Opinion

Felix Salmon

Summers over

By Felix Salmon
September 15, 2013

David Wessel has the scoop: Larry Summers has bowed to reality and is withdrawing from consideration as Fed chair. His last-minute attempt to distance himself from Citigroup was far too little, far too late: with Democratic opposition in the Senate only getting harder, it was at this point more likely than not that any Summers nomination would actually fail to get through Congress.

Michael Hirsh’s anti-Summers National Journal cover story landed on the desks of everybody who matters in Washington at the end of the week, and it had its intended effect: no matter how much the White House wanted Summers to get the job, those pesky Constitutional checks and balances would conspire to ensure that it would never be his.

This is extremely good news, of course. Summers was the wrong man for the job, and his withdrawal leaves the door wide open for the best-qualified candidate, Janet Yellen, to step into the chairmanship. Summers simply shouldn’t be a leader of any major institution: he’s too cocksure, too abrasive. He failed at Harvard; since then, his metier has been that of consigliere: quietly (or not so quietly) whispering in the ear of real leaders like David Shaw or Barack Obama. He’s good at that. But Summers has tasted real power, first at Treasury and then at Harvard, and is young enough, and ambitious enough, to want to relive the experience.

It’s not going to happen — not at any major public institution, in any case. Summers didn’t become Treasury secretary, when Obama first took office; he didn’t become the head of the World Bank; and he has now failed twice to become Fed chair. That’s it: four strikes, and he’s done. He is now free to make many millions of dollars in the private sector — or, rather, to continue to make many millions of dollars in the private sector, since he’s a prime example of a man who revolves straight into highly-paid consultancies the minute he leaves government.

The presumptive-nominee status of Yellen will leave a bad taste in many White House sources’ mouths — they’ve been quietly briefing against her for months, and the unedifying spectacle of seeing the Fed chairmanship turn into a horse race has done her no particular favors. Obama should know, however, that if he nominates any man whatsoever for the job, the howls from women will be heard very loudly indeed.

The real lesson of the past few months, however, is that the Fed chairmanship should never become a political football. If Obama wanted to nominate Summers, he should have just done so, rather than raising a trial balloon in July and then letting it slowly deflate. Both Alan Greenspan and Ben Bernanke were nominated by a Republican and then re-nominated by a Democrat: that above-politics status is exactly as it should be. I hope that Washington will learn from this debacle, and that if the Republican candidate wins the next presidential election, he or she will feel free to re-nominate Janet Yellen. That would be the sign we all need that the Fed chair is a technocratic position, not a political one.

Comments
10 comments so far | RSS Comments RSS

When the FED is the Fourth Branch of Government then it is and should be political.
Private sector profits should bit rule over the rights of the people to control their government and their lives.

Posted by Kyung | Report as abusive
 

You sir are an idiot. Think about it….. citing political reasons to support rejecting Larry Summers for Fed Chair because it should be an apolitical position.

Posted by Jake987 | Report as abusive
 

A few things.

Firstly, I’ll put my cards on the table that I would prefer a Janet Yellen nomination, just based on the amount of time she’s spent accruing relevant experience and her prescient dovish advocacy. The only concern I have about her is age, since she’s 67 and a Republican successor could use that excuse when deciding not to reappoint. For that reason, then, I would suggest appointing Christy Romer as a close second, as she’s 54 has experience working directly alongside Summers and Obama as the leader of the Council of Economic Advisers, and is a specialist in macroeconomics and how the FOMC sets monetary policy. (Of course, I’d also be happy with a Romer appointment in 2022 under a second term Clinton administration.)

Secondly, I would suggest that you [Felix] tone down your advocacy. Many of us would like Janet Yellen to advance to FOMC chair, but if it becomes a matter of shrilly denigrating Summers while advocating Yellen, Obama and the people in the White House may wisely back off Summers only to choose someone else. The Syria retreat was a surprise, but it’s not necessarily the prerogative of this administration to buckle to outside pressure. They like knowing they’re right and not being coerced into action, so Obama may well decide not to “cede power” to outside activists when he decides to pick Don Kohn. I think this is an important suggestion because of how the World Bank selection process went down, and I’ve seen you go to the mattresses only to be disappointed.

Thirdly, I want to take issue with the idea that the FOMC is above politics. It’s not really true. There is politics everywhere, and when we say “above politics”, we are usually acceding to the fact that someone lost and everyone agrees with the new regime. This, of course, is the motivated reasoning powering the McConnell strategy of opposition to all things Obama: recognize that it very well could have worked even better than it has. I mean, with fierce opposition, Republicans battled the recovery down to 95% for the rich and their own health care bill from the 1990s. That’s a win. The Supreme Court is “above politics”, yet Republicans have been lucky enough to turn it from activist liberal to activist conservative and have appointed more judges to all courts as well as more extreme conservatives to replace outgoing Dem appointments or ideologically moderate Republicans.

