Just shoot me

Here’s some depressing news from the well-connected Ezra Klein:

People dismissed Summers’s chances a month or two ago, but he’s increasingly viewed as the leading candidate today — and opinions on this, for reasons I don’t fully understand (though I suspect have to do with a bunch of elite trial balloons going up at the same time), have really hardened in the last 72 hours.

People I respect like Matt Yglesias and Tyler Cowen don’t seem to have a big problem with Summers, but with all due respect I don’t think they’d paid close enough attention to his appalling record on monetary policy over the past 5 years.  In addition to his written comments, the evidence suggests that he failed to tell Obama how critical it was to have people at the Fed who would adopt a more expansionary monetary policy.

I’ve often argued that macroeconomists as a group caused the Great Recession.  Obviously “macroeconomists” is a vague term, but there are real flesh and blood individuals on both the left and the right who failed to forcefully advocate monetary policies that would lead to an appropriate level of AD.  Summers was one of the most important.

Amazingly, there isn’t even any discussion of Romer.

PS.  I do understand that the train may have already left the station on the Evan’s Rule, and that the choice may not make a huge difference in the short run.  But don’t we want to have a competent leader there for the next crisis?  These guys tend to stay in the position for a long time.  We are probably moving toward a world where the zero bound occurs much more often.  Do we really want to replace a guy who thinks the Fed can control AD at the zero bound, with someone that doesn’t?  I’m in a state of shock.

HT:  TravisV


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26 Responses to “Just shoot me”

  1. Gravatar of Justin Irving Justin Irving
    23. July 2013 at 17:39

    I don’t understand this love of Summers on the left. Have they forgotten why he was run out of Harvard? So many better candidates in the Democrats’ camp…

  2. Gravatar of Mark_H Mark_H
    23. July 2013 at 18:11

    Political life really does irreversibly warp brilliant minds. Imagine how much better off the average person would be if Chicago and the likes of DeLong, Summers, & Krugman weren’t taken over by their respective political machines.

  3. Gravatar of Benjamin Cole Benjamin Cole
    23. July 2013 at 19:50

    Summers for Fed chief? Well, just a couple letters off.

    You mean Sumner, don’t you?

    One aspect about Summers: He seems to change jobs a lot. Hot-headed. Antsy. He might stay in as long as everyone thinks.

  4. Gravatar of TallDave TallDave
    23. July 2013 at 19:58

    That’s a good point, there will be more crises, and the Fed response matters a lot.

    But from Obama’s POV he is best served by someone who will reliably complain about the Republicans’ fiscal policies, and that’s why Summers is a good pick. As with every appointment in this admin, governance is a distant to politicking. The Fed is already wading into social engineering with the MBS purchases, look for ever-murkier relationships between the fiscal and the monetary.

    All that said, I think Summers would not be anywhere near as bad as anyone President Rick Perry would have considered. Romney might have figured out NGDPLT by now, but I don’t have a lot of hope in anyone else. It’s weird, as much as I agree with Rand Paul on almost everything else, he would be one of the worst on monetary policy.

  5. Gravatar of Steve Steve
    23. July 2013 at 22:22

    I have visions of the future President Marco Rubio complaining about tight money while Larry Summers retorts that Rubio isn’t enlarging the government fast enough and monetary policy isn’t effective due to a shortage of safe assets, or something.

    I suppose it will be entertaining listening to Summers talk to Congress about the need for self-financing fiscal stimulus, only to have the regional fed presidents give speeches on the need for austerity the following day. If you think the Fed’s message is dissonant now, just you wait.

  6. Gravatar of Vivian Darkbloom Vivian Darkbloom
    23. July 2013 at 23:49

    ” In addition to his written comments, the evidence suggests that he failed to tell Obama how critical it was to have people at the Fed who would adopt a more expansionary monetary policy.”

    I agree. Obama left two vacancies open on the Federal Reserve Board (and indirectly the FOMC) for quite some time.

    But, doesn’t the above-referenced quote cut against the idea that the choice of the Federal Reserve Board Chairmanship is a total game changer? If Bernanke really controlled US monetary policy, those vacancies really wouldn’t matter.

    All the media talk about Greenspan, Bernanke and now Summers et al suggests that the Chairman is dictator of American monetary policy. While the Chairman has a vote and is the public face of the Board and the FOMC, I suspect that in reality the Chairman’s clout may be overstated.

    Federal Reserve Board Members are appointed for a 14 year term and, like federal judges, they are pretty difficult to remove. The Chairman might have some ability to persuade and form consensus in these collegiate bodies, but in practice, it appears that the Chairman’s publicly stated views might be as much shaped by the need to be consistent with the consensus of members than are the views and votes of other members shaped by the desire to be consistent with the Chairman.

