Felix Salmon pointed out today that Larry Summers is now being touted as the odds-on favorite (65%, to be precise) to be Obama’s nominee as the next Fed chief. Felix stresses that Obama’s reason for favoring Summers is based on the sole criterion on which Summers could conceivably be depicted as preferable to the other widely-touted contender, Janet Yellen: he is believed to be better than Yellen would be in handling a crisis.
That said, the chances of the next Fed chair encountering a financial crisis similar to 2008-9 are pretty slim: realistically, Obama’s appointee will not have to deal with such a crisis. In order for this argument to carry water, then, you need to believe either that the job of Fed chairman is essentially a firefighter role, which has very little importance when there isn’t a crisis, or else that it is so easy enough to do the right thing as Fed chair when there isn’t a crisis that it doesn’t really matter, most of the time, whom you appoint.
This is actually the exact opposite of the truth. The actions of the Fed chair during normal times are of paramount importance…
That said, however, there’s one time that it doesn’t really matter who the Fed chair is — and that’s when you’re in the midst of a fully-blown financial crisis…when there’s a crisis, it really doesn’t matter whether you’re Ben Bernanke or Mervyn King or Jean-Claude Trichet — or Janet Yellen or Larry Summers or pretty much anybody else bar Rand Paul. The central banker’s crisis playbook is a thin document, and easy enough for anyone to master. It’s what central bankers do when there isn’t a crisis that matters, since they’re all going to do exactly the same thing when there is one.
More importantly, financial crises aren’t things which just happen, like asteroids or earthquakes. They have causes — which means that they can also be prevented. Crisis management is an important skill, and it’s one where Larry Summers has a lot of experience. But crisis prevention is the thing which really matters. Summers has demonstrated essentially zero crisis-prevention skills: his deregulatory instincts helped make the financial crisis more likely and more severe when it happened.
Lynn Parramore reminded us that Yellen is a superb candidate on the merits. For instance:
Yellen would make an excellent Fed chair because she will think about Main Street, whereas Summers is committed to Wall Street. Yellen would be much more concerned than recent Fed chairs about policies that can help put Americans back to work. Plus, unlike Summers, Yellen has shown exceptional foresight on the direction of the economy and she was never part of Team Deregulation. In fact, the Wall Street Journal recently scored 14 Fed policymakers on 700 economicpredictions they made on growth, jobs and inflation during 2009 to 2012 and concluded that “most accurate forecasts overall came from Ms. Yellen.” She is also widely considered to be a person who would be tough on banks as Fed chair, which, naturally, the banks and their allies do not like one bit.
Of course, if you are a member of the financial services industry, all those factors are compelling reasons to fight tooth and nail to stymie Yellen.
So why has Obama gotten on the Summers bandwagon (we were told his candidacy was pushed by a faction in the White House and Obama was not initially on board)? One reason may be simply that he’s a Rubinite and that that faction has the right combination of pedigree, inducements (Obama is likely to follow the Clinton post-presidential playbook of forming a foundation plus giving speeches; no point in alienating a group of your loyal backers if you don’t need to) and 5×7 glossies to be persuasive.
But it is also possible that backing Summers is a no-lose proposition for Obama. Think about it. If Obama nominates Summers (and Wall Street is exceedingly eager to have Summers rather than Yellen in), he curries favor with all the right people. There is no personal upside for him to support Yellen. So the question really isn’t whether he nominates Summers; it is how hard he goes to the mat for him. There is considerable, well-justified opposition to Summers. Most critics, like Salmon, focus on his fealty to financial firms and the near-certainty that he’ll continue to strongly favor deregulation. We’ve highlighted his disastrous his tenure as Harvard president, where he insisted on gambling with the university’s operating funds, a strategy that ultimately produced over $2 billion in losses, as well as his lack of a basic ethical compass in refusing to discipline a colleague over egregious and politically damaging mismanagement of Harvard contract in Russia).
So whether Obama really has a strong preference for Summers or not, he has every reason to sponsor him. If the opposition beats Summers back, Obama can say he gave it a good try. Recall that the less controversial Bernanke reappointment elicited considerable pushback, with five holds plus a filibuster, and Obama had to whip personally the weekend before to get the nomination through. Even then, Bernanke passed with the thinnest margin of any Fed chair ever.
