Does the Fed chair need to be an expert on monetary policy?
Mark Sadowski left the following comment:
I found something which may be of interest.
Larry Summers and John Taylor debated the implications of federal economic policy on April 4, 2012 as part of an event hosted by the Stanford Institute for Economic Policy Research (SIEPR). This was the second of two debates, after a February meeting by the pair at Harvard. They addressed the topic “Are Government Interventions an Important Cause of Our Recent Economic Problems?”
The video of the debate can be found here:
http://www.youtube.com/watch?v=fb8dO_D2b60
At the 16:30 minutes in you will find Summers saying the following during his introductory remarks:
“I will leave the question of monetary policy to John [Taylor] where he is an expert. I don’t think the question of whether the Fed was wise or was unwise during the noughts bears on the question of whether government caused our problems. The Fed’s job is to set monetary policy and it may or may not have done the right job. But I will speak to the question of fiscal policy in the wake of the crisis.”
Now ask yourself the following question; is someone who doesn’t consider himself knowledgeable enough to debate monetary policy qualified to be placed in charge of the monetary policy of the most important currency area on earth?
Let’s start with the assumption that Summers might have been just being polite, or modest. (No sarcasm please.) So I won’t take any cheap shots. But there is a more serious question; how much expertise does the Fed chair need? Here’s my answer:
1. When not at the zero bound literally anyone could be Fed chair, even a janitor. The staff will tell you when to raise and lower interest rates, and the Taylor Rule will keep things pretty stable.
2. When at the zero bound we have one of two choices:
a. NGDP futures targeting.
b. Spend whatever it takes to hire the very best monetary economists. Not just for the chair, but all 12 members of the FOMC. Nobody should have any expertise in regulation, as that means they haven’t devoted their entire life to monetary economics. Put regulators in other branches of the Fed–the bank regulation department. Maybe Summers should head that group.
Paul Krugman once said something to the effect that “sometimes I feel like I’m the only one who understands liquidity traps” (not exact words) That sent a chill down my spine, as I suddenly realized that I’m just as arrogant as Krugman. So maybe there are only two people who understand liquidity traps, not enough to staff the FOMC.
Of course I’m kidding, but I seriously believe there are a relatively small number of qualified people (and I’m not one of them, for unrelated reasons.) I see Summers as a “tweener,” wildly overqualified for being Fed chairman during normal times, and not really qualified to handle the zero bound. We don’t want a Fed Chairman who says; “not much the Fed can do at the zero bound, so let’s rely on fiscal policy.” Congress isn’t likely to do anywhere near enough stimulus to make a difference. And recall the recent Romer and Romer paper that shows that all three major Fed failures were due to a belief that the Fed was powerless to stop the depression/inflation.
I think Summers would have done less QE than Bernanke, and I think he would have been overly anxious to “normalize” interest rates, although perhaps not as prematurely as Trichet.
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26. July 2013 at 14:07
Why does he covet the job?
26. July 2013 at 14:19
Probably for the sheer power and prestige. It’s the most powerful economic policy job in the world. If Summers is actually as much of an egomaniac as he seems to be then perhaps his view that the Fed is mostly out of ammunition at the ZLB will change when he himself is put in charge of the Fed. After all, he wouldn’t want to be in charge of an impotent body. Regardless, let’s hope we don’t have to find out.
26. July 2013 at 14:50
Michael,
You wrote:
“Why does he covet the job?”
Well, it’s obviously not because he has an overwhelming passion for monetary policy. Remember all the things he wrote and said during the past few years on how to improve U.S. monetary policy?
(Crickets chirping.)
Neither do I.
I think the key to answering that question is to ask yourself why Summers quit his job as Director of the National Economic Council (NEC) in the middle of Obama’s first term, which by most accounts was a rather unusual thing to do. Evidently it was getting harder and harder for Summers to squeeze his monumental ego and insatiable lust for power into the confines of what he considered to be a tiny little White House staff position:
http://www.theatlantic.com/politics/archive/2010/04/yes-larry-summers-is-leaving/38555/
April 6, 2010
Yes, Larry Summers is Leaving
By Joshua Green
“…I think Summers is going to leave sooner rather than later, possibly before the mid-term elections, and if not then, soon afterward.
