He’s back. Larry Summers is running hard to succeed Ben Bernanke as chairman of the Federal Reserve when Bernanke’s term expires in early 2014.
This is not a great idea, for three main reasons.
The first is Summers’ famous temperament. The problem is not just that he’s less than sensitive to women. It’s that he’s a bully in general, cocksure of himself, using others as foils and prevailing by controlling the agenda.
Through several turns in a career marked by falling upwards, Summers’ chief patron and sponsor, Robert Rubin, keeps assuring people that “Larry has changed.” And Larry keeps not changing. It was the bullying more than the disrespect towards women that finally got him fired as president of Harvard.
Justice Oliver Wendell Holmes, Jr. famously said of Franklin Roosevelt, “a second-rate intellect but a first rate-temperament.” Summers, with a towering intellect, is the reverse.
Interestingly, Ben Bernanke has remade the Federal Reserve into the most collegial body in its history. He has assigned individual governors to specialize in subject areas. He consults with his colleagues and encourages deliberation and consensus.
Alan Greenspan, by contrast, was a despot. The senior staff reported to him. Other governors were often out of the loop. There were deliberations on the Federal Open Market Committee, which sets monetary policy, but Greenspan ruled the roost and did the necessary horse-trading to make sure he had the votes. A Summers Fed would be Greenspan on steroids.
Under Bernanke, the regional Fed presidents have also been encouraged to speak their minds. William Dudley, president of the New York Fed, has pushed hard for more mortgage relief, influencing Bernanke’s own thinking. It was the president of the Chicago Fed, Charles Evans, who ultimately persuaded Bernanke and other governors that the central bank should target a lower unemployment rate rather than obsess about non-existent inflation—thus fulfilling the long-established but long-ignored mandate of the Humphrey Hawkins Full Employment Act of 1978.
My reporting suggests that members of the Fed’s Board of Governors and regional Fed presidents, who are thriving under Bernanke’s leadership, would be appalled to have him succeeded by the dictatorial Summers. If it were cricket for Fed officials to testify against a nomination, several would.
The other logical candidate, fittingly enough, would be the first woman chair of the Federal Reserve Board. Janet Yellen, the current Fed deputy chair, is a widely respected economist, very much a part of the Bernanke team, and an outspoken advocate of more measures to strengthen job growth and the recovery. Previously, she was president of the San Francisco Fed Bank and chair of the Council of Economic Advisers under Clinton. The Council often functioned as a counter-point to the Rubin-Summers axis at the Treasury.
The second reason why Summers would be a poor choice to lead the Fed is that his advice as Obama’s top economic policymaker was too conservative and often behind the curve. He was very much in the camp that wanted to prop up the big banks rather than clean them out and break them up. His view of the appropriate scale of stimulus spending was too low.
Bernanke, at the time, was pretty much in that camp, too. But Bernanke has shown a stunning capacity for growth, and is now the most important advocate of stronger recovery measures in Washington.
I have no idea whether Bernanke wants to step down as Fed chair and return to Princeton. If he wants to stay, President Obama should surely reappoint him. If Bernanke is up for a change, I suggested in a previous column that Obama should move Bernanke over to Treasury Secretary and move Janet Yellen up to Fed Chair.
There’s a third good reason not to appoint Summers. It would represent the continuation of the Rubin dynasty into yet another era.
Robert Rubin, a fundraiser and adviser to senior Democrats since he persuaded Walter Mondale to run on an austerity platform in 1984, is the man who brought us the deregulation, the speculation, and the conflicts of interest that crashed the economy. Yet one Rubin protégé after another continues to occupy top levels of government in a reform administration.
Jack Lew, White House Chief of Staff, was a Rubinista. Michael Froman, who holds the top economic policy job at the National Security Council, was Rubin’s assistant and later a managing director at Citi. Likewise Gene Sperling, who holds the job Rubin once held as head of the National Economic Council. Jason Furman, deputy director of the National Economic Council, ran Rubin’s Hamilton Project. Tim Geithner, the Treasury Secretary, was Rubin’s man. Obama’s former head of OMB and Rubin’s longtime ally, Peter Orszag, is now—where else—at Citi. And Larry Summers is Rubin protégé numero uno.
Interestingly too, the very best people serving in economic posts in the current administration are those who did not get their jobs through the good offices of Robert Rubin. Bernanke was originally a Bush appointee—yet he is now to the left of most of the Rubin crowd. Former FDIC Chair Sheila Bair, the scourge of the Geithner Treasury and the Wall Street barons, was also a Republican. The current independent-minded chair of the FDIC, Martin Gruenberg, was Sen. Paul Sarbanes’ chief of staff. Even Gruenberg’s Deputy, Republican Thomas Hoeing, former president of the Kansas City Fed, is tougher on Wall Street than the Rubin bunch.
In fairness, there are some recovering Rubin people who have turned into tough and principled regulators, such as Gary Gensler, chair of the Commodity Futures Trading Commission. But they are the exception.
Summers made one previous run at the chairmanship of the Fed in mid-2009. But Obama, with the financial crisis still raging and Bernanke seen as a calming presence, chose to reappoint Bernanke.
Larry Summers has a very nice gig as Charles W. Eliot Professor at Harvard. He makes some money on the side via Wall Street connections. He could do a huge public service by staying put.