The Federal Reserve may not be the center of the solar system, but it is a key inflection point in American politics and, through its interest rate policies, can have a profound impact on the nation’s economy. The Fed chairman’s pronouncements, for better or worse, affect the stock market and, quickly thereafter, the value of our 401K’s. Consider, for example, Alan Greenspan’s indifference to and then warning of “irrational exuberance” during the market bubbles of the 1990’s or, more recently, Ben Bernanke’s musings that interest rates could soon be on the rise.
So it’s of no small concern that President Obama would be seriously considering putting the famously intemperate and egoistical Larry Summers at the Fed’s helm. (Disclosure: years ago, early in Summers’ presidential tenure at Harvard, a University official asked me about coaching Summers in his communication skills, but we never got together because, I was told, he didn’t think he needed it.)
Zachary Karabell, an economic trends analyst writing in The Atlantic, says that who leads the Fed “may be less important than we think” because the Fed is but one, albeit an important one, of several institutions around the world who affect the global economy. For example, while Bernanke has used “quantitative easing” as a way to energize the slow economic recovery and create jobs, so, too, have many other banks, including the Central European Bank. But, even if the Fed is not alone in shaping global economic policy, the wisdom, skills, tone and temperament of the Fed chief matter. On that score, though I have never met her, I am impressed by what I read about Janet Yellen, former head of the Federal Reserve Bank of San Francisco and now the Fed’s vice chair.
The Wall Street Journal has written about her leadership in understanding and forecasting the economy. In her 20 years at the Fed, she is credited with being right on the major issues of the day, including the housing bubble and the credit crunch. Business writer Matthew O’Brien says that supporters of Larry Summers are saying Yellen lacks gravitas, which seems an oblique way of saying she lacks the anatomical construct that Summers has.
In her 20 years at the Fed, Yellen has impressive credentials in central banking and has earned a reputation for being soft-spoken but persuasive, grounding her arguments in academic research and demonstrating what the late Nobel Prize-winning Yale economist James Tobin called “a genius for expressing complicated arguments simply and clearly.” (A stark contrast to the remark attributed to former Fed chief Alan Greenspan, “I guess I should warn you, if I turn out to be particularly clear, you’ve probably misunderstood what I’ve said.”)
Summers, while President of Harvard University, had a reputation for walking all over people, especially women, of whom he once famously said, they didn’t reach the top realms of science because of “issues of intrinsic aptitude.” In his book The Confidence Men, Ron Suskind argues basically that Economic Affairs Council director Summers ( whose style Suskind likens to Richard Nixon’s or Dick Cheney’s) was the reason that the first Obama White House was so dysfunctional. Summers, he said, had to “control the show.” and “lead by fiat.” Summers may be a brilliant man, but shouldn’t consensus building leadership be part of the Fed job requirement?
At the end of the day, my objection to Summers is less because of his temperament or misogynous instincts, than because he has been on the wrong side of major economic decisions and one of the parties who helped usher in the crash of 2008. Part of Clinton’s holy trinity at Treasury (with Wall St. insiders Bob Rubin and Tim Geitner), he pushed to repeal Glass-Steagall, designed to control financial risk, and to not regulate derivatives (advice Clinton now admits he was wrong to take). Later, in Obama I, Summers savaged his successor at CEA, Christina Romer, on the stimulus, dissed Paul Volker’s advice concerning financial re-regulation and sided with Geitner to protect their laissez- faire pals .
President Obama’s decision could come by the end of the summer. According to the Financial Times, he complained to the Democratic caucus that Summers has become a whipping boy for progressives. If this is part of the progressive critique of Summers, so be it, though conservatives make similar arguments. (The American Conservative.)
Naming Summers to head the Fed is too big a price to pay for soothing Summers’ feelings. The President was rolled by Summers before. His being fooled again seems too big a price for the American public. Here’s hoping that, if nominated, the Senate will not confirm him.
I welcome your comments in the section below.