Don’t send Summers to the Fed

By Felix Salmon
July 24, 2013

Quickly: can you name the only person to have served as both Fed chair and Treasury secretary? The answer is William Miller: he was Fed chair for 17 months in 1978-79, and Treasury secretary for another 17 months, in 1979-81. He was an unmitigated disaster as Fed chair, and his tenure at Treasury was undoubtedly more helpful to Ronald Reagan than it was to his boss, Jimmy Carter, in the 1980 election.

So I’ll say this for Larry Summers: if he is indeed going to become only the second person to hold both jobs, he will surely do better than William Miller. Still, if Obama picks Summers over Yellen, as Ezra Klein says that he’s likely to do, his choice will be enormously disappointing on many levels.

The first and most important reason for Obama to pick Yellen over Summers is that doing so would constitute a vote for the better candidate. There’s been a huge amount of commentary surrounding this choice, and it’s instructive to read all of it. Start with the pro-Yellen pieces: Bill McBride and Cardiff Garcia are particularly erudite and convincing that she has exactly what it takes to run the Fed right now.

Then, look at the pro-Summers pieces, such as they are. You’ll find much less in the way of arguments on the merits from the likes of Ed Luce and Tyler Cowen; instead, you’ll find talk about style and politics — talk which even Brad DeLong, a good friend of Summers’s, finds unconvincing.

Finally, it’s worth looking at the anti-Summers pieces, especially from Scott Sumner, although Noam Scheiber is worth reading too. (And, if you want, you can disinter a bunch of my old posts on Summers, such as this one, this one, this one, and this one.)

The upshot, from doing all that reading, is pretty clear. The arguments for Yellen are very strong; the arguments against Summers are strong; the arguments for Summers are weak; and the arguments against Yellen are all but nonexistent. (While there are lots of people who think that Summers should not be Fed chair, there’s pretty much no one who feels the same way about Yellen.)

As a result, if Obama picks Summers, it won’t be on the merits; instead, it will be on the grounds that Obama likes Summers, and is in awe of his intelligence. (Summers is, to put it mildly, not good at charming those he considers to be his inferiors, but he’s surprisingly excellent at cultivating people with real power.)

What’s more, the move would be a calculated snub to bien pensant opinion. Never mind the utter shambles that Summers made of Harvard, or the way he treated Cornel West, or his tone-deaf speech about women’s aptitude, or the pollution memo, or the Shleifer affair, or the way he shut down Brooksley Born at the CFTC, or his role in repealing Glass-Steagall, or his generally toxic combination of ego and temper — so long as POTUS likes Larry, and/or so long as Summers is good at working key Obama advisors like Geithner, Lew, and Rubin, that’s all that matters.

The choice of Summers would also be the clearest signal yet that Obama feels that he did what needed to be done to deal with the financial crisis, and that financial reform is, for the rest of his presidency, going to be a very low priority. Summers is a deregulator in his bones; he didn’t like the consumer-friendly parts of Dodd-Frank, and his actions have nearly always erred on the side of being far too friendly to Wall Street. He considers monetary policy to be largely irrelevant in a zero interest rate environment, and there is no chance whatsoever that he would take a robust leadership role with respect to the Fed’s other big job, which is regulation. If you want to repeat all of the Clinton-era mistakes of financial regulation, you can’t do better than appointing Clinton’s very own Treasury secretary.

Janet Yellen has all the makings of an excellent and prescient Fed chair — but she’s a White House outsider, and a woman. If Obama allows Yellen to be thusly disqualified, he deserves all the outraged dismay that will surely follow any Summers nomination.


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Agreed, 100%.

Posted by GRRR | Report as abusive

I think many others would make a better Fed chief than Summers. However, I think you’re being unfair in characterizing that speech on women in science as “tone-deaf”. Have you bothered to read it?

Posted by jmh530 | Report as abusive

Am I remembering correctly, or didn’t Summers also have a role in screwing various Asian countries during the crisis in the late 90s? And also the bailout of Citibank when Mexico was in trouble?

Posted by Moopheus | Report as abusive

No, wait, I think that was Rubin. Never mind. So hard to tell them apart sometimes.

Posted by Moopheus | Report as abusive

“…and/or so long as Summers is good at working key Obama advisors like Geithner, Lew, and Rubin, that’s all that matters.”

Jack Lew: from Citibank, Treasury Secretary; CHECK

But Geithner retired, right? And what does Robert Rubin do, again? Hang around like Banquo’s Ghost, to ensure the stillbirth of the new Glass-Steagall legislation?

Posted by crocodilechuck | Report as abusive

What worries me most about Summers is that I feel the biggest problem with Volcker and Greenspan (especially Greenspan) was the evolution of the Federal Reserve and its governance structures towards one with a single indispensable Leader; Bernanke, while clearly the face of the institution, has moved it to where minority views get aired and considered and occasionally eventually affect policy. I simply can’t imagine Summers cultivating that atmosphere.

