Nobel laureate economist Joseph Stiglitz makes a case for Janet Yellen to head the Federal Reserve, and criticizes Larry Summers, who is President Obama’s alleged first choice, for his support of economic deregulation of the financial sector, which precipitated the 2008 recession.
The editorial board of the New York Times makes a clear and convincing case that Lawrence Summers should not be nominated as the Chair of the Federal Reserve. I couldn’t agree more. Summers has not only shown himself to be a complacent economist that relies on standard views and tactics, he has also shown a lack of leadership at both Harvard (where sexist remarks about women in the hard sciences got him ousted by outraged faculty) and on improving the economy as President Obama’s senior economic advisor.
By all accounts Summer is an arrogant jerk who is out of touch with the way the real economy works for most Americans. It’s time to put someone at the helm of the Fed who has a conscience and the social skills to help lead America to an era of prosperity that is shared not enjoyed exclusively by the wealthy and privileged classes.
Here is the full editorial from today’s New York Times:
In July, when news broke that President Obama might nominate Lawrence Summers to be the next chairman of the Federal Reserve, several Democratic senators wrote a letter to the president in praise of Janet Yellen, the current Fed vice chairwoman who many presumed would be the nominee. The letter didn’t mention Mr. Summers; rather, it recounted Ms. Yellen’s formidable qualifications and urged the president to nominate her. Perhaps it was too subtle.
Mr. Obama is expected to announce his nominee soon, and, by all accounts, Mr. Summers is still a contender. It is time for senators of both parties who appreciate the importance of this nomination to tell the president that Mr. Summers would be the wrong choice.
Mr. Summers’s reputation is replete with evidence of a temperament unsuited to lead the Fed. He is known for cooperation when he works with those he perceives as having more power than he does, and for dismissiveness toward those he perceives as less powerful. Those traits would be especially destructive at the Fed, where board members and regional bank presidents all bring their own considerable political power and intellectual heft to the Fed’s decision-making on monetary policy and financial regulation. Putting Mr. Summers in charge would risk institutional discord or worse, dysfunction.
His record on financial regulation is abysmal, and he has not acknowledged the errors. In the late 1990s, Mr. Summers was instrumental in deregulating derivatives and in repealing the Glass-Steagall banking law. He has said that the resulting financial crisis was unforeseeable, which is wrong. He waged public battles against regulators who correctly argued for regulating derivatives and disparaged the comments of a prominent economist who early on identified risks in the too-big-to-fail banking system. This is precisely the wrong background for the next Fed leader, who will take charge in the middle of the delayed rule-making for the Dodd-Frank financial reform law.
More recently, as the top economic adviser to Mr. Obama in the first term, Mr. Summers only belatedly supported reforms under the Volcker Rule to curb bank size and recklessness, a rule that still has not been put in place. Under the law, the next Fed leader is supposed to work with other regulators to dismantle big banks on the verge of failure, rather than prop them up. Given his background, Mr. Summers would be more likely to use the implicit and explicit powers of the Fed to shield and preserve the too-big-to-fail system.
Mr. Summers has also shown an indifference to the effects of economic decisions on ordinary people — the opposite of what is needed in a Fed leader at a time of high unemployment. He advised the president to support a stimulus that other economists correctly warned was too small. He resisted bankruptcy relief for underwater homeowners that would have forced banks into mortgage modifications — even as the administration spared no expense to bail out the banks.
Senators who have endorsed Ms. Yellen would do well to let Mr. Obama know, either publicly or through back channels, that their endorsement translates into a no vote for Mr. Summers.