They met as graduate students, working side by side most nights at the
university computer center. In time, they gravitated to the same dissertation
adviser and published a paper together showing how to apply the
mathematics of rocket science to economic analysis. They argued fine
points of theory over dinner at each other's apartments and attended each
other's weddings. And on the same day in 1983, Jeff Sachs and Larry
Summers became the youngest professors ever to win tenure from
Even then, however, it was clear that these two academic superstars had
ambitions extending far beyond the ivy walls and the pages of technical
Jeffrey D. Sachs, once dubbed the Indiana Jones of economics, was to
become the leading economic adviser to developing countries around the
world. His ideas helped tame hyperinflation and resolve the 1980s debt
crisis in Latin America. And he was the first to prescribe "shock therapy"
for Eastern European countries making the transition from communism to
Lawrence H. Summers, meanwhile, went on to become the intellectual
powerhouse on President Clinton's economic team. As deputy secretary of
the treasury, he has been the in-house champion for deficit reduction,
force behind the U.S. bailout of Mexico and a tireless proselytizer for
American-style capitalism around the world.
Now, however, these aging Wunderkind find themselves at loggerheads
over the economic crisis engulfing Asia. What was once a friendly but
unspoken rivalry has developed a noticeably sharper edge, animated not
only by disagreements over economic policy, but also by a clash of roles
Although the two have refrained from publicly criticizing each other, they
have been shadow boxing in speeches, articles and through surrogates in
the cozy world of international economics. The two men are advocating
fundamentally different solutions to the Asia crisis.
Summers, working with the International Monetary Fund, has taken the
lead in structuring a $118 billion international rescue that requires Thailand,
South Korea and Indonesia to raise interest rates, reduce budget deficits,
open markets, close ailing banks and generally rid their economies of crony
Sachs, as director of Harvard's Institute for International Development,
emerged as the leading critic of that international rescue effort. His
that Summers & Co. have made a bad situation worse by imposing
austerity and politically risky reforms. What the ailing Asian economies
really need, he argues, is some extra time and cash to restore confidence
and restructure their foreign debts.
This long-running feud actually began to take shape back in 1995 in the
wake of the peso crisis in Mexico. To reduce the need for such
international bailouts in the future, Sachs proposed a scheme that would
allow countries to negotiate bankruptcy workouts with their creditors much
as companies do in the United States. But the idea was vehemently
opposed by Wall Street, big banks and Summers at the Treasury, who
lobbied Western finance ministers to reject the idea.
Perhaps it was no surprise, then, that when the Asia crisis hit last fall,
Sachs weighed in quickly with critical comments about the IMF and the
Treasury. In news columns and op-ed pieces, he accused the IMF of
economic malpractice for having failed to see signs of trouble until it
too late -- and then in the rush to get involved, triggering a panic that
akin to yelling "fire" in a crowded theater.
Sachs also suggested that U.S. officials cared more abou uite different
advice to Suharto's economic team. In his view, the urgent priorities for
Indonesia did not involve eliminating cronyism and state subsidies, as
Summers had argued. More important was defending the rupiah on
international currency markets, rescheduling foreign debts and pumping
fresh capital into a banking system that had virtually ceased to operate.
His advice -- subsequently shared with Western reporters -- appeared to
undercut a carefully orchestrated international effort to bring Suharto
around to the IMF's way of thinking.
Returning to Washington, Summers turned his attention to convincing a
reluctant Congress that it risked triggering a worldwide recession if it
not allocate another $18 billion for the IMF to replenish coffers nearly
depleted by the Asian crisis. Suddenly, there was Sachs again, urging
Congress to withhold any new money until the IMF "and its supporters at
the Treasury" implemented fundamental reforms at the agency and devised
a better model for international rescues that did not bail out foreign
The fault lines of this conflict also extended to Cambridge, most visibly
private skull session on the Asian crisis in early March organized by Paul
Krugman of the Massachusetts Institute of Technology. In attendance were
most of the leading lights of international economics, including Sachs
Stanley Fischer, the legendary MIT professor who is now the No. 2
official at the IMF. Summers remained back in Washington.
According to several people who were present, Sachs opened the session
by delivering a masterful accounting of what went wrong in Asia. But he
was immediately confronted by J. Bradford De Long, a Summers protege
at Harvard and the Treasury, who contrasted his reasonable private
analysis with the inflammatory criticisms he had been making in public.
Sachs tried to explain that there had been no inconsistency. But almost
immediately, he was cut off by Fischer, a man usually known for his
"You know that's not true," Fischer reportedly shouted, the blood rising
his neck, as he ticked off five occasions in which Sachs had publicly
impugned his competence and integrity.
"It got pretty heated," Sachs recalls. Fischer, calling the incident "just
painful," declined to discuss it further.
"This is a tight little village, so these kinds of tensions are very noticeable,"
Krugman said later.
