In November, former Treasury secretary Larry Summers took the podium at the International Monetary Fund's annual conference and delivered a speech that shook the economics world. The weak recovery, he hypothesized, isn't just the hangover from the financial crisis. It's evidence of a sickness that predated the crisis. Looking back over the last decade, he argued that the economy, even in the seemingly good times, has been incapable of creating enough demand absent bubbles or extraordinary stimulus. And that problem is getting worse by the day.
Fun fact: Short-term unemployment is actually lower than it was in 2007. Indeed, the percentage of the labor force that had been unemployed for five weeks or less didn't grow all that much during the economic meltdown.
What changed was what happened after or within those five weeks. In 2007, they typically ended with a job. In 2009 and 2010, they more often ended with another few weeks of unemployment. The result is that if you break down the unemployment rate by duration, the problem appears to be almost entirely about long-term unemployment:
Larry Summers’s campaign to replace Federal Reserve Chairman Ben Bernanke wasn’t doomed by any of the typical doubts about a potential Fed chief. Senate Democrats weren’t worried that Summers was too tolerant of inflation or insufficiently committed to quantitative easing. In fact, they weren’t worried about his opinions on monetary policy at all.
All summer, the hot debate in economic policy circles was over whether Larry Summers or Janet Yellen would be nominated to be the next chairman of the Federal Reserve. That all ended with Summers's withdrawal from consideration on Sunday. It appears Yellen is now the front-runner for the job, and the White House has signaled it is not reopening the search to consider other options (and former Treasury secretary Tim Geithner has made it amply known that he is not interested).
Since news broke Sunday afternoon that Larry Summers has taken himself out of the running to lead the Federal Reserve, the reaction in financial markets can only be described as elation.
The Standard & Poor's 500 index opened Monday morning up 0.9 percent, and the Dow Jones industrial average up 155 points. Bond markets rallied, as well, with 10-year interest rates falling from around 2.9 percent Friday to 2.79 percent Monday morning, and the dollar fell against other currencies.
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Something very strange has been happening during President Obama's second term. It's called dissent. And, unusually for a chief executive, Obama is letting it -- even inviting it -- to get in his way.
Larry Summers, the brilliant-but-polarizing former treasury secretary who had been the front-runner to be the next chairman of the Federal Reserve, has pulled out. Here is Summers's letter to the president.
His decision comes after several days in which the political winds were shifting firmly against Summers. Four Democrats of the 12 on the Senate Banking Committee had signaled opposition to confirming Summers, making his eventual confirmation for the job questionable. (Read more here on the mounting opposition to a Summers nomination last week).
This time a week ago, the nomination of Larry Summers to be the next chairman of the Federal Reserve seemed like a near-certainty. The signals out of the White House were that the president had largely made up his mind and that the administration was biding its time on the details of a rollout. Now, it is becoming clearer the type of fight President Obama will face, including within his own party, if he moves forward.
Here’s a tip for listening to Larry Summers if he becomes Federal Reserve chairman: You can’t always believe what he says. At least not literally. It’s not that he’s untruthful. It’s that if he raises a concern, or asks what seems like a loaded question, you can’t infer that he favors a specific course of action. He loves to think out loud, ponder every side of a question.
With it looking increasingly likely that Larry Summers will be the next Fed chairman, there’s been a lot of concern that he hasn’t said all that much about monetary policy, and what he has said has sounded a bit hawkish. That scares investors who are already worried about the Fed beginning the long process of winding down the extraordinary support it’s given to the economy in recent years.
We are at a strange, jittery moment for the U.S. economy. We’re all, essentially, like a car on a winding road about to turn a bend with no idea whether it’s a nice, smooth road ahead or a perilous mountain climb. Here are the reasons to think that it may be a rocky next few months.
