Peter A. Coclanis: Pride and Prejudice: Contrarian Speculation on Wall Street’s Future

Peter A. Coclanis is Albert R. Newsome Distinguished Professor of History and director of the Global Research Institute at the University of North Carolina-Chapel Hill.

It is a truth universally acknowledged that Larry Summers is really, really smart. All discussions regarding Summers start with bloodlines: He’s the son of two distinguished economists, and the nephew of not one, but two Nobel laureates in economics (Paul Samuelson and Kenneth Arrow). That said, Summers made the most of genetic good fortune, whizzing through the Massachusetts Institute of Technology and Harvard University, becoming at the age of 28 one of the youngest tenured professors in Harvard’s history. Working in a variety of fields in economics, he quickly rose to the top of the profession, and in 1993 was awarded the John Bates Clark Medal, awarded every two years by the American Economic Association to “that American economist under the age of forty who is judged to have made the most significant contribution to economic thought and knowledge.” Perhaps even more impressive is the fact that in 1987 Summers became the first social scientist to win the National Science Foundation’s Alan T. Waterman Award, made in recognition of “ the talent, creativity, and influence of a singular young researcher.”

This story isn’t intended as a paean to Summers—he hardly needs a testimonial from me—so I’ll not tarry over his long career in public service or his shorter career as president of Harvard. Suffice it to say that, all things considered, no economist in the world can match his résumé. In light of his background and achievements, it was hardly surprising that shortly after vacating the presidency at Harvard he assumed a part-time position with a financial house, in this case the D.E. Shaw investment group in New York. The surprising thing was the way he was recruited, which is what I’d like to focus on here.

First, a word or two about Shaw. Almost from the time of its establishment in 1988, D.E. Shaw has been pushing the boundaries of computational finance, in so doing, developing a reputation as perhaps the geekiest quantitative investment house in New York, a financial nerdistan populated by scores of brilliant PhDs in math, computer science, economics, and engineering. Since April 2009, when reports first surfaced that Summers pocketed over $5 million in his last year at D.E. Shaw before joining the Obama administration as director of the National Economic Council, the media, when mentioning Summers and Shaw in the same story, have seldom missed an opportunity to highlight the economist’s earnings at the firm. Louise Story’s April 6, 2009, piece in the New York Times, entitled “A Rich Education for Summers (After Harvard)” is somewhat exceptional in this regard, for she focuses as much or more on the knowledge and insights Summers gained by working in such a stimulating environment....