Neil Irwin is not going to have made many friends in the White House with today’s piece on the problems the Obama administration has with Janet Yellen. It makes the White House economic team seem insular, sexist, and deeply mistaken about what the right and proper role of the chairman of the Federal Reserve Board should be. Worse, there’s every reason to believe that Irwin’s piece is entirely accurate.
Irwin enumerates three main reasons why the White House is underwhelmed with Yellen. The first is the “team player” attack: Yellen is an independent thinker more than she is a loyal deputy to Bernanke. And because she was 3,000 miles away from the action during the financial crisis (she was running the San Francisco Fed), she never became part of the boys’ club which was making enormous decisions on a daily basis in the fall of 2008.
As Irwin puts it, “she was on the outside looking in regarding some of the seat-of-the-pants decisions that were being made over how to rescue the American economy” — and the people who made those decisions are the exact same people who are advising Obama on whom to nominate as Fed chair. They have all worked closely with Summers, they enjoy the way he makes decisions, and they’ve all been through various crises with each other.
The “team player” argument, then, is basically the “one of us” argument, thinly disguised. Which is the first place that the sexism comes in: everybody named as being part of the “team” (Larry Summers, Tim Geithner, Ben Bernanke, Bill Dudley, Don Kohn, Kevin Warsh, Gene Sperling) is undeniably male — and, what’s more, the kind of male who takes great pride in his own intelligence, and loves it when the world knows just how smart he is.
But it gets worse:
She is methodical, not manic. And the prevailing style of the White House insiders advising on the decision leans a bit more toward manic. Geithner, for example, jumps from meeting to meeting, from hearing to phone call, without so much as a set of talking points to work from.
This second reason essentially takes the “team player” argument past its breaking point, to the point at which the Obama team is basically saying “Yellen needs to share our biggest weaknesses.” Sometimes crises move so fast that policymakers have no choice but to make decisions on the fly; when that happens, however, the decisions often turn out to be pretty bad. The story of the European crisis is full of such episodes, but for a domestic example, look no further than the image of Tim Geithner, at the New York Fed, doing his best deranged-Yenta impression as he desperately tries to engineer improbable mergers between Lehman and Barclays, or Citi and Goldman, or just about anybody and just about anybody else. The bankers, to their credit, managed to stand up to the pressure from their primary regulator — but even Geithner would admit that this was not his finest hour. This is not really a criticism of Geithner — we all make bad decisions when we haven’t had remotely enough sleep and we’re extremely stressed. But it’s ridiculous to think that a more deliberative approach is in any way inferior.
Maybe this bias towards the manic is what Obama is really talking about when he says that he wants a Fed chair who’ll be good in a crisis. The implied logic: Yellen is perfectly good if you give her lots of time to sit down and slowly work things out. But crises move fast, and no one thinks faster than Summers. Yellen’s brain isn’t as fast and fecund and facile as Summers’s brain, so we’d better appoint Summers.
Spelled out like that, the argument is downright offensive — and, of course, highly sexist.
“The question,” Irwin writes, “is how Yellin’s cautious approach would work when she is dealing with the full panoply of issues that a Fed chair must grapple with”. The answer, surely, is that the Fed chair is the number one place where, ex ante, a cautious approach is exactly what you would want. Someone who carefully scripts her words before saying anything? Someone who insists on thinking things out before acting? Yes please! The only conceivable reason to believe otherwise is if you’ve already decided, through personal friendship, that you want Summers to be the nominee, and then simply decree that whatever attributes Summers has and Yellen doesn’t are precisely the attributes you’re looking for.
Which brings us to Irwin’s final reason to be uneasy about a Yellen Fed: she’s more worried about reducing unemployment than she is about staving off bubbles. Or something like that — it’s not entirely clear. This of course is exactly as it should be: the Fed has a formal written mandate to reduce unemployment, while for much of its history it has operated with a policy that it’s pretty much impossible to identify bubbles and deal with them in real time. Yellen says that she’s serious when it comes to worrying about bubbles — but for whatever reason she isn’t considered serious enough, compared to Summers. (Which is pretty funny, given the degree to which Summers-era deregulation helped inflate bubbles of the past.)
More to the point, as Brad DeLong notes, it’s simply wrong to say that Yellen’s weak when it comes to identifying bubbles:
Yellen was equal to Ned Gramlich and out in front of all other Federal Reserve policymakers in the 2000s in her real-time worries about the housing bubble. Demonstrated ability to see a bubble and think about its risks in real time is one of Yellen’s strengths, not a weakness.
DeLong’s reaction is telling: he supports Summers, and still finds all of the administration’s arguments to be woefully weak. This entire debate strikes me as one of the most badly-orchestrated trial balloons I’ve seen in a very long time. If the White House wanted to maximize the degree to which people would think the Obama administration to be clubby and sexist and insular and narrow-minded, it could hardly do better than it has done when whispering about Larry at the Fed. And by making it clear that no decision is going to be made for a while, the White House is only ensuring that the same story is going to get repeated ad nauseam for weeks to come.
The chairman of the Fed is a position which requires the trust of the public. Larry Summers does not have that trust: indeed, almost uniquely, he’s mistrusted by the left, by the right, and by Wall Street in equal measure. He is, however, trusted by the president of the United States. Is Obama really so arrogant as to privilege his idiosyncratic personal opinions so highly, when the obvious candidate is right in front of his face? I hope not. But I’m losing optimism.