Friday, July 26, 2013

The Fed Is Not Like The Treasury Or The White House

Ezra Klein reiterates that while most of the econoblogosphere favors Janet Yellen over Larry Summers for Fed Chair, the in-crowd around Obama in his bubble is all for Summers, .  Much of the argument boils down to that while he has this bad image from messing up publicly in various place such as Harvard and the World Bank, those who worked with him at the Treasury and the White House, particularly his in-crowd of Rubin-related Goldman Sachs-related folks who are very much in the Obama administration liked working with him, and that most important of all, Obama liked working with him and remains close to him.

One item in Ezra's piece that sticks out is that a particularly important player may be Gene Sperling, part of the old Rubin-Summers mafia, who is currently filling the same role as NEC Chair that he did in the last years of the Clinton administration.  At that time, Janet Yellen was CEA Chair, and apparently they had turf struggles, which Sperling tended to get the upper hand in.  It is California Girls (Tyson, Romer, Yellen) against the Rubin Boys. So, it would appear that perhaps Sperling has a special grudge against Yellen and is poisoning the well for her by bad mouthing her and upping Summers to Obama.

In any case, all this talk about how great Summers was at Treasury and the WH, which may be true, does not prove he would be great at the Fed.  Some in the WH are mumbling that the Fed might need a strong hand, but that is not how that place works.  The Treasury and WH are very hierarchical places with just a few people at the top.  But the Fed has a much larger decisionmaking body, the FOMC plus the regional Fed prezzes who attend the meetings and provide input.  Many of these people are very smart and academically high-powered with large egos, such as Plosser and Bullard and Kotcherlakota, just to name three.   Summers will not be able to push these people around, and coming on like an egomaniac who lies to smart people like he did as president of Harvard with the faculty there will not cut it.  One needs to be more collegial, and this is a quality Yellen has in spades.

Barkley Rosser


ProGrowthLiberal said...

Good point. We should note, however, that a few people criticize Bernanke for wanting to work with others. I guess those few prefer the Volcker style of pushing folks around. Of course Volcker gave us that double dip recession a couple of decades ago.

spragus said...

Volker was there to tame inflation, which he did.

Wallfly said...

Though 70's inflation got tamed everywhere interntionally at the same time, so we don't know if Volcker's painful recession was actually a necessary part of the solution.