Who will succeed Ben Bernanke as Chairman of the Federal Reserve? It’s come down to two people as far as anyone can tell, Larry Summers and Janet Yellen. Or, sometimes more accurately, Larry Summers and not Larry Summers. This is a terrible shame because no person has done more to earn the post than Yellen.
Yet Summers seems to remain Obama’s choice for the job despite growing opposition. On the other side, support is growing in the popular press for Yellen as an opportunity to break the glass ceiling for women. It’s heating up as a battle that Obama may avoid by picking a third candidate that no one is concentrating on now, but the loss would be terrible if Yellen doesn’t get the nod. Here’s why.
Janet Yellen has a long and distinguished career as a government economist. She started as an assistant professor at Harvard in the 70s before briefly serving as a Federal Reserve economist. Yellen then became a full professor at Berkeley, where she has twice received awards as an outstanding teacher. She then went back to the Fed in 1994 as a member of the Board of Governors before taking leave to head President Clinton’s Council of Economic Advisors from 1997-1999. In 2004 she became the President of the San Francisco Federal Reserve, serving in that post before becoming Vice-Chairman of the Fed under Bernanke in 2010.
What makes Yellen so impressive is not that she is a particularly brilliant economist or amazing innovator. She is a teacher first and a cool hand at the tiller. Having served in so many different roles, she understands the workings of the Fed and the workings of economic policy at many different levels. Everyone that has ever worked for her praises her competence and coolness first and foremost.
Larry Summers has an even more impressive resume, but much more controversy. He served as a Harvard Professor from 1983 to 1991, when he left to become chief economist at the World Bank. He was the Secretary of the Treasury from 1999-2001, where he supported much deregulation including the repeal of the Glass-Steagall Act. He then became the President of Harvard, and was a lightning rod for controversy through his comments on Cornell West’s “rap album” and saying that women lacked the “aptitude at the high end” to achieve high-ranking posts that deal in math.
Summers faced an unusual “lack of confidence” vote among Harvard faculty in 2005 and resigned the following year. In 2008 it was revealed that the Harvard Trust Fund, under Summers, had an usually large position in derivatives that lost nearly $1B. This was particularly embarrassing since he had become a hedge fund manager. In 2009 Summers was the Director of the National Economic Council under Obama and again became controversial for apparently keeping former Fed Chair Paul Volcker out of discussions and generally insisting that a smaller stimulus was needed. In 2010 he resigned under pressure and became an advisor to a venture capital firm.
The rap against Summers is immediately obvious, which is why Obama’s defense of him to Senate Democrats prompted a visceral reaction in the form of a petition against him signed by half of the caucus. Many people, including myself, see him as too closely tied to hedge fund operators and far too cautious on the fragile state of the economy.
Yellen, by contrast, started out as a quiet dark horse in public despite her number two position at the Fed. She doesn’t make waves and hasn’t done anything to garner a strong opinion other than among pros, who like her. Yet Summers’ reputation as a bully (or hard negotiator, take your pick) and his comments on women have made the contrast between the two sharper as lobbying against Summers has grown.
Still, the main point is that Yellen has definitely earned the position. Her reputation is sterling and there is little doubt that she would serve in the position as the world’s most powerful woman with the caution and care that the post needs. The question is not one of Summers vs Yellen, but one of what qualities do we need in a post that demands an approach of service. Yellen has demonstrated her qualifications, but people still question her “gravitas”. Why? Speculation always goes back to the fact that she is a woman. Fair or not, it’s hard to see why anyone would question her chops.
Who should be the next Chairman of the Federal Reserve? The correct answer appears to be “Chairwoman, if you please.” It’s not for any kind of affirmative action statement or a hatred of Larry Summers, although the latter has its merit. It’s because Yellen is the right person for the job. She earned it the old fashioned way – through service and dedication. It’s that kind of post, after all.