Why? Because Summers is frustrated by his role, and his colleagues are clearly frustrated with him. Alexis Simendinger had a devastating item in last week’s National Journal suggesting that Summers’s “legendary self-regard” and “ego the size of the national debt” had gotten out of control. Some of Summers’s frustration no doubt stems from his wanting to be Treasury secretary. When that plum went to Geithner, Summers cast his eye on the Fed chairmanship and agreed to bide his time until Ben Bernanke’s term ended at the NEC–a staff position well below his old job as Clinton’s Treasury secretary. Most administration officials tactfully avoid pointing this out, because Summers has a fragile ego. But that’s why Joe Biden is so great. “How many former Secretaries of the Treasury would come in not as Secretary of the Treasury?” Biden blurted out to the New Yorker’s Ryan Lizza last fall.
But Summers didn’t get the Fed job either. Apparently that didn’t sit well. Administration insiders told Simendinger that Summers demanded a series of perks as compensation, including cabinet status, golf dates with the president, and a personal car and driver. In the “No Drama” Obama administration, such behavior stands out. And it isn’t the first time Summers has been the target of leaks. Last June, only a few months into the administration, Jackie Calmes of the New York Times ran a Summers-focused piece on “tensions” in the economic team. A little later, Al Hunt wrote a column suggesting Obama was frustrated with Summers’s poor coordination of the economic team. I heard the same thing from several sources, one of whom groused about the time spent “cleaning up Larry’s messes.”
Summers always seemed a bad fit for NEC director because the job entails dispassionately presenting the president with the counsel of his competing economic advisers. Summers doesn’t do “dispassionate” and he didn’t want to limit himself to fielding others’ advice–he had plenty of his own to offer. In other words, he was supposed to be the referee, but he also wanted to play power forward. This rankled other members of the economic team, including Austan Goolsbee, Christina Romer, and Peter Orszag, enough that they’re widely presumed to be the sources of many of the leaks. Summers’s tendency toward bureaucratic infighting was another problem. As Jonathan Alter lays out in his forthcoming book, “The Promise,” Summers maneuvered to sideline people like Paul Volcker, Joe Stiglitz, and even Orszag, behavior more characteristic of the Clinton administration than the Obama administration. Alter also reveals that Obama’s nickname for Summers is “Dr. Kevorkian,” which does not imply paternal fondness.
But what really makes me believe that Summers won’t stick around is that all this Machiavellian intrigue has failed to win him what he wanted most: power…”
26. July 2013 at 15:42
The problem is the Fed induced booms, when the stock market is booming, when unemployment is falling, when income is rising, not the busts, when the Fed is sometimes considered as having “failed to stop the problems.”
We wouldn’t have any busts if it weren’t for the booms.
26. July 2013 at 15:43
“Does the Fed chair need to be an expert on monetary policy?”
Does the commander and chief need to be an expert on military strategy?
26. July 2013 at 15:46
“Obama’s nickname for Summers is “Dr. Kevorkian,”
But why does Obama want to make Dr. Kevorkian chair of the Fed?
26. July 2013 at 15:50
“Does the commander and chief need to be an expert on military strategy?”
The Chairman of the Joint Chiefs of Staff absolutely has bot be an expert on military strategy.
The President may be commander in chief of the military, but he is not in charge of determining military strategy, and makes only very general policy decisions, such as whether to stay in Afghanistan or get out. But the Chair of the Fed makes the specific strategy decisions.
26. July 2013 at 16:01
The chief problem with Summers is that he does not appear to understand that when the very short term rates have hit the zero bound, monetary policy, if conducted correctly, is still effective in stimulating nominal GDP growth and thereby bringing down the unemployment rate.
