It’s not as if there are no good reasons for President Obama to pick Larry Summers to replace Ben Bernanke as Federal Reserve chairman. Summers is a supersmart economist, for one. And as Washington Post columnist Ezra Klein points out, Summers’ experience in the Obama and Clinton administrations makes him a financial crisis veteran. And you never know when the next shock — we’re looking at you, euro zone — will hit.
But once you get past those attributes, the pro-Summers case gets rather thin, as Klein’s column — a White House-inflated trial balloon anointing Summers as Fed front-runner — makes clear. Obama, writes Klein, (a) likes Summers personally, (b) is confident Summers appropriately views the Fed’s employment mandate as equal to its inflation mandate, (c) thinks markets “trust” Summers more than primary rival Janet Yellen, and (d) views Summers’ “does not play well with others” reputation as overblown.
Boil all that down and the case for Summers really revolves around both Obama and influential Wall Street Democrats being more personally comfortable with Summers — a Treasury secretary during the 1990s boom who later made millions at a hedge fund — than with Yellen, an academic from U-C Berkeley. Summers is a member of the club, Yellen is not.
And maybe that’s the end of the story. But it shouldn’t be. Little is known of Summers’ monetary policy views, and there is no evidence that he has absorbed the recent neo-monetarist/market monetarist revolution. As Financial Times columnist Ed Luce — a guy who used to work for Summers – recently wrote, “Among economists, he is seen as neither a hawk nor a dove. Republicans would be unlikely to question his credentials. In practice – and not just for the hearings – his reputation for neutrality would be an asset.”
When both inflation and GDP growth are below 2%, dual mandate neutrality is not what’s needed. And trust me, Republicans are going to question plenty about Summers, whom they will paint as an abrasive partisan: from his time as Harvard president (both comments on the math aptitude of women and his spectacularly wrong bet on interest rates) to his time on Wall Street to his crafting of the Obama stimulus to the Clinton-era housing policies that GOPers think caused the Great Financial Crisis. (And liberal Dems might have a question or two to ask about his role in financial deregulation.)
If Summers should somehow be confirmed, he will emerge as a politically weakened Fed chair hardly in the position to push the Fed into, say, explicitly targeting nominal GDP or income rather than inflation. Prediction: Summers will be a caretaker chairman who won’t get another term if a Republican wins the presidency in 2016. The political case for a Summers-led Fed is weak. The policy case even weaker.