Larry Summers's Harvard Gamble
History is replete with examples of the right people getting punished for the wrong reasons. (Tax evasion was surely the least of Al Capone's sins.) Larry Summers, who is now the man in charge of guiding the economy for the Obama administration, famously lost his job as Harvard's president when he offended the gods of political correctness. But in an eye-popping story, the Boston Globe recounts the reason he ought to have lost his position.
When George W. Bush became president, he famously enjoined his staff against playing "small ball." He wanted them to think big, an attitude that arguably led to some of the administration's biggest mistakes. Well, who knew that W. and Larry Summers, Bill Clinton's last Treasury secretary, were kindred spirits? Summers arrived at Harvard in 2001 with an expansive vision, and he told the faculty not to think small. "Its ambitions were limited only by its imagination, he said," according to the story. "Harvard could always come up with more money from its 'deeply loyal friends.'’’
To these ends, he proposed growing the Arts and Sciences faculty - ironically, the group that eventually heaved him from office - by 25 percent. He also moved to massively expand the university's physical plant - mostly building new science labs - by increasing infrastructure spending from $150 million in 2000 to $644 million by 2009. (I used to work in the pharmaceutical industry, and believe me, a world-class science lab is just about the most capital-intensive investment there is.)
True, Harvard was famously sitting atop the richest university endowment in America. But some members of the Harvard faculty itself were warning that the spending spree could come to no good end. Interest payments on all the new buildings alone were staggering, not to mention top-of-the-line salaries and benefits for all those new faculty members. Under pressure to keep the music going, the university's investment advisers resorted to ever more exotic and risky investments to maintain high returns. Even without the financial crisis, the situation would have been perilous. The latter brought it crashing down. As the authors of the piece themselves note, if Harvard were a private corporation, heads would long since have rolled and root and branch reform instituted.
Out of control spending. People can always be found to bail us out. Accounting tricks. For some reason, I'm feeling ill...