Summers stayed in the job for one more year, until another meeting was called, in February, 2006, at which the F.A.S. planned to take another no-confidence vote. Summers decided to announce his resignation before the meeting. He told me, “I believe the university made substantial progress in the areas I focussed on during my time as president. Where I made my mistakes was in failing to recognize the politics of the university and being insufficiently selective in taking on controversial issues.”

In one of his last major speeches at Harvard, the 2006 baccalaureate address, Summers delivered something of a cri de coeur. He started with a joke: “Class of 2006, I count myself as one of you: we all graduate from Harvard this week!” But he ended by warning the students to be ever mindful of those “threats that come from elevating the values of consensus, conformity, and comfort above the value of truth.”

Summers’s road from failure at Harvard back to the epicenter of policymaking in Washington began with a return to his strength: thinking about the economy. His new venue was a regular column in the Financial Times, which he wrote from 2006 to 2008. If his Clinton years were defined by a focus on deficit reduction and sympathy to deregulation, his pre-Obama years were defined by an interest in the consequences of globalization and warnings about bubbles and the next financial crisis. In his first column, he asked why there was such widespread disillusionment with global free trade. The most troubling reason, he wrote, was “the growing recognition that the vast global middle is not sharing the benefits of the current period of economic growth.” The columns were both a serious rethinking of issues like income inequality and a political olive branch to his critics on the left. It was part economics, part rehabilitation.

“You know the old story, the higher you are up on the ladder the farther you fall?” Stuart Eizenstat, who was Summers’s deputy at Treasury, said. “It could’ve been just a completely devastating career-ending type of experience, and, instead, he showed the courage and the fortitude to reinvent himself.” He added, “I do know that he started looking at the world in a different and broader and more comprehensive and more sensitive way.”

Jared Bernstein spent years in the think-tank world arguing the pro-labor, left side of debates with people like Rubin and Summers. (Bernstein, a former professional bass player, came to economics by a circuitous route: at about the same time that Summers was studying Raiffa and probabilistic decision-making, he was studying Ravi Shankar at Woodstock.) He told me, “I was reading Larry’s articles in the Financial Times over the past couple of years, and thought, Wow, it’s all too rare that you see the thinking of such a prominent economist move like that.”

Not everyone was convinced of the transformation: Robert Reich said, “It’s very hard for me to evaluate, because, in all honesty, I haven’t seen any evidence of it.” But Summers explained the shift this way: “You put me in the midst of an economy that is basically held back by government borrowing, and, except for that, is substantially succeeding, and I have the orientation that I had during the Clinton Administration. Stepping back and seeing where things were after the Bush years, what you saw was these large bubbles forming, pervasive inequality, everything having moved in the wrong direction on health care, on energy, on all the problems that we had tried to work on. And so when things were pretty screwed up, and the dominant thrust of the policy had been of doing nothing, the inclination was much more on the activist side. But I don’t think it’s because I changed, I think it’s because the world changed.”

In 2007, Summers started looking at the looming economic crisis. Back in 2003, he had attended a Federal Reserve conference in Jackson Hole, Wyoming, in which economists were celebrating the fact that central bankers seemed to have mastered the use of monetary policy to tame inflation without causing the economy to slip into a recession, as had happened in the past. Summers warned that perhaps the victory over inflation meant only that the next recession would be caused by some new phenomenon.

As the recent crisis started to come into focus, Summers moved closer to Rubin on the potential of complicated new financial products to be a source of systemic risk. Around that time, Summers started working with the hedge fund D. E. Shaw & Company. He told me, “I’d approached markets before as an academic and as a policymaker, but never from the perspective of someone trying to participate in them successfully.”

In the fall of 2007, his Financial Times columns took on a more urgent tone, starting with a piece on November 25th, titled “Wake Up to the Dangers of a Deepening Crisis.” There had been at least six major financial crises that affected the United States over the past twenty years: the 1987 stock-market crash, the 1990 savings-and-loan crisis, the Mexican-peso crisis, the East Asian economic crisis, the failure of Long Term Capital Management, and the tech-bubble crash. Summers had a theory that tied them together: whereas for many decades most recessions were caused by the Federal Reserve’s attempts to curb inflation, the Fed’s recent mastery of keeping inflation in check had given rise to the financial crisis. Summers explained that, just as the success in curing infectious disease will allow some people to live longer only to die of cancer, the success in battling inflation will prolong an economic expansion only to lead to overconfidence and a financial crisis.