    Unlike the President, the Chairman has no veto power. And, unlike the Speaker of the House, there is no power to “persuade” by withholding or granting committee assignments and/or campaign funds. In this respect, the Chairman seems to be more of an equal among many than most other government department leaders. And yet, the media and the public tend to treat the Chairman as if he’s the God of Monetary Policy and the US economy.

    Summers (watch that spelling!) would appear to be a bad choice for Chairman; however, I would be interested to hear just exactly which powers folks believe Summers (or anyone else) would have to overrule the decisions of the other members of the Board and Open Market Committee.

  7. Gravatar of Vivian Darkbloom Vivian Darkbloom
    24. July 2013 at 00:02

    I should have mentioned in the prior comment that, of course, unlike the Board members, the Chairman is appointed only to a four-year term. That appointment can be renewed; however, only if elected officials deem that appropriate. While the Chairman is nominally independent during his or her term, I’m sure that most are desirous of pleasing those for which re-appointment is dependent (the President and the Senate).

  8. Gravatar of Captain Captain
    24. July 2013 at 00:32

    Larry Summers enormous ego makes him a good pick. While at Treasury he probably did not want to believe his actions could be neutralised (accommodated) by the Fed, and acted accordingly. (“Forget about the Fed Barack they’ve shot their wad…”) But as Fed chief… he’ll pour scorn on those who doubt his power to control the US economy and shape expectations accordingly across the Fed, markets and administration. His awful nature makes him the right man for the job, a moderate personality like Ben Bernanke’s wasn’t a good fit. It runs against mid-west sensibilities but nice guys (run economies that) finish last…

  9. Gravatar of Scott Wentland Scott Wentland
    24. July 2013 at 00:56

    Scott, I think you have good reason to be optimistic. I think your view about the role of macroeconomists (more generally) in determining monetary policy should subdue your frustration with the Fed Chair speculation.

    If the next Fed Chair will be strongly influenced by the median macroeconomist, then the particular selection of Fed Chair may not matter quite as much as most people think. Like Bernanke, his/her views on monetary policy would shift more in line with the “mainstream macroeconomist” view du jour once he/she takes the helm.

    Market monetarists have shifted the median economist view, and continue to shape young economists’ views in a big way. The speculation that really matters is not who the next Fed Chairman will/should be, it’s what the median macroeconomist’s view will be a few years from now.

  10. Gravatar of Saturos Saturos
    24. July 2013 at 04:44

    Europe is doing better: http://au.businessinsider.com/european-recession-ending-2013-7

  11. Gravatar of Scott Sumner Scott Sumner
    24. July 2013 at 05:08

    Vivian and Scott, Those are good points. I do often argue that the real problem is the consensus view of US economists. That view is wrong, but the Fed tends to follow the consensus.

    Captain, I think the markets believed Bernanke.

  12. Gravatar of Scott Sumner Scott Sumner
    24. July 2013 at 05:11

    Saturos, I hope that’s right, but it’s fairly weak evidence. On the bottom graph I see two false alarms, almost as big. I don’t have strong views either way.

  13. Gravatar of James in London James in London
    24. July 2013 at 05:38

    Saturos

    Better wait and see, as:
    1, The weather has just taken a dramatic turn for the better in Europe, just in time for the proper (long) holiday season.

    2. The whole, non-US, world has breathed a huge sigh of relief that China’s PBOC has not followed through on its tight money policy after the shock treatment it delivered in late-June. Money market rates are now almost back down to normal.

  14. Gravatar of marcus nunes marcus nunes
    24. July 2013 at 06:02

    Saturos
    Joe Wisenthal shows excess optimism:
    http://thefaintofheart.wordpress.com/2013/07/24/jeffrey-frankels-recession-take/

  15. Gravatar of SG SG
    24. July 2013 at 06:04

    Why not Christy Romer? She’s an Obama insider who actually knows something about monetary policy, and I’m sure she’d be more gung-ho about regulation than LARRY FREAKING SUMMERS.

    She’s also the only mainstream economist I trust. No offense, Scott :D

  16. Gravatar of Bad prospects: Larry Summers becoming Fed Chairman | Historinhas Bad prospects: Larry Summers becoming Fed Chairman | Historinhas
    24. July 2013 at 06:30

    [...] Scott Sumner vented frustration. And he´s right. Obama appointed 6 of the 7 Fed Governors and for quite some time up to 3 vacant slots remained unfilled, and this at a time that monetary policy could have done wonders to the economic recovery, So it hurts to read from Ezra Klein that: [...]