Syria could spiral in who knows what direction. The violence in Syria is escalating, and Western powers appear on the verge of air strikes. The turbulence has already driven oil prices up on global markets, and it is quite uncertain where things go from here. Almost no one is predicting a peaceful end to the civil war in the forseeable future; the best that people worrying about the U.S. economy can hope is that it remains contained to Syria and doesn’t spill out into something more disruptive across the Middle East.
At this point, Larry Summers isn’t just the favorite for Federal Reserve chairman. He’s the overwhelming favorite. Unless something truly unexpected shows up in the vetting process (a paid toast at Bashar al-Assad’s birthday party, for example) or the administration comes to believe Senate Democrats will revolt against a Summers nomination, he’s going to get the job.
No, you’re not imagining it. The very public battle over who will be the next chairman of the Federal Reserve is louder and uglier than any in history. The question now is what it will all mean for the person who ends up in the job--and the institution he or she leads.
There’s no question that the volume has been turned up to 11 on the debate over whether Larry Summers, the controversial former treasury secretary or Fed vice-chair Janet Yellen or another candidate should guide U.S. monetary policy for the next four years. There are the dueling op-eds over who ought to be in the job. The New York Times editorial board strongly endorsed Yellen; some quick searching of the paper’s archives suggests it has never before made such an endorsement before a Fed chair was even nominated. So did Bette Midler. Just yesterday, Richard Trumka, the head of the AFL-CIO, came out in favor of Yellen as well.
Another day, another sign that Larry Summers will get the Fed job. The latest smoke signal went to CNBC's John Harwood, who reports that "a source from Team Obama told CNBC that Larry Summers will likely be named chairman of the Federal Reserve in a few weeks though he is 'still being vetted' so it might take a little longer."
It's a quietly voiced frustration among current and former central bankers that the candidate best qualified to lead the Federal Reserve isn't even being considered by the Obama administration.
The upcoming selection of a new chairman of the Federal Reserve is being cast as a three-way race, in the sense that President Obama mentioned exactly three names in discussing the choice with Congressional Democrats: Larry Summers, Janet Yellen and Donald Kohn. Beyond them, the dark-horse candidates include Roger Ferguson and Alan Blinder.
Many of the economic advisers whom President Obama consults with favor Larry Summers to be the next chair of the Federal Reserve. But what is it, exactly, that they have against Janet Yellen, the current No. 2 leader of the central bank?
In the course of reporting the profile that Ylan Mui and I wrote of Yellen (it ran over the weekend. Read it!) I came across aspects of the vice chairwoman's style and experience that help explain why Obama's inner circle of economic advisers has little apparent enthusiasm for her as Fed chief. Our sources were primarily people who have worked with Yellen at various stages of her career, and they overwhelmingly spoke favorably of her intellect, diligence and approach to leadership. But there are some aspects of how she operates that are different from the qualities that Obama insiders favor.
Business Week has an interactive graphic that purports to show the "seesaw" that is the Fed Chair choice:
Picture the choice of the next Federal Reserve chair as a seesaw. Some influential Wall Street types with Democratic ties, including Steven Rattner and Roger Altman, are sitting on former Treasury Secretary Larry Summers's side of the teeter-totter. Fed Vice Chair Janet Yellen has strong support among women and Summers haters. The person with the power to tip the seesaw, President Barack Obama, is sitting right in the middle—for now.
Janet Yellen called the housing bust and has been mostly right on jobs. Does she have what it takes to lead the Fed?
When Janet Yellen jumped from academia to the Federal Reserve Board, she seemed like a new breed at the buttoned-up central bank — eating lunch with staff in the cafeteria and debating ideas like she was back in the faculty lounge.
Nearly two decades later, Yellen still carries the air of a scholar, applying a rigorous theoretical approach to America's economic challenges, particularly unemployment. She is less experienced in the fast-moving world of high finance, or making knife's edge decisions in the midst of a crisis.
We've heard from economists and lawmakers of the left and right, and before too long we'll hear who President Obama thinks should be the next chairman of the Federal Reserve. But what does Bette Midler think?