With the Republicans in congress succeeding in imposing increasingly contractionary fiscal policy on the economy, we need a chair that is willing to use expansionary monetary policy to more than offset the contractionary fiscal policy in order to not only keep the contractionary fiscal policy from causing a second dip recession, but to actually bring the unemployment rate down.
Summers is not that person. Yellin will be better at it. Romer would be even better, but she is unfortunately not in the running.
26. July 2013 at 16:08
“We wouldn’t have any busts if it weren’t for the booms.”
Booms and busts are a natural part of market economies and existed long before there were any central banks.
But controlling the rate of growth of nominal GDP would do much to reduce this.
Friedman was on the right track with controlling the rate of growth of the money supply at a constant rate, but the failure of velocity to be stable and predictable prevents this method from working. So instead of controlling the rate of growth in M, the rate of growth in M x V is what is needed instead.
26. July 2013 at 17:18
“Booms and busts are a natural part of market economies and existed long before there were any central banks.”
Booms and busts are not a natural part of market economies, and nobody claimed that booms and busts occurred only under centralized banking system.
To whatever extent the state distorts relative prices and interest rates through non-market activity such as bank privileges (e.g. not obliged to redeem notes in specie), backstops, cartelization/oligarchy (first and second banks of the US), etc, with any and all forms of interferring with unhampered money production and pricing, booms and busts are likely.
Booms and busts occurred through the 19th century because of deviations away from free market money and interest rates. Governments can and have generated/endorsed inflation without an official central bank like the Fed. The Panic of 1819 for example was caused by prior inflation from the state hampered banking system, in order to finance the war of 1812 after regular taxation was viewed as insufficient. Credit expansion, government mandated bank holidays and non-redemption in specie, generated an unsustainable boom.
“But controlling the rate of growth of nominal GDP would do much to reduce this.”
Not as much as you believe, because the problems arise during what you consider healthy inflationary times. Inflating even more during a bust, to prevent NGDP from falling, will only exacerbate the problems, because it is inflation that is the cause in the first place. At some point, NGDP targeting will hit a wall, and the central bank will lose control. It is not a permament solution.
“Friedman was on the right track with controlling the rate of growth of the money supply at a constant rate, but the failure of velocity to be stable and predictable prevents this method from working. So instead of controlling the rate of growth in M, the rate of growth in M x V is what is needed instead.”
NGDP targeting will fail to keep economic calculation stable, which is the real problem, not velocity, or “spending.”
You can’t solve a capital structure problem by tinkering with “spending” on goods at random.
26. July 2013 at 17:39
Didn’t Krgthulu prove Taylor to be a hack too?
26. July 2013 at 19:13
Prof. Sumner,
You wrote:
“I seriously believe there are a relatively small number of qualified people (and I’m not one of them, for unrelated reasons.)”
I’m curious why you don’t think you’re qualified to lead the Fed or even sit on the FOMC.
26. July 2013 at 19:31
“I will leave the question of monetary policy to John [Taylor] where he is an expert. I don’t think the question of whether the Fed was wise or was unwise during the noughts bears on the question of whether government caused our problems. The Fed’s job is to set monetary policy and it may or may not have done the right job. But I will speak to the question of fiscal policy in the wake of the crisis.”–Summers.
This is what? Appalling? Stupefying? Lamentable? Enervating?
For Fed Chief? Summers?
And next we will hire Yogi Berra to be head coach of the New York Giants…..
26. July 2013 at 21:33
“For Fed Chief? Summers?”
That statement disqualifies Summers for this position.
26. July 2013 at 21:57
Didn’t the Fed screw up badly beyond the zero bound in 2006-2007?
Not so Taylor rule simple for the staff, then. Pay them whatever you like, they will continue to make mistakes that brutalize the citizenry.
I still wonder what is so wrong with market-set prices on rates and money.
What is so wonderful and necessary about these central planners anyway?
My fondest wish is that monetary “policy” would go away, and that central planning was ended.
27. July 2013 at 02:23
“I think Summers would have done less QE than Bernanke, and I think he would have been overly anxious to “normalize” interest rates”
Precisely. If Summers is to be Bernanke’s replacement, we would be better off keeping Bernanke. I have repeatedly criticised Bernanke and called him the Hamlet of monetary policy. But he would be a lesser evil than Summers.
