Larry Summers spent the past couple of years making a lot of money. His financial disclosure form, released yesterday afternoon, shows he received $5.2 million in compensation from the hedge fund D.E. Shaw. His standard speaking fee seems to have been $60,000. He earned that, give or take (mostly give), for speaking before Citigroup, JP Morgan, Skagen, Goldman, Lehman Brothers and American Express. Another $60,000 from Brookings. Another $34,000 for his column in the Financial Times. It adds up.
The full disclosure makes for juicy reading -- reading about other people's money always does -- and I've stuck the PDF at the end of this post. But, try though I might, I can't share much enthusiasm for the belief, now gospel on the left and implicit in the news reports, that Summers' past income constitutes a problem for policymaking in the present. This sort of financial disclosure story is a wonderful occasion to trot out well-worn chestnuts about "conflict of interest" and the "appearance of impropriety." But reading about an appearance of impropriety is like eating an appetizer for dinner: not altogether satisfying. What's the actual impropriety? Here are five reasons to doubt that there is one.
1. The stories about Summers don't make much of an effort to distinguish between cause and effect. The assumption in news reports is that earning an income from a particular industry would cause Summers to change his views in favor of the industry. But it seems perfectly reasonable to flip this on its head: Summers sympathetic views on an industry might give that industry a reason to seek him out. He's a well-informed guy. Why shouldn't they want his opinion?
(To some extent this is testable: Did Summers have a public position on hedge fund regulation that changed appreciably after he began working for a hedge fund? I haven't seen a great deal of effort to find out.)
2. There's a chronology problem. Which do you think would have a greater impact on your decisions in the present: past payment, or the possiblity of future payment? It seems obvious to me that the latter would. But Larry Summers has made enough money to beg off speaking fees and languish with a public servant's salary for the rest of his life. (And for centuries this would have been seen as something that recommended Summers for the job. Financial independence -- detachment from all those crass material concerns -- was more or less an 18th-century prerequisite for public service.)
3. Stories about a conflict of interest or the appearance of impropriety always assume that closeness is a liability, not an asset. But it can be both, and Larry Summers can contain multitudes. Sure, extreme closeness can warp perspective. But closeness can also mean you have insight into a particular industry that others don't.
4. Stories about appearances and competing interests, like so much else in American public life, elevate the process of politics over the substance of policy. Questions like "how did Larry Summers develop his view on hedge fund regulation?" are interesting, up to a point. But they are nowhere near as important as questions like "Is Larry Summers' position on hedge funds a good one or a bad one?" Trying to suss out whether Summers' position gestated under ethically troubling circumstances is a clever way of undermining the position without actually engaging it on the merits. Journalists should spend more time engaging things on the merits.
5. Finally, stories about apparent conflicts of interest can come back to bite you in the ass. To take an example close to home: I read about Larry Summers' financial disclosure on the Washington Post website, where it sat next to ads from Visa and the luxury homebuilder Miller & Smith. There is apparently a financial relationship between the Washington Post, the credit card industry, and luxury homebuilders. Yes, I know there is a wall between editorial and business decisions in the newspaper industry. But any halfway smart reporter or editor would realize that Visa will be more likely to advertise in the Post if the paper doesn't trash the company.
Do I think reporters at the Post or the Journal (or the Atlantic!) are reluctant to trash big banks because that would make banks less likely to advertise? Of course not. But I don't know why the "conflict of interest" is worse for Summers than it is for any publication that earns advertising revenue.
Anyway. The disclosure is below. (And you can be reluctant to take any of this from me because I have an apparent conflict of interest! Page four of the disclosure lists Larry's compensation for a book that I helped edit.)