An optimistic report on Yellen-Summers
by digby
I don’t know how connected Major Garret is with the White House, but this is interesting regardless:
Top White House officials concede that both Yellen and Summers are in the running, but it’s easier to find those willing to make the case for Summers. That’s not dispositive and could be a head fake. Summers is not only in the mix, but is probably leading among outside odds makers who have been sifting Obama’s recent rhetoric on wage disparity, anemic economic growth, and the ravages of long-term unemployment. There is also this. A senior official also said all the Democrats who signed the pro-Yellen letter have assured the White House they will back Summers. Preferences, after all, are not confirmation votes.
While Obama’s umpteenth “pivot” to the economy has a familiar ring to it, there is something economically and politically new here. Obama is telling Congress, for the first time since Republicans won the House, that he’s done with deficit-reduction politics. Debates over government shutdowns and default are too small, and Obama intends to use whatever rhetorical and policy leverage he has (the reaction to Tuesday’s proposed grand bargain suggests it’s minimal) to elevate growth and job creation over entitlement reform and sequestration.
That’s where the Federal Reserve pick fits in. In Obama’s interview with The New York Times, he said that the new Fed chair must understand that the central bank’s role is not about the technical balance of the money supply in relation to inflation and a strong currency. “I want a Fed chairman that can step back and look at that objectively and say, let’s make sure that we’re growing the economy, but let’s also keep an eye on inflation, and if it starts heating up, if the markets start frothing up, let’s make sure that we’re not creating new bubbles.”
This may be Bernanke’s most important legacy—the concept, now embraced by the president, that the Federal Reserve chairman can and should play a more active, anticipatory, and certainly remedial role in the future of the U.S. economy. Obama has almost no personal relationship with Yellen. This is counted against her. But she did, as the Senate Democratic letter points out, warn about a housing bubble before the market collapsed. And she gave an impassioned speech to the AFL-CIO in February about the Fed’s active role in the economy. Of the chronically jobless, she said: “These are not just statistics to me. We know that long-term unemployment is devastating to workers and their families.”
When White House aides talk up Summers, it is usually in the context of his relationship with Obama during the darkest days of the Great Recession, shaping policies Obama believes saved the country from another depression. That relationship is real and meaningful. But Summers did not anticipate the Great Recession, and some believe his advocacy for an end to Glass-Steagall helped set it in motion. Top administration officials disagree, but Obama’s criteria appears clear: seeing a crisis before it strikes and dealing with Fed policy outside of its historically abstract sandbox. If you place the Summers-versus-Yellen campaigning aside, and take Obama’s own words at face value, he’s leaning toward Yellen.
There are actually two piece of optimistic news in that. The obvious is that he thinks the president is leaning toward Yellen and on a thoroughly rational basis rather than the fact that he doesn’t want to have a beer with her.
The other is that he takes at face value the fact that Obama has decided that deficit reduction and “entitlement” cuts are no longer operative. We have been hearing that they’re still trying to negotiate a grand bargain (also known as a “big deal”) on spending and entitlements from other sources. If he’s recognized the folly of that it would be very good news for the American people — and the Democratic Party which would have something to run on aside from austerity one-upsmanship.
We’ll have to wait and see what happens in the next big Debt Ceiling Shakedown but there may be enough nervousness building on the right for them to seek a face-saving way out that doesn’t require another big bucket of shared-sacrifice from a population that had it up to here with it. Fingers crossed.