Sides of the Story
It is early enough in the day that Larry Summers's white shirt is still
its tail still tucked into the pants of the blue suit that announces he
the switch from Harvard professor to master of the policy universe.
The deputy secretary of the treasury wants to make it clear that he still
values Sach's advice and friendship, acknowledging that Sachs's ideas
"have influenced the way we all do business." But from his carefully chosen
words, there is no mistaking a sense of impatience with a colleague who
refuses to understand the difficulty in reforming large institutions such
Treasury and the IMF and the tricky political and economic trade-offs
required for any international rescue.
Sachs tells his side of the story by phone from his office, an airport
lounge and his car. His is a more frenetic kind of busy than Summers's,
in its own way more charming.
Sachs is quick to praise his old pal as "an obviously gifted individual
has done his job extremely well." But he voices exasperation with the
"unfortunate compromises" Summers has had to make with political
realities and the "fundamentally flawed" institutions over which he now
Such tensions will be easily recognized by anyone who has played or
observed the Washington policy game. But in this case, they are
heightened by the fact that the two men are, in many ways, so much alike.
Friends and colleagues describe them as tireless and prolific, with quick
minds and near-photographic memories. Both are equally articulate in
mathematics and English. They are also headstrong, abrasive and
sometimes annoyingly self-confident.
Until recently, they had also shared a common approach to economics.
Both had done extensive research showing how small imperfections in the
ways markets worked led to the panics, recessions, monopolies and other
inequities that didn't fit into the tidy neoclassical models. But while
that markets do not always generate the best outcomes, Sachs and
Summers were reluctant to jump to the conclusion that government ought
to step in to correct for the market's imperfections -- too often, they
argued, government simply made a hash of things.
As a result, both men found themselves perched uncomfortably on the
ideological spectrum between liberals who argued for more active
government management of the economy and conservatives who argued
that markets always know best.
Sachs was the first of the two to test-drive this pragmatic course during
1980s in Latin America. In many respects, the advice he dispensed could
have come right out of the free-market playbook: stop printing money,
open up to foreign trade and investment and eliminate regulations that
protected entrenched economic interests.
But Sachs's insistence that banks and international institutions grant
relief to the region was anathema to the Treasury, the IMF and the rest
the world's financial establishment. Only after a decade of slow growth
the region did Sachs's ideas about debt relief go from being a dangerous
and radical idea to conventional wisdom.
By the end of the 1980s, Sachs was making similar arguments to
governments in Eastern Europe struggling to make the transition from
communism to capitalism. IMF officials had urged a phased transition,
delaying the move to open trade and a convertible currency. But Sachs
convinced Solidarity leaders in Poland to jump directly into the capitalist
pool. He prescription of "shock therapy" -- supplemented by debt relief
and large doses of Western aid -- generally proved successful in Poland
and elsewhere in Eastern Europe.
Sachs had hoped to record his greatest triumph in Russia, where he was
key adviser to the early reformers. But when significant Western aid failed
to materialized and the early "shock troops" were replaced by gradualists,
a frustrated -- some would say impetuous -- Sachs left Moscow in a huff,
claiming that the United States and the IMF had sabotaged Russian
reform. A top U.S. official replied that Russia needed "more therapy and
Despite the setback in Russia, Sachs's influence had grown to the point
that by the early 1990s, the hometown Boston Globe dubbed him "the
most powerful economic engineer since John Maynard Keynes." The New
York Times declared him to be "probably the most important economist in
But it was also becoming clear that this son of a union lawyer from Detroit
enjoyed lancing the economic establishment. "Jeff's style is flamboyant,
although I'm not sure it's always productive," Rudiger Dornbusch of MIT,
a former teacher, said at the time.
Summers, meanwhile, had taken a more traditional academic route befitting
his pedigree as the son of two economists and the nephew of two others
Nobel prize-winners Paul Samuelson and Kenneth Arrow. So imbued was
the Summers household in the economic way of thinking that, as an
exercise in market dynamics, father Robert would auction off control of
family's lone TV set.
Summers's first major foray into political economics foundered with the
presidential campaign of former Massachusetts governor Michael S.
Dukakis. But two years later he leapfrogged other, more experienced
candidates to become chief economist at the World Bank in Washington,
the IMF's sister institution. From there, it was only a short hop to the
Clinton Treasury Department as undersecretary for international affairs.
Very quickly, however, Summers began moving beyond international
issues -- and traditional Democratic economics. Inside administration
councils, he argued that a strong dollar, deficit reduction and free trade
would do more to expand economic growth than the tax cut and public
works spending that candidate Clinton had advocated during the 1992
And when others on the economic team wanted the president to jawbone
the Federal Reserve Board to lower interest rates, Summers spoke up for
tight monetary policy and Fed independence. He was the midwife to the
Treasury's new inflation-index bonds and he has been the lone senior
Clinton official arguing for partial privatization of Social Security and
incentives for savings and investment.
