Larry Summers Is Still Afraid

From his Oriental rug-lined, book-filled home in Brookline, Mass., Larry Summers told Fortune unemployment and interest rates need to spike much higher than many are suggesting to save the economy from prolonged pain. He hopes he's wrong-but he's pretty sure he's not.

- Shawn Tully

SENATE DEMOCRATS were careening toward a pivotal vote in August-one that could either resuscitate President Biden's domestic agenda or pull the plug on it. They wanted to pass the Inflation Reduction Act, a huge bill that would fund dramatic green energy investments and other domestic spending. The Dems needed to flip one senator to squeeze the legislation through the evenly divided chamber-that of their own colleague, Joe Manchin (D-W.Va.), who wanted assurances that any new spending bill wouldn't be inflationary.

The Dems called in the heavy artillery-but they didn't turn to a cabinet member, or a big-name lobbyist, or any current political headliner. They called on Larry Summers, the rumpled, cerebral Harvard economics professor and former Treasury secretary who hasn't held a formal role in government since 2010. Sen. Mark Warner (D-Va.) recalled the frenetic home stretch in a press report: "I was walking the tunnels back to the Hart Building and saying to Larry, who was at some conference in Brazil at the time, 'You gotta call Joe Manchin, and you gotta do it right now and convince him this is all cool." A few weeks later, visiting with Fortune in his living room in tony Brookline, Summers confirms it: He placed the call. (The bill passed, of course, with Manchin's vote.) Summers won't go into specifics, but says, "I was quite involved in the politics in the late stages." He adds: "I had credibility to say that [this bill] would not be inflationary.

Several senators encouraged me to deploy that credibility, and I did." That credibility is the reason we're talking in his parlor on a late summer day. Larry Summers has never been one to shy away from bold predictions, and recently he has stood out for one particular pronouncement.