The internal deliberations over the next Fed chairman have never been so publicly discussed as the current ones. Larry Summers is the bête noir, ironically, of the left and mistrusted by the right as entirely politicized, which is understandable for a White House adviser but unacceptable in a Fed chairman.
Liberals see him as too tepid, a Clinton redux instead of a true-blue Keynesian ready to endorse the left’s economic philosophy and do what it takes to defend and sustain Obama’s economic policies. Some liberals consider him to be an obnoxious chauvinist to boot. But the president plainly wants a politicized chairman who is going to get the Obama crew through the next couple of years without another recession. Moreover, he may rightly figure that it is better to have Summers in office than out trashing the White House’s policies.
Hence, President Obama felt compelled to defend him to House and Senate Democrats. The Wall Street Journal reports:
President Barack Obama on Wednesday tried to beat back criticism of one of his former top economic advisers, Lawrence Summers, from congressional Democrats who don’t want to see him get the top job at the Federal Reserve. . . . Some liberals worry that Mr. Summers, who now serves as a paid consultant to several major financial institutions, is too close to the banks that the Fed helps regulate and is insufficiently supportive of the looser monetary policies that the Fed has adopted to try to boost the economy.
Mr. Summers has been criticized on other fronts. He resigned in 2006 as president of Harvard University, where he is now a professor, after controversies that included comments suggesting that innate differences between the genders may explain a lack of women excelling in science and engineering. In Washington, he grabbed headlines for his clashes with other White House economic
advisers and his role in shaping the government’s response to the recession.
At a time when Obama’s base is unenthusiastic about him and the prospect of a poor turnout in 2014 looms large, the president seems hesitant to rile up the left.
Then there is Fed VP Janet Yellen. She’s seen as the favorite of the left, as the New York Times editorial board made clear:
What has changed in the past week is that the power dynamics around economic policy-making have become more public than normal. Mr. [Robert] Rubin and his circle — including Mr. Summers; Timothy Geithner, Mr. Obama’s first Treasury secretary; and Gene Sperling, currently a top economic adviser to the president — have dominated economic decisions in both the Clinton and Obama administrations. Most of them were also prominent in Wall Street circles in the George W. Bush years. In the wake of the financial crisis and the Dodd-Frank reform law, the Fed chairmanship has only become more central to the fate of the banks and economy; as a result, they want someone who shares their background and can be counted on to further their views.
Ms. Yellen is not that person, not only, or even mainly, because of policy differences but because she is not part of the fraternity. Indeed, she is reminiscent of other accomplished women with whom Mr. Summers, or his supporters, or both have tangled in the past.
If that seems like political cheerleading for the “independent” Fed, it is. The left wants no more Clinton — it is slowing down the administration in its final dash to the left.
Yellen will please Summers’s gender critics and the liberal punditocracy, but she is no political flunky. Unlike the political conniver Summers, she is unlikely to, as one conservative economist put it, “salute” and give the White House whatever assurances it needs that she’ll throw caution to the winds in order to keep the administration afloat during the remainder of its tenure.
The monetary judgments of Summers and Yellen, in fact, may not differ all that much. But the symbolism is significant for Democrats, and the degree to which the ostensibly apolitical Fed chairman is willing to step out of the Fed role to do battle with the right may be significant.
Republicans can enjoy a brief interlude in which the Democratic left and center battle it out. It’s certainly a preview of things to come in 2016. The GOP would be wise to remain mute for now. Never interfere when your opponent is struggling. It is noteworthy how heavily the left is relying on the Fed, an implicit understanding that Obama’s fiscal policies are no formula for a revived economy.
When the nomination is made, Senate Republicans should vigorously interrogate the nominee to determine what assurances have been given to the White House and whether Ben Bernanke’s successor agrees that the punch bowl will have to be gradually pulled away.