On Monday, the world finally learned, as the Divine Miss M shared her opinions of leading candidate Larry Summers on Twitter. She does not care for him!
In his news conference Friday afternoon, President Obama discussed the biggest decision in economic policy he has coming up -- who to appoint as chairman of the Federal Reserve. Larry Summers? Janet Yellen? Don Kohn or another dark horse candidate? Here's how to interpret the president's answer, based on a detailed parsing.
President Obama may or may not have been subconsciously tipping his hand on the race to be the next Fed chair when he referred to Fed vice chair Janet Yellen — widely considered a leading contender for the top job — as "Mr. Yellen." But this is as good an occasion as any to point out that the real Mr. Yellen — Ms. Yellen's husband, George Akerlof — is actually a pretty interesting guy, and a very accomplished academic economist in his own right.
Deputy Treasury Secretary Larry Summers was a little over halfway into his testimony in July 1998 when he acknowledged the degree to which his actions undermined the independence of the Commodity Futures Trading Commission (CFTC).
As Summers told a Senate committee, referencing his conflict with Brooksley Born over regulating derivatives: "We understood the seriousness of making this proposal. To question an independent agency's concept of its jurisdiction and then to propose legislation that would temporarily curtail that agency's ability to act is not something we do lightly. We concluded, however, that such legislation was necessary."
We've heard a lot of arguments in the last two weeks about the relative merits of Janet Yellen and Larry Summers to be the next Fed chairman. It is the first time I can remember that the public and private discussions have been so open, which in general would be a good thing, particularly for an institution so steeped in a kind of "Holy-of-Holies" secrecy such as the Fed has been. What is less attractive is that it has now turned into something more like a political campaign.
On Sept. 11, 2001, Roger Ferguson, the mild-mannered vice chairman of the Federal Reserve, found himself unexpectedly asked to play the role of first responder in what could've been a global financial meltdown.
The World Trade Center housed some of the world's most important banks and investment firms, and the terrorist attacks left southern Manhattan, the nation's financial capital, in physical ruin. If the nation's banking system were to freeze up, then the economic damage from the attacks also could have been monstrous.
In weighing the possible appointment of Larry Summers to be chairman of the Federal Reserve, analysts have found his views on what would be his main job in that role —setting U.S. monetary policy — to be hard to parse. Summers has weighed in only vaguely and rarely on the subject. And those digging for more information have even gone back to things that Summers said in 1991 to try to project his current views!
In a meeting with Democrats on Capitol Hill on Wednesday, President Obama reportedly mentioned three, and only three, names in discussing his job to select a nominee to lead the Federal Reserve. The relative merits of Larry Summers and Janet Yellen have been widely discussed. Less so the third name: Donald L. Kohn.
There's a problem with reporting on the Fed chair race: Janet Yellen's supporters will talk on the record. Larry Summers's supporters, by and large, won't.
That's in part because his key supporters are concentrated in and around the Obama administration, and they stay out of the media almost as a matter of course. But their reticence has led to a real imbalance in the debate. The case for Yellen is clear, and made often. Here, most recently, is Alan Blinder's persuasive salvo. The case for Summers is largely being made behind closed doors — though in the rooms that really matter.
One thing that's become clear as the Fed race has heated up is that the White House feels much, much closer to Larry Summers than it does to Janet Yellen. That's no surprise. Yellen never served in the Obama administration, whereas Summers ran the National Economic Council for two years. But a glance at the White House visitors' logs reveals that even since Summers left, there is a big divide in who's getting invited to 1600 Penn Ave. Yellen has visited exactly once, on Nov. 18, 2011. Summers, by contrast, has visited 15 times since leaving the NEC:
Larry Summers is among the most prominent public intellectuals on economic topics of our age. He writes columns for the Financial Times, testifies before Congress, and gives speeches before all sorts of groups. Want to hear the Summers take on fiscal policy? Trade? Education? Poverty reduction? He'll talk about them all day long.
