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A Summers Lament

A Summers Lament

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So Larry Summers has withdrawn from consideration as the next Federal Reserve chairman when Ben Bernanke steps down. Those who have vociferously championed Janet Yellen, who is now odds-on favourite to take the job, will no doubt greet this news with cheers. Yet I can’t help thinking that the manner in which the discussion has been conducted has rather sullied the process and focussed attention away from substantive debates about policy.

Now I know from painful experience that articles about monetary policy aren’t exactly link-bait. It can be hard to get all but the devoted few enthusiastic about base rates, quantitative easing and overnight reverse repurchase agreement facilities. As such it’s understandable that personalities are almost always a more appealing talking point than the intricacies of policymaking.

That said, the vitriol of the anti-Summers campaign both in the press and by Democrats in the Senate has been unprecedented. In many cases (though not all) it was little more than character assassination dressed up as analysis. Summers was accused variously of being cantankerous, arrogant, an architect of the crisis, rampantly anti bank regulation and a squanderer of college endowments. In all this precious little was said of his obvious qualifications for the job and the respect (if not affection) that he enjoys in policymaking and academic circles alike.

Perhaps in less interesting times ignoring these would be fine. As Adam Posen notably put it, during normal growth cycles monetary policymakers can expect to enjoy “well-deserved technocratic obscurity”. Except that the intricacies of policy are extremely important right now both for the US recovery and beyond as the Fed looks to begin its long exit strategy from unconventional measures. And one of the best qualified candidates to lead that effort felt compelled to pull out of the race. As he wrote in a letter to the president explaining his decision:

"Any possible confirmation process for me would be acrimonious and would not serve the interests of the Federal Reserve, the administration, or ultimately, the interests of the nation’s ongoing recovery."

It is my sincere hope that Summers’ withdrawal allows people to get back to discussing policy again as the Fed faces one of its most challenging moments since the onset of the crisis. As for its next leader I have no doubt that whoever is finally picked will be eminently qualified – but it is to be lamented that future candidates may now be less willing to step into the fray as a consequence of the treatment that he received.

 

Further Reading

Brad DeLong – A Slight Preference for Larry Summers To Be Federal Reserve Chair 

Bloomberg – Summers Quit Fed Quest After Democrats Spurned Obama Favorite

Izzy Kaminska – The all you can eat collateral buffet


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Fandom aside only economists seem to think the economy Summers had a hand in shaping was something academic to study and with positives and negatives to take forward. For the 90% of us with falling incomes, ZIRP, grim pension prospects and nothing non bubble/non returning to invest in it's a bit more important than that.

I note you don't try to refute the attacks on Summers merely to smear over them with saying they were vitriolic and complaining they should be like the BBC and add oh but he did do this and that. The world does not work that way and this is just a further reflection of the weakness and frankly lack of political acumen of the POTUS.

"Except that the intricacies of policy are extremely important right now both for the US recovery and beyond as the Fed looks to begin its long exit strategy from unconventional measures. And one of the best qualified candidates to lead that effort felt compelled to pull out of the race."

Yes, the Fed has engaged in unconventional policies that need to be unwound. But you're off the mark on what that involves. The Fed needs to start taking its role as a regulator a lot more seriously, and Summers was far from the most qualified candidate to lead the effort necessary to change the Fed's "lets just provide liquidity and shut up" culture.

Indeed Summers is an impressive academic, but his shortfalls were significant and not to be downplayed. He was simply not one one of the best qualified to replace Bernanke. One of the biggest issues was that Greenspan established a laissez-fair dual-mandate fallacy culture at the Fed, which Bernanke began to change, and which Larry Summers threatened had he been the successor.

The policy intricacies here require someone who is willing to embrace heterodox economists like Minsky, to talk openly about regulatory issues and financial instability, or who believed that the fiscal stimulus response (ARRA) should have been much larger. Candidates like Yellen Stiglitz, or Romer are far more appropriate in this regard.

Summers' fingerprints are all over the mismanagement of the response to the financial crisis as well as the deregulatory groundwork laid to enable it. His defeat thanks in part to vast popular rejection of the man, is a victory for democracy and for hopes of ending this crisis sooner rather than later.

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