Nothing in this constellation of market-oriented policies rivals Sachs's
for boldness or originality. But where Sachs has cultivated the role of
independent consultant and critic, Summers has mastered the inside game.
It wasn't necessarily a predictable outcome. As a former college debating
champion and graduate seminar leader, Summers arrived in Washington
with a tendency to overwhelm and even ridicule those who disagreed with
him. A number of former administration officials still smart from the sting
Summers's sharp tongue years later -- among them, former Fed vice
chairman Alan Blinder, who turned down the job of chairman of the
Council of Economic Advisers in part because of the prospect of having
tangle frequently with Summers.
Early in the first Clinton term, Summers also ruffled feathers inside the
Treasury Department. Reporters love to recall times, at press briefings,
when Summers would follow up comments by then-Secretary Lloyd
Bentsen with his own explanations of what he thought the secretary had
meant to say. Bentsen's jaw would clench as he listened to his upstart
Somewhere along the way, however, Summers came to recognize that
succeeding in Washington had more to do with winning allies than winning
debates. And he was careful to court the two allies that counted most in
economic policymaking -- his boss, Treasury Secretary Robert E. Rubin,
and Alan Greenspan, the chairman of the Federal Reserve Board. The two
not only have helped advance Summers's career, but also now regularly
include him in their weekly lunches and in their joint public appearances
"Larry has proven himself, in a way that was not predictable, to be a
successful team player and to operate in a political setting," says Laura
D'Andrea Tyson, who headed the Council of Economic Advisers and later
the National Economic Council during the first Clinton term. "He's been
very perceptive about hierarchy. He has learned to disagree with people
like Bob and Alan while allowing them to prevail."
One wise old hand noted that Summers is the rare academic in government
who, when told about an upcoming meeting, is clever enough to care more
about who will be there than what's on the agenda.
Summers's success, in fact, stands in marked contrast to the experience
his mentor, Harvard economics professor Martin S. Feldstein, who
retreated from Washington after two years as chairman of Ronald
Reagan's Council of Economic Advisers, having failed to persuade the
president that his tax cuts would lead to massive federal budget deficits.
a young economist on Feldstein's staff, Summers was able to glimpse
firsthand the constant trade-offs required in public life -- between speaking
your mind and being a good team player, between holding out for the ideal
solution or settling for second best, between being right and being relevant.
Now, 15 years later, Summers is struggling with those tensions himself.
According to those who have worked with him closely, he has developed
a taste for power and a knack for the give-and-take of politics. His early
hubris during the Mexico crisis has given way to a more collaborative style
that has put him at the center of global economic policymaking -- and in
good position to become treasury secretary should Rubin step down.
Back in Cambridge, Sachs has settled into a different role of critic,
crusader and intellectual provocateur. He takes some comfort in the fact
that the IMF has revised some of its Asia policies. And despite the active
opposition of Summers and his Treasury colleagues, Congress is now
poised to impose new restrictions on IMF funding that reflect many of
Still, even Sachs concedes there is probably a good reason why he
remains rooted at Harvard while Summers has thrived in the policy
hothouse of Washington.
"Look, I recognize that it is easier for an individual to come forward
suggestion than it is for an organization like the Treasury or the IMF
accept it," says Sachs. "But that's what I like doing and I'm very
comfortable in that role. I'm not sure I'd be a very good organization
Staff writer Clay Chandler and researcher Richard Drezen contributed to
Jeffrey D. Sachs
Director, Harvard Institute of International Development
Grew Up: Oak Park, Mich. (near Detroit)
Education: B.S. and Ph.D., Harvard University
SAT scores: Won't tell
Career Highlights: Economics professor, Harvard University; adviser to
governments of Bolivia, Brazil, Argentina, Venezuela, Peru, Poland,
Russia, Ukraine, Mongolia, Indonesia
Family: Married to Sonia Ehrlich Sachs, pediatrician at Harvard University
Health Service; three children
Sports/Interests: Skiing, collecting old currency
Favorite Drink: Diet Coke
On IMF Funding: "Although the IMF has repeatedly demonstrated deep
weakness in its operations and strategy, the U.S. Treasury hasn't told
word about how to fix these problems . . . The IMF needs fundamental
reforms before it is given additional funding."
Lawrence H. Summers
Deputy secretary of the treasury
Grew up: Merion, Pa. (near Philadelphia)
Education: B.S., Massachusetts Institute of Technology; Ph.D. Harvard
SAT scores: Won't tell
Career Highlights: Economics professor, MIT and Harvard University;
staff economist, White House Council of Economic Advisers; chief
economist, World Bank; undersecretary of treasury for international affairs
Family: Married to Victoria Summers, a tax attorney at the International
Monetary Fund; three children.
Sports/Interests: Skiing, tennis
Favorite Drink: Diet Coke
On IMF Funding: "Not to fund the IMF now would be a little like
canceling your life insurance policy when you have already gotten sick.
simply not a risk that we should take."