July 28, 2013
The dog days of Summers
The recent public vetting for the next Fed Chair of Larry Summers, the brilliant former Clinton Treasury Secretary and highly controversial Harvard president is likely to end badly...for him.
As is the custom in DC, big hairy potential political candidates and appointments are usually floated by PR firms, staffers, or in the case of Summers, the candidates themselves.
Few doubt Summers' acumen. His pedigree is pristine: the son of two economists, the nephew of Econ 101 textbook legend Paul Samuelson, an MIT freshman at age 16, etc. But Summers has proven throughout his career that he does not play well with others.
He notoriously offended just about everyone with is 2005 speech in which he suggested that the under-representation of women in science and engineering could be due to a "different availability of aptitude at the high end," and less to patterns of discrimination and socialization.
Many also cite Summers' pivotal policy role preceding the sub-prime mortgage crisis in encouraging deregulation including the repeal of Glass-Steagall. He also infamously claimed that big banks were entirely capable of regulating themselves in regard to their trading in derivatives.
In 1998, then-Deputy Secretary of the Treasury Summers testified before the U.S. Congress that "the parties to these kinds of contracts are largely sophisticated financial institutions that would appear to be eminently capable of protecting themselves from fraud and counter-party insolvencies."
However, the best reason not to confirm Summers is because there's a much better candidate: current Fed Vice Chair Janet Yellen. In addition to her vast leadership experience as Chair of the Clinton's Council of Economic Advisors and President of the San Francisco Fed, Yellen is, like Bernanke, a dove on monetary policy.
In order to fulfill the Fed's dual mandate of price stability and full employment, she would willingly sacrifice some inflation for more jobs. With an unemployment rates at stubbornly high levels, and with inflation exceptionally low, this appears to be the best route to a sustainable, growing economy.
Finally, from a political point of view, by nominating Yellen, President Obama sustains a Fed policy that seems to be working, gets credit for naming America's first woman Fed chair, and doesn't give his detractors another reason to pile on.
So ignore the hype, turn off CNBC, and welcome to the dog days of Summers.
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