The Wall Street Journal reports this morning that roughly a third of Senate Democrats have signed on to a letter urging Barack Obama to appoint Janet Yellen as the next chairman of the Federal Reserve. It’s being widely assumed that Obama’s first choice is Larry Summers, who is opposed by a number of progressive economists for various reasons, among them his previous support for banking deregulation. The letter is not available — nor is a list of signatories, but you can assume it’s compromised of the liberal flank of the Dem caucus — and is being closely guarded by the office of its lead author, populist Senator Sherrod Brown.
The push from Senate Democrats on behalf of Yellen — who is currently the Fed’s board of governors vice chairperson and would be the first female Fed chair — is significant, because the next chair will obviously need a lot of support among Dems. The letter doesn’t actively oppose Summers, but the groundswell of support for Yellen to replace Ben Bernanke is an implicit demand that the White House pass over him and pick her instead.
I can add that Senator Patty Murray — a key member of the Dem leadership — has signed the letter. Her office emails over this statement from her:
“Janet Yellen has impressed a lot of us in the Senate with her experience and her focus on getting workers back on the job. And she would certainly be a great, and historic, choice.”
With Senator Dick Durbin — who is also reported to have signed the letter for Yellen — that makes two members of the Senate Democratic leadership advocating on her behalf.
The arguments for Yellen — and against Summers — have already been spelled out by a number of liberals. There’s the argument that Summers was “one of the architects of getting rid of Glass-Steagall” and that “Summers is a deregulator in his bones.” There’s the argument that with Congress unlikely to strengthen financial regulations anytime soon, the next Fed chair’s role is even more crucial, and that Summers is “constitutionally hostile to the idea of reining in the free operation of the financial sector.” There’s the argument that picking Summers would undermine the populist tone Obama struck in his anti-austerity speech earlier this week, and that “any chance of the president looking like he is a fighter for the middle class on the economy will go up in smoke.”
Meanwhile, many liberals see Yellen as highly qualified for the gig. Paul Krugman, who declined to endorse either, wrote recently: “Appointing Yellen — the first woman Fed chair, and one with utterly unquestioned credentials — would be an evidently historic act. If it’s Summers, you know what everyone will bring up: his pro-deregulation stance of the 1990s.” Krugman added: “if the final choice isn’t Janet Yellen, I think the president is going to have to offer a very good explanation of why not, or face a lot of grief from people who want to think the best of his administration.”
All of that said, as Ezra Klein points out, much of the case against Summers is coming from the liberal blogosphere, and there is plenty of influential Democratic and economic opinion on Summers’ side. And Matthew Yglesias has noted (as has Krugman) that there’s no real difference between the two on monetary policy.
As for the push among Senate Dems for Yellen, the fact that this letter is being guarded with such zealous secrecy suggests that those leading this push are really trying to get results, by refraining from grandstanding and keeping up the pressure on the White House through private channels alone. Also, my understanding is that there is some worry that if liberals voice support for Yellen too openly, it will make her toxic among Republicans and make her confirmation harder. But secret or no, the fact that a third of Senate Dems is backing her should theoretically make it harder for the White House to pass her over.
UPDATE: I’ve obtained the text of the letter. You can read it below.
Also, a couple of additional points. According to a person familiar with the situation, the White House has not made a decision and probably won’t until the fall; the White House also viewed the letter as counterproductive and that some Senators said they would support Summers if he is the pick, the source adds.
Here’s the letter:
Few individuals have more influence upon the United States economy than the Chairman of the Board of Governors of the Federal Reserve System. As you make the important and difficult decision of choosing a successor to Chairman Ben Bernanke, we strongly urge you to nominate Janet Yellen to replace Chairman Bernanke. We believe that she is the best person for this job.
Governor Yellen has an impeccable resume; as an academic, as a member of the President’s Council of Economic Advisers, as Chief Executive of a Regional Federal Reserve Bank, and Vice Chair of the Board of Governors.
At a time of persistently high national unemployment, the next Chairman must focus on returning our economy to full employment. Just as you read ten constituent letters every day to remain connected to the everyday lives of American families, the next Chairman must also recognize that the unemployment numbers are, in Governor Yellen’s words, “not just statistics.” In her time on the Board, Governor Yellen has done just that.
Our nation badly needs a Chairman with a solid record as a bank regulator. Governor Yellen, as the President of the Federal Reserve Bank of San Francisco, identified the impending threats that both the housing bubble and the shadow banking sector posed to our entire economy. This prescience speaks to her independence, intellectual rigor and willingness to challenge conventional wisdom regarding deregulation — essential traits for a successful Fed Chairman.
Finally, the Board would be well served by a Chairman with significant monetary policy experience, which Governor Yellen has as a result of more than a decade of service in the Federal Reserve System. Continuity wil be another essential element of the Board’s efforts to begin to unwind the bond purchases that it has conducted to help accelerate the economic recovery. The substantial size of the Federal Reserve balance sheet, combined with the delicate state of the recovery, makes Governor Yellen’s familiarity with the Fed process and communication skills that much more important.
Simply put, Governor Yellen would be an excellent choice to serve as the next Chairman of the Board of Governors.