Lawrence Summers

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The Next Fed Chair? Not Larry Summers.

Why would the President want to appoint someone who once opined that women were not good at science?  The man who was hired to end the economic crisis, but likely contributed to its making.  I’ve been thinking about how to approach this for a few days now and then I saw two pieces by Shirley Leung in the Boston Globe Business Section.  I think she says exactly what I wanted to say.  In the first, she discusses Larry Summers.

No need to hold back here: Larry Summers as the next Fed chairman?

Worst idea ever.

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Summers, by all accounts, is a brilliant economist, one of the best of his generation. He is also someone who is confident, and, in times of crises, may be the adult in the room that he supposedly said the Obama administration didn’t have when the economy collapsed.

But he lacks one critical trait I like in my Fed chairmen: He’s not boring.

Summers is far from bland. He is arrogant and a lightning rod and would carry so much baggage he couldn’t fit it on the shuttle to Washington.

Do we need a Fed Chair that is all about Larry Summers?  I think not.

In his book “Confidence Men,” about the Obama White House’s handling of the economic crisis, former Wall Street Journal reporter Ron Suskind paints Summers as brilliant but overconfident and prone to unnecessary battles. “As he has aged, he has grown less troubled by being uninformed,” Suskind wrote.

That’s not what you want in a Fed chairman. The nation’s top central banker must manage the economy primarily by raising or lowering interest rates and must build consensus to do so. He must work with six other Fed governors and 12 regional Fed bank presidents. Imagine what would have happened if the Fed board was split over what to do with the economy in 2008? What would that have done to the markets?

“I know Larry very well. He is a smart guy,” said Allan Meltzer, a Carnegie Mellon professor who has written the definitive history on the Fed. “But the skills that are required for that job are not just brilliance, they are ability to manage compromise. He doesn’t do that well.”

This is to say nothing about how he ran Harvard.  When he left, they picked Drew Faust, a women who was his opposite in many important ways.

So, who should be the next Fed Chair?  How about a woman?  Senator Elizabeth Warren and Shirley Leung are backing Janet Yellen.

English: Official picture of Janet Yellen from...

English: Official picture of Janet Yellen from FRBSF web site. http://www.frbsf.org/federalreserve/people/officers/yellen.html (Photo credit: Wikipedia)

Just as forcefully as folks are coming out against Summers, there is a campaign mounting to promote Janet Yellen, Ben Bernanke’s number two.

Unlike Summers, Yellen has significant monetary policy experience. She has been the vice chair of the Fed board of governors since 2010, and prior to that she ran the San Francisco Federal Reserve bank for six years. She has been involved in the Fed’s quantitative easing strategy, hatched during the Great Recession to keep money flowing and the US economy alive.

And unlike Summers, she is sufficiently boring, a key trait we want in someone running our central bank.

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If Yellen got the nod, she would break the glass ceiling at the Fed, becoming the first woman at the top. She already has some high profile endorsements from New York Times columnist Paul Krugman and former FDIC chair and UMass-Amherst professor Sheila Bair.

Bair, in a blog posted on Fortune earlier this week, argues that Yellen is the most qualified candidate, but the financial world’s old-boy network is trying to derail her candidacy:

“So why isn’t she a shoo-in? The ‘whispering’ campaign against her among industry types has been deafening. ‘Doesn’t understand markets.’ Translation: She may not bail us out if we get into trouble again. ‘Not assertive enough.’ Translation: She won’t stand up for us against the populists who want more regulation. ‘Lacks gravitas.’ Translation: She doesn’t show up very often in the financial media.”

I guess we haven’t come far enough for the Wall Street guys to be comfortable with a woman.

Bair also takes a whack at Summers. “Unlike Larry Summers, Tim Geithner, and other Bob Rubin minions frequently mentioned in the financial press as potential Bernanke successors, she was not part of the deregulatory cabal that got us into the 2008 financial crisis. In fact, she had a solid record as a bank regulator at the San Francisco Fed and was one of the few in the Fed system to sound the alarm on the risks of subprime mortgages in 2007.”

Others are also rallying behind Yellen. Senator Elizabeth Warren of Massachusetts on Friday confirmed that she has signed a letter Senate Democrats are circulating and plan to deliver to President Obama calling on him to nominate Yellen because “she is the best person for this job.” As early as Monday, activists, including women’s advocacy groups NOW and Ultraviolet plan to send a letter to Obama and Senate majority leader Harry Reid to support Yellen’s candidacy and oppose Summers’. When he ran Harvard, Summers set off a firestorm when he suggested women lacked the same “intrinsic aptitude” for science as men.

The President recently said he was not going to make a decision until fall, so we have time to make sure he appoints the best qualified person who, in this case is a woman.  Not Larry Summers.

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