I have a dog in the Summers-Yellen Federal Reserve Chair contest: a slight preference for Larry. But it is only a very small and friendly dog: Janet would be superb.
The key point, I think, is that either Larry or Janet would be much better than other short-list candidates who either (a) do not really believe in the dual mandate in their heart-of-hearts (or) have not really marked their beliefs about the structure of the economy to market over the past six years and so do not understand how depressed and vulnerable the economy is. Getting either Summers or Yellen into the chair strikes me as a very good thing.
And this is why I am anxious: it seems to me that Democratic left beliefs that a Ferguson on a Kohn or a third Bernanke term are much better than Summers because Summers is a monetary hawk or a tool of Wall Street are simply wrong, and may lead to a counterproductive outcome either in a non-optimal choice of chair or in the Obama administration tacking to the non-technocratic right in order to get Republican votes for confirmation.
The president has great respect for his former senior economic adviser – and still consults him regularly. Mr Obama also appears to get a kick out of asking Congress to do things that it does not want to do. For these reasons--and his considerable credentials--Mr Summers remains my favourite to be Fed nominee. But Summers’ sceptics are right about his narrowing chances of getting confirmed by the Senate… and also right that the left of the Democratic party is Mr Summers’ biggest problem. Put simply he would need to convince Elizabeth Warren, the Democratic senator from Massachusetts, and chief Wall Street critic, that he sees the world more like she does nowadays….
Doubts about whether he is as dovish as Janet Yellen, his chief rival for the job, are probably wrong and almost certainly irrelevant… those who claim Mr Summers is a monetary hawk ignore all the evidence pointing the other way. Mr Summers believes in the Fed’s dual mandate to aim for full employment as well as low inflation. On the merits of stimulus, he has no clear differences with Ms Yellen. Neither see the bogey of inflation on the horizon. Moreover, polls show Wall Street executives would prefer a Yellen nomination, which hardly suggests they see Mr Summers as bought and paid for….
During the first few weeks of the Obama administration he was alone among the president’s advisers in arguing for bank nationalisation. He did not change minds. But the idea that he would be at the beck and call of JPMorgan’s Jamie Dimon or Goldman Sachs’ Lloyd Blankfein, is at odds with this.
Nor is it fair to say that Mr Summers is instinctively against all regulations. He opposed the Volcker rule… but he is in favour of much stricter leverage ratios… [which] would reduce the banks’ return on equity--a bigger curb on profitability than anything else that has been proposed. It is safe to say Mr Dimon disagrees on that, too. Mr Summers’ real bias is his tendency to dismiss smaller regulations as self-defeating. He prefers big and simple to complex and gameable….
A Summers nomination would only succeed if Mr Obama could convince Democrats it was about something bigger than paying a debt to a former adviser…. The White House would probably base its plan on winning over enough Senate Republicans to make up for the growing number of Democrats who are defecting. That would mean reassuring Wall Street. It may well be Mr Summers’ best numerical route to confirmation. But it would be a mistake. On the fifth anniversary of the collapse of Lehman Brothers, it is clear that the systemic faults that opened up in 2008 are still there. It is also plain that the 2010 Dodd-Frank reform was only a downpayment on the more serious rethinking about financial bubbles that needs to happen.