27. July 2013 at 02:30
“I still wonder what is so wrong with market-set prices on rates and money.”
The idea that the market left to its own deices would get things right is an article of religious faith for which there is no justification.
In real world economies externalities, market power, sticky prices, asymmetric information, and missing markets are the rule, not exceptions. Therefore real world economies only have an invisible paw, not an invisible hand. The market gets most things reasonably correct much of the time, If it did not, economies beyond the most basic subsistence economies would never have developed. But real world markets can go badly off the rails from time to time, and the visible hand of the government is needed to prevent this, or, having failed to do so, to get it back on the rails.
27. July 2013 at 04:07
[…] To even think of a comprehensive stimulus package–at least not one laden with tax cuts–would stand a chance of making it out of either the House or even the Democratically controlled Senate is absurd. In a recent post discussing the requisite credentials to assume the Fed Chair position, Sumner acknowledges this reality of the political failure of fiscal stimulus in asking whether the next Fed Chair needs to be a monetary policy expert: […]
27. July 2013 at 04:40
I think I’ll jump into the fight between Geoff the Austrian and Full Employment Hawk. I know it is pretty pointless, but the free banking wing of market monetarism needs some representation from time to time.
I favor market determined interest rates. I think having the Fed create excess supplies or demands for money to stabilize short and safe interest rates is a bad thing. (On the other hand, adjusting the quantity of money to the demand to hold it so that excess supplies or demands for money don’t cause changes in interest rates is a good thing.)
I would like to see competitive issuers adjust the quantities of all the different forms of money, including hand-to-hand currency. However, I am not sure that this is feasible for the medium used for final interbank settlements. I think banks should be able to settle up claims however they agree, but for dollar-denominated claims, either party needs to be able to insist on using the “official” settlement medium. Controlling the quantity of the medium of final settlement is an obvious way to keep “the dollar” tied to the nominal anchor. If the yield floats with other interest rates, as I favor, that seems to only leave the quantity. Still, I am very interested in systems where the quantity is not controlled, rather final settlements are tied to positions on futures contracts on the nominal anchor.
I favor using a growth path of nominal GDP as the nominal anchor. That isn’t a market determined price. I am pretty sure that the nominal anchor cannot be market determined. An ounce of gold is an ounce of gold isn’t a market determined price. And after centuries of devaluations and revaluations, a $32 per ounce price of gold sure looks like a price, but it isn’t a market price. A GDP deflator of 100, or a CEP 2% higher than the current period, are not market prices.
I don’t think people should be prohibited from using monies on alternative standards. Most obviously, people in the U.S. should be fully free to use euros. U.S. Banks should be free to offer euro deposits and make euro loans to people in the U.S. But I don’t see this as being terribly important in practice. Certainly not enough to say that when most people continued to use dollars, the dollar would then be “selected” by the market.
To get back on topic, Romer seems like the only realistic choice. What about Woodford? Or McCallum? Hetzel? Koenig? But really, Romer or Woodford (or McCallum) would have needed to be selected as President of one of the Fed banks some time ago (Think Plosser.) Or put on the Board of Governors. Similarly, Hetzel or Koenig would have needed to be promoted to President of a Federal Reserve bank. And so, we are down to Yellen versus Summers.
27. July 2013 at 05:02
Bill Woolsey: “I would like to see competitive issuers adjust the quantities of all the different forms of money, including hand-to-hand currency. However, I am not sure that this is feasible for the medium used for final interbank settlements. ”
Bill, did you see my guest post on Scott’s blog two months ago that explores the idea that competition in supplying medium for final interbank settlements is feasible if interest is paid on such media according to a fixed formula?
27. July 2013 at 05:35
Mark, There’s a big problem with that article. It may be partly true, but then it conflicts with Obama’s reported preference for Summers.
I see FEH had the same thought.