Summers returned to his attacks on the efficient-market hypothesis. While it is true that the market is often self-correcting—for instance, the 1987 stock-market crash didn’t cause a recession—at other times, as in Asia or Mexico during the nineties, the shocks to the financial system are so pronounced that the market does not self-correct, and eventually tips the economy into recession. Summers explained that although the relationship between supply and demand is the cornerstone of a self-correcting market, in some financial crises that relationship breaks down. “If you think about a security that is bought on margin,” Summers explained during a speech early last year, “when its price goes down there are margin calls which force liquidations, and more of it is sold. So a falling price is not a stabilizing mechanism, but it is potentially a destabilizing mechanism.” He called this “the liquidation vicious cycle,” and the result can be that institutions are depleted of capital as the psychology of a bank run prevails and the value of their assets plummets.

This insight formed the basis of the Obama Administration’s understanding of the crisis, especially the debate over nationalization. The nationalizers thought that the banks were insolvent—that the toxic assets were worthless. But Summers and Geithner, though they disagreed on some aspects of the stress tests, agreed that the asset prices were simply under attack from the liquidation vicious cycle, and that recapitalizing the banks and restoring confidence would stem the panic and restore some value to the bad assets. The recession had saved Summers. It made him indispensable, especially to a young President facing an economic calamity of which very few people seemed to have any understanding.

But Obama faced a dilemma: how to exploit Summers’s intellectual energy while avoiding his managerial weaknesses. As several Obama advisers put it, Obama “wanted Larry’s brain.” Summers ended up in a contest with Geithner for the Treasury Secretary post. The two men bumped into each other at O’Hare Airport, on November 16, 2008. They sat together in an airport lounge for an hour before heading downtown for back-to-back interviews with the President-elect. “I know it’s not the conventional wisdom, but I am of the personal view that you would make a good Treasury Secretary,” Geithner joked to Summers. During his interview, Geithner, who had previously worked for Henry Kissinger’s consulting firm, Kissinger Associates, told Obama something that the former Secretary of State had once said about Summers: “They should just make Larry a permanent White House adviser to the President.”

Obama and Geithner had immediately liked each other. They have similarly serene personalities that sometimes make them seem a little detached. Obama devoted a third of the interview to asking about Geithner’s background. Like Obama, Geithner had spent part of his childhood outside the United States, and, in a quirk of history, Geithner’s father, who worked for the Ford Foundation, was responsible for funding some of Obama’s mother’s anthropological research. Afterward, Obama and Emanuel discussed the decision. “My head’s one place, my heart’s another,” Obama said. He decided that he wanted Geithner at Treasury.

Obama and Emanuel then devised a plan to bring Summers into the White House, as the head of the N.E.C. But, Emanuel told Obama, “The only way we’re going to do this is you’ve got to talk to Larry.” Obama called Summers and reminded him that the country was in the midst of an unprecedented economic crisis, and said that he needed him in the White House. He told him that he wouldn’t take no for an answer. Still, Summers said that he wanted to think about it. The next morning, he met with Emanuel for an hour in his office on Capitol Hill. By the end of the conversation, Summers had agreed to join the team. His decision surprised some. “How many former Secretaries of the Treasury would come in not as Secretary of the Treasury?” Vice-President Biden said to me. He added, “And he’s the smartest son of a bitch.”