(Also, you just know that he can’t go four years without saying something that, from the chairman of the federal reserve, is going to cause all markets to drop 10% and credit spreads to gap out.)

Posted by dWj | Report as abusive

Felix, in spite your clear logic regarding “if POTUS likes Summers” and also completely disregarding the pros and cons of Yellen and Summers as they are irrelevant, I bet my money
on which candidate Wall St. will want, period. I think the reasons are obvious enough without having to state them but I also venture to say that Obama is largely not his own man here. Maybe Rubin is really calling the shots, who knows, but Obama is the manchurian candidate in this decision.

Posted by Mbuna1 | Report as abusive

Larry Summers is pro-big bank, anti-regulation, an ends justifies the means kind-of-guy and arrogant. Not someone who should lead the Fed. Back in the Clinton era he was against derivative regulations, and mot recently after the housing crisis he wanted weaker under-writing of mortgages in a bid to spur housing under the guise it’s so soon after the last crisis bad under-writing won’t cause a problem so soon and would help prop up home prices.

Posted by Sechel | Report as abusive

@felix “…but she’s a White House outsider, and a woman. If Obama allows Yellen to be thusly disqualified…” WTF Felix? Sec State, Sec Commerce, Sec Labor, Sec HLS, U.N. Ambassador, and 2 Supreme Court Justices. If you think Obama wouldn’t put Yellen in as fed chair because she’s a woman then your a dork!

Posted by y2kurtus | Report as abusive

“So I’ll say this for Larry Summers: if he is indeed going to become only the second person to hold both jobs, he will surely do better than William Miller.”

If you’re offered odds, I’ll take that bet. Probably not even high odds.

Posted by klhoughton | Report as abusive

My vague memory is that Scott Sumner bet $100 that Janet Yellen wouldn’t be appointed to the Fed in his lifetime.

Now, faced with the alternative, he’s betting with his wallet, knowing that Summers would stagnate the stagnation, making his $100 loss minor compared to his possible rain (yes, that’s the spelling; it’s yellow-ish) at the Fed.

Posted by klhoughton | Report as abusive

y2kurtus – We can be certain that Dr. Summers, while he steered the White House to its 2010 midterm shellacking, assured Obama that, while women are perfectly find for touchy-feeley things like negotiating with other States (or sounding like idiots at the U.N.), the really difficult things such as the Fed require maths, and maths are hard for The Weaker Sex.

Posted by klhoughton | Report as abusive

Obama runs a boyz club. No Girlz allowed.

Posted by masaccio | Report as abusive

and Dean Baker’s convincing anti-Summers piece:  / ml

Posted by SteveHamlin | Report as abusive

Who are we kidding? Summers will be appointed because he is pro big bank and pro bailout. And that is what matters most.

Posted by MorgantownJoe | Report as abusive

SteveHamlin: thanks for that link. Guess my memory wasn’t so faulty after all.

Posted by Moopheus | Report as abusive

Summers is one of the chief architects of the financial crisis of 2007-2008 that we are still reeling from. Under his tenure the US handed over the financial markets to the hedge funds, leveraged derivative traders, and the mega Wall Street firms all the while ensuring that tax rates on them would stay low, low, low.

When I saw Obama suck up to Summers and Rubin before his inauguration, I knew his administration was going to be Clinton III. Most Democrats voted in the primaries for OBama to avoid a CLinton III, but boy were they fooled.

There is no doubt in my mind that if Summers goes to the Fed, the US will go through another financial meltdown. Maybe not in 2 years or 3, but it will come.

Posted by Acetracy | Report as abusive

I suggest Sheila Bair. Obama seems to like to appoint Republicans, she’d be a good candidate regardless of party.

Posted by Mike_SD_CA | Report as abusive

If Obama gives the Fed to Summers, it will be no surprise. Obama is now known for his bad choices.

Posted by AZreb | Report as abusive

The Chair of the Fed should not be a political appointment. The job demands multiple and sophisticated skills. As brilliant as Summers maybe – I doubt he understands banking regulation in depth – repealing Glass-Steagal in the context it was done shows this. On the other hand, while Sheila Bair knows how to assess the health of the financial system, she may not have a strong command of the tools for monetary policy. The Fed chair should be an insider, with the appropriate job training. Notice that it is not common for central banks to have that many roles in an economy. In Europe banking regulation is separated from the central bank activity, even in Britain. While Britain is not a member of the European monetary union, it follows Basel committee regulation delegates financial services regulation to the FSA. Even more reason to strengthen the importance of a career at the Fed by appointing an insider.

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