As President Obama selects a new chairperson for the Federal Reserve, he will also be deciding whether he wishes to maintain the Bernanke approach to managing the nations' central bank or to seek a new direction.
Within FedWorld — those who work within the Federal Reserve system both in Washington and in a dozen reserve banks around the country — there is a sense of wariness at the possibility that past Treasury secretary Larry Summers could be their next boss, current and former officials said. The other leading candidate, Fed vice chairwoman Janet Yellen, can also be a demanding taskmaster, they said, though as a long veteran of the institution they view her as more likely to continue Bernanke's collegial manner of dealing with the sprawling, 18,000-employee system.
As far as I can tell, there's almost no one in the economics blogosphere who wants to see Larry Summers named as Ben Bernanke's replacement. The bulk of opinion ranges from relative indifference between the two candidates ("as we know there's no real daylight between Yellen and Summers") to extremely strong anti-Summers opinions ("Larry Summers will destroy the economy") -- with much of the latter being driven by Summers's record on financial regulation. Tyler Cowen is almost alone in holding up the pro-Summers end of the argument.
The president's decision on whom to nominate to be the next Federal Reserve chair increasingly appears to be coming down to Larry Summers and Janet Yellen. Ezra describes well what appears to be the state of play here: The president, or at least the people close to him, are leaning toward Summers, but are in the midst of assessing just how stiff the blowback will be if the polarizing former treasury secretary gets the nod.
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I think a fair summation of the state of play on the Federal Reserve right now is:
The word among Federal Reserve watchers right now is that the choice is down to Janet Yellen or Larry Summers as Ben Bernanke's replacement. I can't find anyone who really thinks it'll be Roger Ferguson, Tim Geithner, Alan Blinder, or some other dark horse.
People dismissed Summers's chances a month or two ago, but he's increasingly viewed as the leading candidate today -- and opinions on this, for reasons I don't fully understand (though I suspect have to do with a bunch of elite trial balloons going up at the same time), have really hardened in the last 72 hours. So after conversations with plugged-in sources both inside and outside the process, here's what's behind the changing odds:
Sooner rather than later, President Obama is going to announce his pick to replace Ben Bernanke as Federal Reserve chairman (and yes, Bernanke's almost certainly on his way out). As of April, Neil put Fed vice chairperson Janet Yellen as the frontrunner, while earlier this week, Politico's Ben White and Patrick Reis reported that Larry Summers is the White House favorite for the job. The Wall Street Journal's Damien Paletta reported that Summers wants the gig, which Bloomberg's Hans Nichols confirmed. It's all a lot to decode.
There are two articles in this morning's papers that contain useful information for predicting who will be the next chairman of the Federal Reserve, one a Wall Street Journal article about Larry Summers's potential interest in the job, the other a Financial Times article about Tim Geithner's six-figure lecture fees. But parsing those stories isn't as obvious as it might seem. The headline on the Journal story, for example, is "Summers Circles as Fed Opening Looms." You are forgiven if it seems unclear to you what that actually means.
It won't shock longtime readers that I'm in a rather continuous state of dismay over the workings of the modern Congress. Larry Summers, the famed economist and former director of the National Economics Council, is calmer. In a recent article, he argued that the problems of gridlock are substantially overstated. We spoke Monday evening, and a lightly edited transcript of our conversation follows.
Every August, central bankers from across the globe, who collectively pull the levers of the world economy, descend on Grand Teton National Park in Wyoming. They enjoy a symposium of big economic ideas and strenuous afternoon hikes. At one of their dinners a few years ago, Federal Reserve Chairman Ben S. Bernanke looked around at some fellow titans of finance.
If you want to pass a deficit reduction plan, you might want to give the task to one set of experts whose ideas would get more notice than your garden variety think-tank white paper: President Bill Clinton's former Treasury staff. So that's exactly what the Center for American Progress has done.