Travis, Wrong personality, no knowledge of banking. I’d be slightly more qualified if they removed financial system oversight from the Fed’s mandate.
jknarr, No the mistakes of 2006-07 were very small. The Fed didn’t cause the housing “bubble.”
Bill, I’d also like to see the market set interest rates.
27. July 2013 at 06:11
Off topic – Scott, would you say that Wisconsin was “one of the leading brewers of collectivist policies”?
http://econlog.econlib.org/archives/2013/07/nowrasteh_on_so.html
27. July 2013 at 08:00
Matthew Yglesias linked to this post:
http://www.slate.com/blogs/moneybox/2013/07/27/shrinking_case_for_summers.html
July 27, 2013
The Incredible Shrinking Case For Summers
By Matthew Yglesias
“…But perhaps Summers’ expertise on monetary policy is unique and exactly what the country needs? Well why not see what Summers himself said about monetary policy at an April 2012 event sponsored by the Stanford Institute for Economic Policy Research:
“I will leave the question of monetary policy to John [Taylor] where he is an expert. I don’t think the question of whether the Fed was wise or was unwise during the noughts bears on the question of whether government caused our problems. The Fed’s job is to set monetary policy and it may or may not have done the right job. But I will speak to the question of fiscal policy in the wake of the crisis.”
Obviously Summers is playing coy here, but you really do have to ask what justification there could be for the idea that the country’s top monetary policymaker should be someone who’s not comfortable speaking publicly about monetary policy?”
27. July 2013 at 08:56
Scott, I tend to think that low-yielding tight money caused the excessive yield-hunting speculation and indebtedness. The Fed has been tight, and so caused serial bubbles. Their policies most certainly caused the 2006 boom and 2008 bust – bad policy at above the zero bound, IMHO.
When you look at the composition of base money going into 2006-2007, banks were being starved of reserves and were becoming prone to a capital meltdown. Not good or stability-enhancing policy, but rather a mistake(?!).
http://research.stlouisfed.org/fred2/graph/?g=kWn
27. July 2013 at 08:59
Answering my own question, Summers wants the job for the prestige (as others have pointed out) and for the opportunity to regulate.
I also think it’s likely that the Obama administration is focused on the regulatory aspect of the job, and that is part of why Summers apparently their leading candidate. Terrible, terrible decision and equally terrible rationale for it.
Of course, Appelbaum had an article yesterday quoting a GOP Senator saying that they would have a problem with a Yellen appointment. So in this instance, the adults in the room would appear to be the Senate Democrats.
In a perfect world, Obama would:
1. Appoint Yellen to Fed Chair.
2. Appease the GOP by appointing Mankiw to replace Yellan as Vice Chair.
3. Get Senate Democrats to go along with Mankiw appointment by appointment Romer for Duke’s job.
This would lay the groundowrk for a gradual transition to NGDPLT.
Odds of this? 1:# of atoms in the universe
27. July 2013 at 09:21
July 26, 2013
Quiet Rivalry Over the Next Fed Leader Comes Out
By BINYAMIN APPELBAUM
(please Google for link)
“…Mr. Summers questioned the benefits of the Fed’s efforts to stimulate the economy in a 2012 paper written with Brad DeLong, an economics professor at the University of California, Berkeley. The paper, presented at a Brookings Institution conference, also noted potential costs including, “distortions in the composition of investment, impacts on the health of the financial sector, and impacts on the distribution of income, and the historically clear tendency of low-interest rate environments to give rise to asset market bubbles”…”
The full quote in question is found on page 41:
http://www.brookings.edu/~/media/Files/Programs/ES/BPEA/2012_spring_bpea_papers/2012_spring_BPEA_delongsummers.pdf
“Perhaps, though, as Mankiw and Weinzerl (2011) suggest, arguments for temporary fiscal expansion are even better arguments for expansionary monetary policy. Here too we are skeptical. While a much richer model would be necessary to fully address the issue, it seems to us that if fiscal policy is self financing it will be desirable to use as an instrument once it is recognized that (i) with uncertainty about multipliers diversification among policy instruments is appropriate as suggested by Brainard (1967), (ii) expansionary monetary policies carry with them costs not represented in standard models (including distortions in the composition of investment, impacts on the health of the financial sector, and impacts on the distribution of income), and (iii) the historically-clear tendency of low interest rate environments to give rise to asset market bubbles.”
