Economists favor Yellen

In 1930 a letter opposing Smoot-Hawley was signed by over 1000 economists.  It was presented to Hoover after the bill passed the Senate.  A few days later Hoover decided to ignore the economists and sign Smoot-Hawley.  The next days stocks suffered their biggest one day decline of 1930–down roughly 6%.  The rest is history.

Now we have a letter signed by 300 economists supporting Janet Yellen.  Will Obama follow in Hoover’s footsteps and ignore their advice?  The markets seem to think so, as they tend to fall on rumors that Summers will be the pick.  (Except the dollar, that rises on the hawkish news.)



8 Responses to “Economists favor Yellen”

  1. Gravatar of johnleemk johnleemk
    13. September 2013 at 08:28

    What of Justin Wolfers’s claim that the markets don’t seem to differentiate between Yellen and Summers?

  2. Gravatar of ssumner ssumner
    13. September 2013 at 08:46

    johnleemk, I don’t see how anyone who pays attention to the markets could believe that. The markets clearly believe Summers is the more hawkish choice, we’ve seen the reaction on numerous occasions.

    Here’s an example just today:

    Futures already were trending lower before the economic data as the report of a Summers appointment came from the Japanese newspaper, Nikkei, which cited unnamed sources. Market participants have viewed a possible Summers appointment as a more hawkish selection to lead the Fed than Vice Chairwoman Janet Yellen, despite the fact that Obama’s former National Economic Council director has shown a willingness to continue monetary stimulus.

    Futures turned lower after the Fed news spread.

    “The downbeat in futures, based on that rumor, is self explanatory: Summers is a controversial character and there is split opinion as to whether he would be an appropriate choice,” said Lawrence Creatura, portfolio manager at Federated Investors.

    Investors view the Fed’s economic stimulus program as positive for equities, and analysts generally credit quantitative easing as part of the reason major U.S. equity markets reached recent all-time highs since a bottom in March 2009.

  3. Gravatar of TallDave TallDave
    13. September 2013 at 13:27

    Again, it’s the “most reliable hack” rule. Obama only understands the politics of anything.

  4. Gravatar of MichaelM MichaelM
    13. September 2013 at 14:22

    Hooray for the mention of Smoot-Hawley by a well-known, respected economist as anything other than, “An aggravating but minor effect”.

    Double hooray for that mention being about the indirect effects the tariff bill had. Now you just need to mention something about the indirect monetary effects and you’ll have made my day.

  5. Gravatar of ssumner ssumner
    14. September 2013 at 05:49

    Michael, Aren’t all monetary effects indirect? Or at least all the big ones?

  6. Gravatar of Geoff Geoff
    14. September 2013 at 16:46

    Wait, weren’t most economists wrong about monetary economics?

  7. Gravatar of MichaelM MichaelM
    15. September 2013 at 16:42

    Indeed, Scott. I’ve just been absolutely enamored for a little while now of Thomas Rustici’s dissertation on how the tariff bill and the subsequent trade war affected the balance sheets of banks heavily invested in export oriented industries, and through their solvency the whole monetary system, and ‘indirect’ is how he phrased it.

    He makes mild use of the ‘the legislative history of the Smoot-Hawley Tariff tracks well with swings in the stock market’ hypothesis so your mentioning of it reminded me of the over all theory. It’s really quite a read, although it can get a bit incredulous from time to time.

  8. Gravatar of MichaelM MichaelM
    16. September 2013 at 03:22

    Oh, and looking back on it, you might enjoy the section he dedicates to arguing against the presence of a bubble in the stock market in late 1929.

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