On Tuesday, CAP unveiled a tax reform plan written by a rogue's gallery of Clinton vets, including former treasury secretaries Robert Rubin and Larry Summers, deputy treasury secretary Roger Altman, White House chief of staff John Podesta, commerce secretary Bill Daley and others. Summers and Daley, as well as report co-author and CAP president Neera Tanden, all held high-ranking posts in the Obama administration.
The economic policy memo that Larry Summers sent to Barack Obama in December 2008, and that the New Yorker’s Ryan Lizza has posted in full, is the ur-text for the Obama administration. It contains the economic team’s first thoughts on almost everything the White House would go on to do. It is, without doubt, the most authoritative guide we have to the way President Obama’s first, and arguably most crucial, decisions were framed by his key policy staffers. And it has reopened an old question about the Obama administration: Were the president’s advisers pushing him to do more or less?
Christina Romer had traveled to Chicago to perform an unpleasant task: she needed to scare her new boss. David Axelrod, Barack Obama’s top political adviser, had been very clear about that. He thought the president-elect needed to know exactly what he would be walking into when he took the oath of office in January. But it fell to Romer to deliver the bad news.
So Romer, a preternaturally cheerful economist whose expertise on the Great Depression made her an obvious choice to head the Council of Economic Advisers, gathered her tables and her charts and, on a snowy day in mid-December, sat down to explain to the next President of the United States of America exactly what sort of mess he was inheriting.
Axelrod had warned her against pulling her punches, and so she didn’t. It was not a pleasant presentation to sit through. Afterward, Austan Goolsbee, Obama’s friend from Chicago and Romer’s successor, remarked that “that must be the worst briefing any president-elect has ever had.”
But Romer wasn’t trying to be alarmist. Her numbers were based, at least in part, on everybody else’s numbers: There were models from forecasting firms such as Macroeconomic Advisers and Moody’s Analytics. There were preliminary data pouring in from the Bureau of Labor Statistics, the Bureau of Economic Analysis and the Federal Reserve. Romer’s predictions were more pessimistic than the consensus, but not by much.
By that point, the shape of the crisis was clear: The housing bubble had burst, and it was taking the banks that held the loans, and the households that did the borrowing, down with it. Romer estimated that the damage would be about $2 trillion over the next two years and recommended a $1.2 trillion stimulus plan. The political team balked at that price tag, but with the support of Larry Summers, the former Treasury secretary who would soon lead the National Economic Council, she persuaded the administration to support an $800 billion plan.
The next challenge was to persuade Congress. There had never been a stimulus that big, and there hadn’t been many financial crises this severe. So how to estimate precisely what a dollar of infrastructure spending or small-business relief would do when let loose into the economy under these unusual conditions? Romer was asked to calculate how many jobs a stimulus might create. Jared Bernstein, a labor economist who would be working out of Vice President Biden’s office, was assigned to join the effort.
Romer and Bernstein gathered data from the Federal Reserve, from Mark Zandi at Moody’s, from anywhere they could think of. The incoming administration loved their report and wanted to release it publicly. Romer took it home over Christmas to double-check, rewrite and pick over. At 6 a.m. Jan. 10, just days before Obama would be sworn in as president, his transition team lifted the embargo on “The Job Impact of the American Recovery and Reinvestment Act.” It was a smash hit.
“It will be a joy to argue policy with an administration that provides comprehensible, honest reports,” enthused columnist Paul Krugman in the New York Times.
There was only one problem: It was wrong.
Jacob Weisberg isn’t a big fan of Ron Suskind’s new book, nor, for that matter, of Ron Suskind. I’ve also been reading ‘The Confidence Men,’ and like Weisberg, I’m not impressed, but for a very different reason. Let’s call it, as Suskind does, the Larry Summers problem.
“It all boils down to the classic Larry Summers problem,” writes Suskind at one point. “He can frame arguments with such force and conviction that people think he knows more than he does. Instead of looking at a record pockmarked with bad decisions, people see his extemporaneous brilliance and let themselves be dazzled. Summers’s long career has come to look, more and more, like one long demonstration of the difference between wisdom and smarts.”