The Fight Over The Fed: Reax


Larry Summers will not be the next chairman of the Federal Reserve. I cannot say this is a subject I feel that strongly about – except for the symbolism that Summers’ buck-raking and deregulating past conveys about the administration’s view of Wall Street. Cassidy suspects it wasn’t Summers’ decision:

Faced with this rebellion on several fronts, it’s only reasonable to speculate that the White House political shop prevailed upon the President to give up on nominating Summers, that he reluctantly agreed, and that somebody told Big Larry the news and gave him the option of withdrawing gracefully before another name was announced.

How Chait understands Summers removing his name from consideration:

Summers’s candidacy is a rare opportunity for liberals to stymie Obama without committing political suicide. Withholding their votes on legislation simply allows Republicans to prevent any bill at all from being passed – that’s why liberals never had any leverage to push bills like the stimulus or Obamacare leftward. Likewise, if liberals joined with Republicans to block contested nominees for the cabinet or other posts, it would simply help the GOP keep those posts vacant.

But Republicans aren’t willing to completely obstruct the workings of the Fed – business wouldn’t allow it. The collapse of Summers’s nomination is thus the rare case where liberal opposition can result in a more liberal outcome.

Gross’s perspective:

To a degree, Summers has been punished for the shortcomings of President Obama and Wall Street. But he’s also been punished by his own shortcomings.

Let’s be clear. Larry Summers has all the academic, professional, government and intellectual credentials and skills necessary to run the Fed. Had he been appointed and confirmed chairman, he would doubtlessly have been an excellent one. But the job is a multifaceted one. It’s not enough simply to be the smartest economist around. You have to be a consensus builder, you have to demonstrate a capacity for empathy, to take the feelings, sensitivities, fears, of all sorts of actors into consideration.

And you have to possess a certain amount of humility—or at least try to feign it from time to time.

Heh. It always helps not to be a raging asshole. Ambinder’s two cents:

As POLITICO noted, a number of Democratic Senators are circling on the anti-Summers bandwagon and have elections in 2014. The presence of an absolutely qualified and more politically palatable alternative, Janet Yellen, made their decision more easy. Yellen will face fire from Republicans, and partisan fire, which Democratic senators will relish and gain momentum from. Our politics has taken a distinctively populist turn, even if only in tone, Yellen better fits the moment. It is extraordinary that liberal pressure groups have exerted influence on the Fed chair process, but indeed they have. And perhaps it’s a good thing: Not since Paul Volcker has the position been at the center of the debate about the way forward.

Krugman thinks “it’s really, really hard to see how Obama can justify not picking Janet Yellen at this point.” Ezra sees Yellen’s strong track record a primary argument for her nomination:

If you go back to the Fed’s December 2007 transcripts — the most recent we have — you’ll find the Federal Reserve predicting that the economy would avoid recession. William Dudley, now the chairman of the Federal Reserve Bank of New York, said that “fear is diminishing, which implies less risk of a crisis developing from this source” — “this source” meaning the bad mortgages that would imperil Wall Street and the world a year later.

You’ll also find Yellen voicing a prescient note of pessimism. “The possibilities of a credit crunch developing and of the economy slipping into a recession seem all too real,” she warned. In ensuing years, Yellen pushed for the Federal Reserve to do more to combat an employment problem that she didn’t see abating — advice that Bernanke and the rest of the FOMC eventually followed, when their optimistic forecasts proved terribly wrong.

Sarah Binder thinks the administration allowed opponents of Summers too much time to organize:

[N]early three months have elapsed since the president suggested to Charlie Rose that he would not reappoint Ben Bernanke.  The extended flight of the Summers trial balloon lasted too long.  Some argue that the intervening Syria debacle emboldened the left and helped to throw a roadblock in Summer’s path to confirmation.  My hunch is that the Syria diversion mattered because it sucked all the wind out of White House efforts to recruit Senate support for Summers. More importantly, by never actually nominating Summers, the White House left his opponents in control of the confirmation contest.  Opposition groups on the left (and supportive, list-prone economists) organized their troops for battle against Summers and in defense of Janet Yellen.  The White House couldn’t publicly counter-lobby because they had no nominee to defend.   A new Catch-22: The White House refused to nominate until confirmation seemed plausible, but failure to nominate helped to put confirmation out of reach.

Greg Ip notes that monetary policy “played almost no role in the controversy” over Summers possible nomination:

Mr Summers’s critics showed little interest in his views on inflation, unemployment or how the Fed should behave in a world where its main tool, the short-term interest rate, is impotent. If they had they would have found him as dovish as Mr Bernanke or Ms Yellen, all of whom are far more preoccupied with unemployment than inflation. That is testament to the consensus in mainstream macroeconomic circles about the right stance for monetary policy now, and the durability of the framework Mr Bernanke has assembled. This suggests that, even though the search for its next chairman has turned into a circus, the Fed will be fine in the end.

Felix Salmon zooms out:

[T]he 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.

(Photo of Janet Yellen by Kathryn Scott Osler/The Denver Post via Getty Images)