A secondary cynical reason for Obama to tout Summers is the Fed nomination has become a Larry versus Janet slugfest between each candidate’s backers. If Obama puts Summers forward, the calls for Yellen will continue. If he chose Yellen, who would clearly be approved without much controversy. Any resistance in the Senate would come over the larger questions of the Fed’s role, which was a major focus of the tough battle over Bernanke’s last term (funny how the media keeps parroting the “Fed did a great job in the crisis” line, when that was not received wisdom back in 2009). So having the Fed nomination be a fight over personalities is a way of drawing attention away from the Fed’s actions during the crisis and more important, during the tepid recovery (just for starters, Bernanke calling for deficit cutting as early as 2010, even as he was continuing ZIRP and QE. If the economy was weak enough to require extraordinary monetary policy, why oppose fiscal measures, which would be more effective and produce fewer distortions? Despite the central bank’s commitment to more transparency, it’s unlikely to want to have those issues probed).
But it is likely that Paul Krugman has nailed the real reason for Obama preferring Summers: sexism. I don’t like touting gender bias as a major motivating factor in decisions on promotions and staffing. Enough are close calls that all sorts of biases come into play. Making gender a likely culprit, even when that probably played a role, is too easy to be misread as yet another out group crying “wolf”. But here, we have repeated examples of men noticing Obama’s sexism, including, ironically, Summers himself. As Dave Dayen wrote, referring to a passage in the Ron Suskind book Confidence Men:
Christina Romer, then the chair of the Council of Economic Advisers, was in a meeting with the President near the end of 2009, the time when the pivot to the deficit and away from jobs occurred. Romer argued in favor of at least a $100 billion program aimed at job creation. Peter Orszag’s view was that a small stimulus would be ineffective and that fiscal responsibility was a bigger priority. When Obama agreed with Orszag, Romer blurted out “that is oh so wrong.”
Obama snapped back, “It’s not just wrong, it’s oh so wrong?” And he launched into an uncharacteristic verbal tirade, saying that a new stimulus wasn’t going to happen. He was extremely dismissive. A few weeks later, Larry Summers brought up the exact same idea. Obama was more respectful, but still denied the pitch. Even Summers pointed out to Romer, “You know, he sure was a lot more generous to me than he was with you.”
I have the bad habit of interrupting people too freely (often to chime in) and it drives a small subset of men absolutely batshit (and it’s evident that it’s being interrupted by a woman, they seem to take it as an attack on their authority). It’s not clear exactly what Obama’s issue with women is, but there’s a lot of evidence that he has one. This section is from Confidence Men:
Friction about the roles of women in the Obama White House grew so intense during the first two years of the president’s tenure that he was forced to take steps to reassure senior women on his staff that he valued their presence and their input.
At a dinner in November 2009, several senior female aides complained directly to the president that men enjoyed greater access to him and often muscled them out of key policy discussions.
And Dayen pointed out:
Former White House communications director Anita Dunn told Suskind that the White House “actually fit all of the classic legal requirements for a genuinely hostile workplace to women.” She then denied the quote, but Suskind played the tape recording of the interview back for a reporter at WaPo, and she said exactly that.
Now Obama supposedly worked to improve how he dealt with women and showed some improvement. But Obama isn’t facing re-election, and he’s become a lot more open in his dismissiveness. Montanamaven flagged this priceless moment from Obama’s last press conference:
Q: Can you understand, though, why people might not — not trust what you’re saying right now about — (off mic) –
PRESIDENT OBAMA: No, I can’t.
And we’ve got this howler via Marcy Wheeler:
When Obama announced Friday the formation of a technical advisory group to review our SIGINT programs, I naively believed “outside” and “independent” meant “outside” and “independent.”…I also naively believed this was an effort to take up Ron Wyden and Mark Udall’s call to get an independent review of the program, which the rest of the Senate Intelligence Committee thwarted a year ago…
What on Friday was an outside and independent group is now branded by the Director of National Intelligence as the Director of National Intelligence Group…It took exactly 72 hours for that good idea to fizzle into a navel gaze directed by the guy who lies to Congress.
So Obama is exhibiting a lot less caution and finesses of late. That means we might have a decent shot at reading how keen he is about Summers, assuming Obama puts him forward for the Fed. The more pissy he gets when challenged, the more he probably really does want Summers in.
The piece has been cross-posted from The Naked Capitalism with permission.