Allow me to briefly address these “costs” of expansionary monetary policies “not represented in standard models”:
1) “distortions in the composition of investment”
This is a vague Neo-Austrian type claim. Somehow monetary policy creates investment distortions when it is expansionary, but for some unknown reason never when it is contractionary. Also, one wonders why with this fragile tendency towards market distortions why we ever trust firms with the decision of whether to invest or not at all. This seems to be as concise an argument in favor of central planning as there ever was.
2) “impacts on the health of the financial sector”
It seems quite evident to me that the most important risk factor for financial crises is excessively tight monetary policy as indicated by downward deviations from trend in nominal incomes, not expansionary monetary policy. So this claim clearly stands things totally on their heads.
3) “impacts on the distribution of income”
There is actually a fair body of research literature showing that expansionary monetary policy has positive effects on income equality, not negative. This happens through three main channels, namely factor shares of income, earnings hetereogeneity, and the share of personal income that is from capital (dividends, rent and interest). So this claim is contradicted by substantial empirical evidence.
4) “the historically-clear tendency of low interest rate environments to give rise to asset market bubbles”
I admit that it is true that asset market bubbles seem to be more prevalent in times of low nominal interest rates. But as Milton Friedman once so keenly noted, low nominal interest rates are a sign that monetary policy has been too tight, high nominal interest rates that money policy has been too easy. Thus the remedy for preventing asset market bubbles in the future is evidently more expansionary monetary policy in the present.
27. July 2013 at 09:33
I’m not sure if the pushback against Summers is responsible for this but:
http://www.bloomberg.com/news/2013-07-26/obama-said-not-ready-to-decide-on-fed-chief-for-several-weeks.html
Jul 26, 2013
Obama Said Not Ready to Decide on Fed Chief for Several Weeks
By Hans Nichols
“President Barack Obama won’t announce a replacement for Federal Reserve Chairman Ben S. Bernanke at least until September, according to an administration official.
Obama hasn’t made a decision on naming the next Fed chief, according to the official, who asked for anonymity to discuss internal planning.
Bernanke, whose second four-year term expires Jan. 31, hasn’t indicated whether he would seek or accept a third term. Obama said last month that the Fed chairman has stayed in the post “longer than he wanted.”
The Associated Press reported the timing earlier today.
About a third of the Democrats in the U.S. Senate have signed a letter pressing Obama to nominate Fed Vice Chairman Janet Yellen for the post. While the letter doesn’t name any other candidate, former Treasury Secretary Lawrence Summers is another potential nominee.”
27. July 2013 at 10:47
Full Hawk,
Try looking at North- versus South- Korea sometime. You might reconsider the justification for market forces (and full employment) both.
Which one would you want to live in, anyway? Gotta love that ole time religion.
Silly religion, raising living standards so vigorously!
27. July 2013 at 10:51
I am a little surprised that Bill Dudley’s name isn’t in the mix.
27. July 2013 at 15:51
The most surprising thing about the Summers “John Taylor is the expert” quote is not that Summers disavows his own monetary policy expertise, but rather Summers apparent belief that the “Fed” is not part of the government.
The question of whether or not the Fed was wise or unwise doesn’t bear on the question of whether government caused our problems?!
I’ll ask one more time. WHY IS THE WHITE HOUSE SO IN LOVE WITH THIS GUY?!?!?!?!
27. July 2013 at 16:00
jknarr – you say,
“What is so wonderful and necessary about these central planners anyway?
My fondest wish is that monetary “policy” would go away, and that central planning was ended.”
Unless you’re planning a barter economy, monetary policy is not going away. The real debate isn’t between those who want monetary policy and those who don’t (whatever that means). It is between those who want monetary policy to based on the real economy, e.g., GDP, or those who want it to be based on some arbitrary standard, such as shiny metals (which is also a central plan).