The N.E.C. was created by President Clinton in 1993, and since then most of its directors have seen their role as that of an honest broker, whose job is to present to the President a full range of views on any given issue. That was not Summers’s obvious strong suit; he has always been interested in affecting policy with his own opinions, not acting as a passive conduit for every perspective. “It is not enough, if we are to make the world better, to sign on to processes that explore all positions but cede the hope of changing anyone’s mind,” he said in 2006. “Ultimately, for effective action, people do have to agree on some things and reject others to find dynamic ways forward.” To compensate, the White House added two innovations to its economic decision-making apparatus. The first, announced the previous November, was the President’s Economic Recovery Advisory Board, which is headed by the former Federal Reserve chairman Paul Volcker and is composed of outside economists, C.E.O.s, and labor officials. While almost all economic-policy traffic flows through the N.E.C., the PERAB reports directly to the President. In January, the White House added a half-hour meeting each morning, in which Obama is briefed by the top members of his economic team: Summers, Geithner, Romer, Orszag, and Bernstein. Obama officials said that the extra layers were intended to insure that no one person dominates the economic advice going to the President.

This system was sharply tested during the debate over the fate of G.M. and Chrysler. In mid-March, Summers and eight advisers dealing with the issue met around the conference table in his office. Summers called for a vote: who thought Obama should save Chrysler? The group was deadlocked. Four were in favor and four were against. Summers abstained, but he believed that Chrysler should get another chance at survival, especially since the Italian automaker Fiat had announced that it was willing to take over the company. Austan Goolsbee, who is both the staff director of the PERAB and one of Romer’s deputies at the C.E.A., cast the strongest of the no votes, arguing forcefully that saving Chrysler would damage the long-term prospects of G.M. and Ford, and for that reason Chrysler should be allowed to go bankrupt and be liquidated. Summers and Goolsbee had argued the issue for weeks, and the debate had become a source of friction between them.

At a morning meeting in the Oval Office on March 26th, Summers pressed Obama to make a decision. Romer told Obama of Goolsbee’s dissenting opinion, and he was brought into the meeting, which delayed the decision. “Half an hour to decide the fate of the auto industry?” Obama said, according to an account by Bloomberg News. “We need more time than this.” The group, plus several other advisers, reconvened at six o’clock in the evening. At one point, Robert Gibbs, the President’s press secretary and confidant, showed the group a map of Midwestern counties and their current levels of unemployment. He said, “We talk a lot about avoiding twenty-five-per-cent unemployment, like we had in the Great Depression, but in a lot of these places we’re already there.” When the debate was exhausted, Summers, perhaps recognizing that he had misbehaved at the morning meeting, faithfully summarized the views of everyone at the meeting, including Goolsbee. Obama asked Steven Rattner, the head of the auto task force, who had been one of the four to vote yes in Summers’s office, “What do you think the percentage likelihood is that, if we give this deal a chance, it will succeed?” Rattner didn’t make the decision any easier. “Fifty-one per cent,” he said. “But, Mr. President, in my experience, deals get worse, not better, over time.”

In the end, Obama sided with Summers over Goolsbee, but Goolsbee believes that his case against Chrysler did push Obama to impose the condition that, if the Fiat deal fell through, the government would offer no help. Over all, the episode suggests that there was enough internal dissension to make sure that the President’s options weren’t constrained. Goolsbee told me, “History has not been kind to Administrations where everybody agreed with each other and all they ever had to say was, Good idea, boss.”

So far, none of the worst fears of those who believed that the stimulus was too small or that nationalization was the only option or that taking over car companies would destroy the fabric of capitalism have materialized. Indeed, several private forecasters have credited the stimulus with blunting the impact of the recession—it probably added around three points to the G.D.P. last quarter—and the banking system has dramatically stabilized since the stress tests were completed. But competence has its limits as a source of inspiration. Paul Krugman said, “The stimulus helped, but the question is, ‘Is that enough?’ ” With unemployment at around ten per cent and still on an upward trajectory, the Administration is left arguing not that jobs are being created but that without Obama’s policies things would be worse. It’s not a very pithy slogan. And, undoubtedly, the huge government interventions laid the groundwork for the political backlash against Obama that was unleashed this past August and which has jeopardized his larger agenda on health care, global warming, and financial regulation. Obama and his team have pulled the economy back from the abyss, but they will get credit only when it has been rebuilt. ♦

*Correction, December 1, 2009: Kim B. Clark is now president of Brigham Young University—Idaho, not Brigham Young University, as originally stated.