No Summers At The Fed
Noam Scheiber does yeoman’s work explaining why Larry Summers would be a bad choice to head the Fed. Why?
– He’s a lousy politician and manager, given to brow-beating opponents rather than charming or negotiating with them:
While a Fed chairman can technically get his way through a seven-to-five majority of the committee—suggesting that a strong-willed, argumentative chairman should almost always be able to carry the day—in practice, the FOMC operates by consensus. A chairman who suffers more than one or two dissents on any given vote is assumed to have been pretty thoroughly refuted.
If Summers were to preside by strong-arming and browbeating those who disagreed with him—a methodology he’s been known to favor–he might score a few tactical victories. But he would risk strategic defeat—the FOMC could eventually become ungovernable. Worse, long before then, Summers’ Fed would probably lose credibility in the markets (currently seen as one of hisvirtues), since bond traders and money managers would assume that a highly divisive Fed chairman can’t make his preferred policies stick. And, of course, these assumptions would soon become self-fulfilling.
– He doesn’t have that great a track record in terms of predicting big-ticket economic events or proposing sound policy:
Yellen has a solid track record on this front. As Ezra [Klein] points out, she was early to see that the rumblings in the credit markets back in 2007 could turn into a full-blown recession. She was also an early voice within the Fed for doing more to address the country’s escalating unemployment crisis.
Summers has been prescient at times while writing from the remove of academia or the op-ed page. But, as my colleague John Judis observes, he seems to have a weakness for elite conventional wisdom once he gets into positions of power. This was true during the 1990s, when he echoed some of Alan Greenspan’s arguments for shielding derivatives from the prying eyes of regulators. And, as I reported in my book on the Obama administration, it was true in late 2008, when Summers recognized the need for a much larger stimulus than most in Washington were calling for, but nonetheless pushed for a far smaller package than necessary because he didn’t want to be laughed out of the room by Obama’s political advisers.’
– He’s overly infatuated with his own status in elite social circles:
My own view is that Summers is too fond of big shots—he’s always wanted to be part of the most exclusive club that will have him (which helps explain his close relationship with Rubin and Greenspan). In my book, I describe the pleasure he took from attending dinners with top Wall Street executives as a Treasury official in the 1990s. [fn. The dinners were the informal portion of a quarterly meeting that took place under the auspices of the Treasury Borrowing Advisory Committee, a group Treasury convened so it could discuss various technical and legal issues with the leading participants in U.S. government bond auctions.]
Scheiber also points out that for all Summers’s vaunted “man in the arena” crisis-management experience, he wasn’t actually the man in charge – the key decision-makers in the late-1990s were Rubin and Greenspan, and in the early Obama years they were Geithner (at least formally) and Bernanke.
If anything, I think Scheiber is way too easy on Summers. This point about Summers being “too fond of big shots” is quite serious. Our country continues to suffer from the effects of financialization, and the Fed has important regulatory responsibilities with respect to the banking sector. We need someone in charge who isn’t likely to be coopted by powerful people whom he wants to impress. We need someone who greets power with skepticism.
Moreover, Scheiber doesn’t mention Summers’s involvement in the rape of Russia. Nor does he go into the catastrophe of his tenure as President of Harvard, which ended with his ignominious sacking. And I’m not talking about his political incorrectness. That was more a convenient excuse for dumping him than the real reason he was canned. But even the conflict of interest business wouldn’t have sunk Summers if he had a deep base of support among the faculty, or the board, or, well, anywhere, really.
And then there’s the politics. Scheiber alludes to disappointment among feminists at how few women the President has appointed to key positions, but there are two other political strikes that are even more important, in my opinion.
First, Summers is a veteran Democratic policy hand, deeply tied to both the current and the previous Democratic administration. The presumption, therefore, will be that he will be a politically “friendly” Fed chair to the current administration – and to its possible Democratic successor. That, in itself, has political consequences, in terms of the strength of opposition from right-wing members of the board of governors and in terms of grandstanding opposition from Congress. Now, that opposition may be worth courting – if, for example, Summers were uniquely qualified, or was going to reshape the Fed in an important new direction. But Summers’s views on monetary policy are not materially different from Yellen’s or Bernanke’s. So why create a partisan conflict for no reason?
Second, Summers is a veteran Democratic policy hand, deeply tied to both the current and the previous Democratic administration. He’s already held a number of important posts. On what basis has he “earned” another one? A basis sufficient to deny a new, eminently qualified individual her turn? I don’t care much for diversity rationales for hiring to these kinds of positions, but there is some value to diversity in the sense of simply letting new people have a shot. And what kind of signal does it send about the bench strength of the Democrats on economic policy if they appoint Larry Summers . . . again?
I don’t want to suggest that I hate Larry Summers. I don’t. I think he’s a strange individual, but I agree with him about many, many policy matters, and he’s obviously a very, very smart and capable man. But he’s also a demonstrably terrible leader. Why on earth would we want him running the Fed? Or anything?
Mike Konczal makes the case for Yellen as somebody who not only has the right personality and skills, but who has been thinking about the most important questions facing the next Fed chair for some time. Meanwhile, here’s Scott Sumner declaring Larry Summer’s flatly unqualified for the job. (He thinks Yellen would be vastly better than Summers, but he also has a list of dream picks that he’d prefer to Yellen.) All together now: No Summers At The Fed!