While the common wisdom has been that dovish Fed vice chair Janet Yellen was the modest favorite to replace Ben Bernanke, the summer buzz in Washington is that the job is Larry Summers’ to lose. While that well may be, I am not sure why.
Take a recent pro-Summers Financial Times commentary by my friend Edward Luce. Luce writes that if President Obama “wants to fill the job solely on merit, Mr Summers ought to have the edge. … The most important quality is intellectual leadership – something Mr Summers would offer in greater abundance than the others.”
Yet the bulk of the piece actually makes the anti-Summers case quite well, mentioning Summers’ a) reputation as being abrasive and charmless, b) central role in the financial deregulation of the 1990s, and c) 2004 resignation as Harvard University’s president “after seeming to cast doubt on women’s aptitude for maths.” And let me add, Summers’ role as architect of the Obama fiscal stimulus plan, which GOPers see as a monstrously expensive failure.
But Luce thinks Summers’ economic IQ and “neutrality” on monetary policy would trump those negative factors.
Maybe. Maybe not. Just imagine the confirmation hearing if GOPers decide to go hard at Summers. In addition to the stimulus:
1. Tired of Team Obama portraying them as anti-women, Rs would surely bring up the Harvard controversy. A delicious turnabout for GOPers, not to mention the subtext of Obama passing over qualified women like Yellen and Christina Romer for the Fed job — perhaps the most powerful job in the world other than US president — in favor of Summers.
2. Tired of Team Obama blaming them for the Financial Crisis, Rs would surely conduct a thorough reexamination of the Clinton administration’s housing policies and their role in the collapse. Summers was at Treasury throughout the Clinton years, including serving as Treasury Secretary. And this would likely be in addition to Elizabeth Warren grilling Summers about financial deregulation. (And if Warren has any thoughts about running again Hillary Clinton, that would be a good time to demythologize Clintonomics.)
3. Republicans might also make a big deal — call it crony capitalism, call it the revolving door — of Obama appointing a former Wall Streeter (Summers made millions working at hedge fund DE Shaw) to regulate the megabanks. And this is in addition to having a banker at Treasury, Jack Lew.
4. Not sure Rs want monetary “neutrality” as much as a Fed chair to disavow the central bank’s QE policies.
Given a potentially fiery hearing, a little charm from the nominee might come in handy.
The strongest argument for Summers might be this one from Luce: “Mr Bernanke’s successor will need to reassure the markets that he or she is tough enough to raise interest rates when necessary. Much as a dovish president might feel under pressure to order air strikes, Ms Yellen’s reputation could push her to tighten too soon.”
Of course, Romer is as dovish as Yellen, if not more so — though without the reputation — and has the warm personality that Summers apparently lacks. And her knowledge of the Great Recession makes her sort of the Dem version of Bernanke. She just doesn’t come off as partisan as Summers, though certainly she would have to answer some tough questions about her time in the Obama White House.
So even if Team Obama thinks Summers the best choice on merit, his nomination potentially invites a nasty political fight that brings up all sorts of issues — from gender to the role of Clintonomics in the Financial Crisis — that Dems might wish to avoid. If Summers is confirmed, it could be by an awfully close margin, further politicizing the central bank. Could Summers really be a strong chairman and persuasive dove under that scenario? If not, what is the upside for Obama picking him?
At Politico, Ben White offers an expanded Dem defense of a Summers pick:
Here is a top Democrat making the case for Summers (and no, it’s not Summers himself or someone who reached out on his behalf): “He’d add substantial international expertise to an economic team whose depth of experience is clearly on the domestic side. In a highly connected world where economic risks are as likely to emanate from Beijing or Brussels as from Bakersfield, that’s something the White House has to consider a strength.
“With Geithner gone, Bernanke leaving, [David] Lipton at IMF and [Michael] Froman at USTR, he’s the only veteran of the financial firefights around Mexico (‘94), Asia (‘97-‘98), and the aftermath of 2008 who is ready to step up. While that world seems reasonably quiet right now, the White House doesn’t underestimate the risk of another ‘event’ in the next 3 years that could undermine the recovery. … So, LHS is a battled tested veteran who knows his way around the international financial system like no one else. Hard to discount that. As for why now, I have no idea but the White House shouldn’t let this drift into fall. Any confirmation will be tough (even Bernanke’s reappointment was harder than it should have been) and you need to give the Senate time to chew it over.”