ceteris paribus. It may have cost him his Nobel, but it made him a better secretary of the Treasury and may yet make him a memorable chairman of the Federal Reserve.

Summers had always been known as something of a realist, even before his time in government. His Clark medal citation, for instance, praised his insistence on using less abstract models than those of his peers. (Among the more abstract ideas he eschewed were disastrous notions like shock therapy, library-book wonders that imploded when exposed to sunlight.) But his time in government refined that academic inclination into a cutting pragmatism now on display at Harvard. The press loves to write about how Larry Summers pisses off people. And his self-confidence can grate at times. But it also drives him to understand the world around him before making decisions about how to act. "Our self esteem," Fed Chairman Alan Greenspan once told me about the way he, Rubin, and Summers saw the world, “rests on the quality of our analysis, not on our conclusions.” That line should make the headstones of certaintist economists like Princeton’s Paul Krugman or Columbia’s Jeffrey Sachs. It may yet make the press release sending Summers back to Washington to take Greenspan’s job.