Larry Summers for Fed Chair?
Ezra Klein thinks it's all but a done deal that former Obama economic advisor and president of Harvard Larry Summers will be the next Chairman of the Federal Reserve.
Klein's reasoning is that Obama knows Summers well and that this counts more than the consensus building that Summers is lousy at but his chief rival, Vice Chairman Janet Yellen excels.
Others are unconvinced but Klein lays out a case for Summers:
1) President Obama really likes Summers. And he's surrounded by Summers's longtime colleagues and friends. Conversely, Obama doesn't really know Yellen, and nor do any of the White House's economic principals.
2) The Obama administration's top concern is choosing someone who cares about the Federal Reserve's mandate to maintain full employment as well as its mandate to keep inflation low. Yellen and Summers are both seen as clearing that bar. So the choice is defaulting to other considerations.
3) This White House, more so than any other in modern memory, knows in its bones that the economy can fall apart at any second. China could suffer a hard landing, Europe could fall apart again. Some London Whale-like trader could blow a hole in JP Morgan Chase. If that happens -- particularly given Washington's dysfunction -- the Fed is really the first responder. This White House is very comfortable with how Summers handles a crisis.
4) There's also a feeling that the chair of the Federal Reserve can do more if he or she is truly trusted by markets. Rightly or wrongly, there's a sense that Summers has the market's trust in a way Yellen doesn't.
5) The big open question is Summers's ability to manage the Federal Reserve's Open Markets Committee. Here, Summers's reputation for being difficult to work with is a big issue. But inside the White House, that reputation is considered overblown, or at least outdated -- after all, they worked with him, and enjoyed working with him, and there's some sense that maybe a more aggressive Fed chair wouldn't be the worst thing in the world.
The White House knows the economy could fall appart "in a second" because the Fed has made it likely that it will. There has never been so much fiat money floating around - certainly more than anyone at Bretton Woods ever imagined. The next Fed chairman may very well have to manage the worst economic crisis in history and he or she better be up to it or things could go south for us all very quickly.