In this case, a FOMC that is “above politics” means Democrats rolling over to ratify Republican values and desires. And that’s neither right nor above politics, since Republicans don’t do it. The Fed is tasked to maintain stable prices in an economy with maximal employment and moderate long-term interest rates. We haven’t been targeting maximal employment since the 1970s, save for a brief period in the late 1990s. To the extent that political independence means the Federal Reserve does not make monetary policy to benefit or harm certain politicians or parties and does not better the economy more during election years, I approve of an independent central bank. But to the extent that the actual policies of the Federal Reserve ignore the realities and material situations of 300 million Americans to cater to the whims and preferences of the richest few million Americans who are likely to have more money tied up in the Federal Reserve System, I cannot countenance so-called “political independence”. If the Fed and its chairman can’t deliver on the dual mandate, the president ought to appoint people who can. I recognize that Republican presidents may not agree, but if that’s the case they should prevail upon the American people to eliminate the full employment part of the dual mandate rather than deliberately appoint derelict Fed governors (paging Greenspan …)

Posted by SadPaulRyan | Report as abusive
 

A few things.

Firstly, I’ll put my cards on the table that I would prefer a Janet Yellen nomination, just based on the amount of time she’s spent accruing relevant experience and her prescient dovish advocacy. The only concern I have about her is age, since she’s 67 and a Republican successor could use that excuse when deciding not to reappoint. For that reason, then, I would suggest appointing Christy Romer as a close second, as she’s 54 has experience working directly alongside Summers and Obama as the leader of the Council of Economic Advisers, and is a specialist in macroeconomics and how the FOMC sets monetary policy. (Of course, I’d also be happy with a Romer appointment in 2022 under a second term Clinton administration.)

Secondly, I would suggest that you [Felix] tone down your advocacy. Many of us would like Janet Yellen to advance to FOMC chair, but if it becomes a matter of shrilly denigrating Summers while advocating Yellen, Obama and the people in the White House may wisely back off Summers only to choose someone else. The Syria retreat was a surprise, but it’s not necessarily the prerogative of this administration to buckle to outside pressure. They like knowing they’re right and not being coerced into action, so Obama may well decide not to “cede power” to outside activists when he decides to pick Don Kohn. I think this is an important suggestion because of how the World Bank selection process went down, and I’ve seen you go to the mattresses only to be disappointed.

Thirdly, I want to take issue with the idea that the FOMC is above politics. It’s not really true. There is politics everywhere, and when we say “above politics”, we are usually acceding to the fact that someone lost and everyone agrees with the new regime. This, of course, is the motivated reasoning powering the McConnell strategy of opposition to all things Obama: recognize that it very well could have worked even better than it has. I mean, with fierce opposition, Republicans battled the recovery down to 95% for the rich and their own health care bill from the 1990s. That’s a win. The Supreme Court is “above politics”, yet Republicans have been lucky enough to turn it from activist liberal to activist conservative and have appointed more judges to all courts as well as more extreme conservatives to replace outgoing Dem appointments or ideologically moderate Republicans.

In this case, a FOMC that is “above politics” means Democrats rolling over to ratify Republican values and desires. And that’s neither right nor above politics, since Republicans don’t do it. The Fed is tasked to maintain stable prices in an economy with maximal employment and moderate long-term interest rates. We haven’t been targeting maximal employment since the 1970s, save for a brief period in the late 1990s. To the extent that political independence means the Federal Reserve does not make monetary policy to benefit or harm certain politicians or parties and does not better the economy more during election years, I approve of an independent central bank. But to the extent that the actual policies of the Federal Reserve ignore the realities and material situations of 300 million Americans to cater to the whims and preferences of the richest few million Americans who are likely to have more money tied up in the Federal Reserve System, I cannot countenance so-called “political independence”. If the Fed and its chairman can’t deliver on the dual mandate, the president ought to appoint people who can. I recognize that Republican presidents may not agree, but if that’s the case they should prevail upon the American people to eliminate the full employment part of the dual mandate rather than deliberately appoint derelict Fed governors (paging Greenspan …)

Posted by SadPaulRyan | Report as abusive
 

“I hope that Washington will learn from this debacle, and that if the Republican candidate wins the next presidential election, he or she will feel free to re-nominate Janet Yellen.” Ha! They’ll likely nominate Rick Perry.

Posted by markclose | Report as abusive
 

Apt title that! Took a couple of seconds to sink in…:)

Posted by DG_TOR | Report as abusive
 

Jake987, He linked to a FT Alphaville post that provides economic policy reasons describing Yellen’s superiority for the position.

Posted by NeuroN | Report as abusive
 

President Obama’s vacillating leadership style is one of the most troubling legacies of this brawl. As you correctly point out, it was marked by uncertainty and doubt. This lack of conviction invites further challenges and attacks.

Posted by eric20008 | Report as abusive
 

Felix, name one Republican who could plausibly win their party’s nomination, who you can confidently assert would not politicize the $&*$% out of any and all nominations he could lay hands on.

Come on. These are the people who, before the ink was dry on the Supreme Court’s evisceration of the Voting Rights Act, were out drafting new and improved voter suppression laws. Like Fidesz in Hungary, they’ll do basically anything to consolidate power. The only way they’re going to change is by being vanquished so thoroughly that either some kind of sane wing can come back in and get power over the party again, or some new party replaces them entirely. (Libertarians? New Whigs? or maybe the Greens rise on the left and the Dems become the center-right party so many of them seem to want to be anyhow?) We’re nowhere near getting to that point yet, though, and it’s not going to happen in the next ten years. I could believe twenty, but not less.

Posted by Auros | Report as abusive
 

Summers was wrong fro the job agreed. But Yellen? Gender aside the record of the fed through the crisis has been one of abject failure.

The choice between summers and an insider is startlingly poor.

Surely there were better choices?

Posted by Urban_Guerilla | Report as abusive
 

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