Quickly: can you name the only person to have served as both Fed chair and Treasury secretary? The answer is William Miller: he was Fed chair for 17 months in 1978-79, and Treasury secretary for another 17 months, in 1979-81. He was an unmitigated disaster as Fed chair, and his tenure at Treasury was undoubtedly more helpful to Ronald Reagan than it was to his boss, Jimmy Carter, in the 1980 election.
So I’ll say this for Larry Summers: if he is indeed going to become only the second person to hold both jobs, he will surely do better than William Miller. Still, if Obama picks Summers over Yellen, as Ezra Klein says that he’s likely to do, his choice will be enormously disappointing on many levels.
The first and most important reason for Obama to pick Yellen over Summers is that doing so would constitute a vote for the better candidate. There’s been a huge amount of commentary surrounding this choice, and it’s instructive to read all of it. Start with the pro-Yellen pieces: Bill McBride and Cardiff Garcia are particularly erudite and convincing that she has exactly what it takes to run the Fed right now.
Then, look at the pro-Summers pieces, such as they are. You’ll find much less in the way of arguments on the merits from the likes of Ed Luce and Tyler Cowen; instead, you’ll find talk about style and politics — talk which even Brad DeLong, a good friend of Summers’s, finds unconvincing.
Finally, it’s worth looking at the anti-Summers pieces, especially from Scott Sumner, although Noam Scheiber is worth reading too. (And, if you want, you can disinter a bunch of my old posts on Summers, such as this one, this one, this one, and this one.)
The upshot, from doing all that reading, is pretty clear. The arguments for Yellen are very strong; the arguments against Summers are strong; the arguments for Summers are weak; and the arguments against Yellen are all but nonexistent. (While there are lots of people who think that Summers should not be Fed chair, there’s pretty much no one who feels the same way about Yellen.)
As a result, if Obama picks Summers, it won’t be on the merits; instead, it will be on the grounds that Obama likes Summers, and is in awe of his intelligence. (Summers is, to put it mildly, not good at charming those he considers to be his inferiors, but he’s surprisingly excellent at cultivating people with real power.)
What’s more, the move would be a calculated snub to bien pensant opinion. Never mind the utter shambles that Summers made of Harvard, or the way he treated Cornel West, or his tone-deaf speech about women’s aptitude, or the pollution memo, or the Shleifer affair, or the way he shut down Brooksley Born at the CFTC, or his role in repealing Glass-Steagall, or his generally toxic combination of ego and temper — so long as POTUS likes Larry, and/or so long as Summers is good at working key Obama advisors like Geithner, Lew, and Rubin, that’s all that matters.
The choice of Summers would also be the clearest signal yet that Obama feels that he did what needed to be done to deal with the financial crisis, and that financial reform is, for the rest of his presidency, going to be a very low priority. Summers is a deregulator in his bones; he didn’t like the consumer-friendly parts of Dodd-Frank, and his actions have nearly always erred on the side of being far too friendly to Wall Street. He considers monetary policy to be largely irrelevant in a zero interest rate environment, and there is no chance whatsoever that he would take a robust leadership role with respect to the Fed’s other big job, which is regulation. If you want to repeat all of the Clinton-era mistakes of financial regulation, you can’t do better than appointing Clinton’s very own Treasury secretary.
Janet Yellen has all the makings of an excellent and prescient Fed chair — but she’s a White House outsider, and a woman. If Obama allows Yellen to be thusly disqualified, he deserves all the outraged dismay that will surely follow any Summers nomination.