  17. Gravatar of J J
    24. July 2013 at 09:17

    It’s hard not to see Krugman as partially responsible for the complacency of the Obama administration toward picking a good Fed chairperson.

  18. Gravatar of Geoff Geoff
    24. July 2013 at 16:25

    Believer in NGDPLT = Brilliant, enlightened, adequate, satisfactory, qualified for the job Fed chair.

    Non-believer in NGDPLT = Stupid, ignorant, inadequate, unsatisfactory, not qualified for the job of Fed chair.

    Can we stop playing this game of disinterested criteria judging already?

  19. Gravatar of Full Employment Hawk Full Employment Hawk
    24. July 2013 at 22:14

    “and that the choice may not make a huge difference in the short run”

    Yellen is much more likely to engage in expansionary monetary policy, both to offset the very contractionary fiscal policy, that is likely, under Republican political pressure, to get even more contractionary, and to restore the economy to full employment than Summers. So with Summers we are likely to be stuck with a higher unemployment rate than with Yellen. This will both hurt the economy and will hurt Obama politically, so that by appointing Summers, Obama will be shooting himself in the foot again.

    Perhaps the best hope for stopping Summers is the feminists, who are opposed to him for gender politics rasons. If they make a big enough stink, Obama may back off. If they put pressure on him to break the glass ceiling and appoint Yellen, so much the better. I have already signed one petition against the appointment of Summers issed by a feminist site. So GO FEMINISTS, block that appointment!

  20. Gravatar of Choosing a Fed chair: what does the literature say? | Basil Halperin Choosing a Fed chair: what does the literature say? | Basil Halperin
    25. July 2013 at 03:50

    [...] is also a major point against Summers, who, as Scott Sumner points out, failed to push for aggressive monetary expansion during the recession despite being a [...]

  21. Gravatar of Wonkbook: The White House wants Summers for the Fed. But will they actually choose him? Wonkbook: The White House wants Summers for the Fed. But will they actually choose him?
    25. July 2013 at 04:26

    [...] Summers’s critics. I don’t know if the blowback (see Noam Scheiber, Felix Salmon, Scott Sumner, Dave Dayen, Senator Jeff Merkley, etc) is more or less than the White House expected. But [...]

  22. Gravatar of J J
    25. July 2013 at 08:04

    Geoff,

    You said: “Believer in NGDPLT = Brilliant, enlightened, adequate, satisfactory, qualified for the job Fed chair.

    Non-believer in NGDPLT = Stupid, ignorant, inadequate, unsatisfactory, not qualified for the job of Fed chair.

    Can we stop playing this game of disinterested criteria judging already?”

    Don’t you do the same thing except replace Fed chair with economist and replace NGDPLT with free banking and austrian policies in general?

  23. Gravatar of Randy Randy
    25. July 2013 at 08:33

    I’m not shocked at all Romer has been left off. Doesn’t sound like she left the White House on the best of terms since she was marginalized by Summers and Obama.

  24. Gravatar of TheMoneyIllusion » President Obama is not pretending that monetary policy doesn’t exist TheMoneyIllusion » President Obama is not pretending that monetary policy doesn’t exist
    25. July 2013 at 12:16

    [...] of mobilizing Summers’s critics. I don’t know if the blowback (see Noam Scheiber, Felix Salmon, Scott Sumner, Dave Dayen, Senator Jeff Merkley, etc) is more or less than the White House expected. But [...]

  25. Gravatar of Geoff Geoff
    4. August 2013 at 20:08

    J:

    “Don’t you do the same thing except replace Fed chair with economist and replace NGDPLT with free banking and austrian policies in general?”

    So you agree that

    Believer in NGDPLT = Brilliant, enlightened, adequate, satisfactory, qualified for the job Fed chair.

    Non-believer in NGDPLT = Stupid, ignorant, inadequate, unsatisfactory, not qualified for the job of Fed chair.

    ?

    Neat.

    To answer your question, I don’t want any “economist” in charge, and I don’t want any “policy”. I don’t see how you can make the “you’re a hypocrite” response work on this one.

  26. Gravatar of Skepticlawyer » Why monetarist victory is necessary: so central banks cannot hide Skepticlawyer » Why monetarist victory is necessary: so central banks cannot hide
    14. June 2014 at 15:10

    […] very reasonable hypothesis that central banks (particularly the US Federal Reserve) tend to follow the macroeconomic consensus of the mainstream economics profession, this means the debate […]

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