27. July 2013 at 16:38
Negation,
Barter or policy? Not very convincing. And if you define “policy” so broadly as to include gold, then there is little meaning to the word.
And no, the real debate is centralization and “policy” decisions of a few people versus decentralization and “choices” decisions of many people.
Money is GDP and GDP is money, everywhere and at all times.
27. July 2013 at 16:57
jknarr –
Yes, the gold standard is a “policy”. I think the word you’re looking for is “discretion”. NDGPLT, the gold standard, and fixed M2 growth are some examples of rules-based policy. Now, this isn’t absolute, because there is still some discretion even under the gold standard. But any time a government issues currency, or even chooses to use it, it’s following a policy, and that policy can be changed at any time.
“Money is GDP and GDP is money, everywhere and at all times.”
This comment makes me think we’re more in agreement than I previously thought. I’m for NGDPLT, but I don’t pretend it’s not a policy choice.
27. July 2013 at 17:50
Negation,
Yes, discretion is part of the point, but I prefer decentralization. Rules-based systems that take away discretion are a step closer to a good monetary system, but any system that claims monopoly economic power at a point of a gun is fatally flawed. All alternative or competitive currency paths end up with a guy with a gun on your doorstep. That’s abusive and wrong.
28. July 2013 at 00:14
Obama has now stated that he wants someone who won’t just work abstractly to keep inflation in check and maintain stability in the markets. He says he wants the next Fed chairman to also promote policies that will help make ordinary people’s lives better.
RIGHT ON! Obama here, as well as in his recent speeches, is FINALLY saying the right things. But the proof of the pudding will be based on what he actually does.
Nothing would do more to improve the lives of ordinary people than returning the economy to full employment as quickly as possible. This would also help with solving many other problems facing the country. With the inflation rate below target, seeking to achieve maximum employment needs to be the primary objective of the new chair of the Fed. Among the likely candidate for chair of the BOG, Yellen clearly fits thie criterion the best. Romer would be even better.
28. July 2013 at 00:37
“In a perfect world, Obama would:
1. Appoint Yellen to Fed Chair.
2. Appease the GOP by appointing Mankiw to replace Yellan as Vice Chair.
3. Get Senate Democrats to go along with Mankiw appointment by appointment Romer for Duke’s job.”
NOT SO.
For Romer to join the BOG when she does not get the chair position, she has to get the Vice Chair job; anything less would be viewed as a demotion. In light of Mankiw’s support of the growing inequality of income and wealth, he would be a total anathema to the progressives in the Senate (as well as to me). Can you imagine what Eliazbeth Warren’s reaction would be?
So instead:
2. Appoint Romer as Vice Chair.
3. Bring ideological balance to the BOG by appointing Scott to Duke’s job.
That would really hasten the move to nominal GDP targeting.
28. July 2013 at 07:20
James Hamilton recommends Janet Yellen:
http://www.econbrowser.com/archives/2013/07/the_case_for_ja.html
“Yellen is brilliant and tough. She displays this not by needing to prove to you that she’s the smartest person in the room, but instead by always asking the right questions. If someone disagrees with her, her first instinct is not to try to bully them, but instead to try to understand why they have reached a different conclusion than she has. Because of this attribute, Yellen is one of the people I would trust most to be able to sort out what the key problems are and what needs to be done in any new situation.”
28. July 2013 at 08:19
Saturos, I’m not really qualified to discuss that. In the comment section of my “driftless area” post some commenters suggested that the German areas were more conservative than the Scandinavian areas. But that’s today.
Mark, That Yglesias post uses two of my posts from the day before.
jknarr, I don’t see the 2006 boom as being very big. Not like 2000 or 1969.
Michael, Unless I am mistaken the GOP cannot filibuster Yellen, only Summers. She’d be acting chair during any filibuster.
Mark, Very good comment on Summers.
Doug, Me too.
SG, Good observation.
Michael, Good for Jim.