Shots in the Dark

The Nobel-Prize winning economist Joe Stiglitz wrote an anti-Summers manifesto in Sunday’s Times (maybe just online, not sure) that is, I think, important.

It’s called “Why Janet Yellen, not Larry Summers, Should Lead the Fed.”

Stiglitz begins by saying that he knows and has worked with both Fed chair candidates, and that the subject of who should be nominated to run the Fed may seem an unusual topic for a column that usually focuses on global economic inequality. But Fed decisions, he adds, have a huge impact on the economic status of the poor and middle-class around the world. And…

…the bad news is that the policies that have been pushed by one of the candidates, Mr. Summers, have much to do with the woes faced by the middle and the bottom.

Stiglitz notes Summers’ role in the repeal of Glass-Steagal, but he then goes on to discuss something that I haven’t seen anyone else raise: the impact of Larry Summers’ and Bob Rubin’s decisionmaking during the financial crises of the early 1990s. (It’s a subject Stiglitz covered persuasively and eloquently in Globalization and Its Discontents.)

At Treasury in the 1990s, Mr. Summers encouraged countries to quickly liberalize their capital markets, to allow capital to flow in and out without restrictions — indeed insisted that they do so — against the advice of the White House Council of Economic Advisers (which I led from 1995 to 1997), and this more than anything else led to the Asian financial crisis. Few policies or actions have greater culpability for that Asian crisis and the global financial crisis of 2008 than the deregulatory policies that Mr. Summers advocated.

Stiglitz writes that Summers’ advocates talk up his experience in crises, and rather wickedly concedes that “to be fair, Mr. Summers has been involved in several crises.” It’s just that Summers’ actions before, during and after them have a) led to crises, b) exacerbated crises, and c) enhanced the likelihood of subsequent crises.

Essentially, Stiglitz says, Summers has gotten things wrong pretty much every time he had a chance to get them right.

Joe Stiglitz’s feelings about Larry Summers are well-known, at least in the world of people who follow economic debates. Still, it’s a big deal when a Nobel Prize-winner takes such a public stand against a potential presidential nominee. His conclusion is stark and, I think, devastating:

The country has before it one candidate who played a pivotal role in creating the economic problems that we confront today, and another candidate of enormous stature, experience and judgment.

I had begun to think that Summers’ nomination, if not his confirmation, was a done deal. Now, with the rising drumbeat of opposition and the President politically weakened from his bizarre handling of the Syria issue, I’m not so sure.

Sure you do. Because it’s a complete coincidence that the White House just floated the idea of nominating Lael Brainard, the undersecretary for international affairs, to the Fed board…

In other words: Hey, we may be screwing over Janet Yellen. But we’ll make it up with Lael Brainard!

By making an apparently offhand remark about confiscating Syria’s chemical weapons?

And if so, did he do so on purpose?

Because if it wasn’t on purpose, boy, did he just screw up…

The NY Post follows up on a Crimson piece which finds that “nearly half of the school’s incoming freshmen admitted to cheating on homework, exams or other assignments in their young academic careers.”

Seriously?

It’s been a while since I was in high school, but I seriously doubt that 50 percent of my classmates cheated. (I didn’t.) It would not have been respected…

As predicted here, the Massachusetts senator has announced that she would not vote to confirm Larry Summers as chair of the Fed.

She joins Jeff Merkley of Oregon and Sherrod Brown of Ohio in public opposition, making Summers’ confirmation start to look…well…challenging.

The Wall Street Journal reports:

Democrats hold a two-vote majority on the 22-member panel, so the loss of three Democrats would make it impossible for Mr. Summers to advance to the full Senate for a confirmation vote without the backing of some of the 10 Republicans. No Republican has publicly expressed support so far for any potential White House nominee for Fed chief, giving President Barack Obama little margin for error..

This event allows me to air a pet peeve, which is to lament the ubiquitous description of Larry Summers as “brilliant.” In some ways, yes, absolutely. But the term is applied far too broadly, and as a result glosses over the areas in which he is not brilliant.

For example: Elizabeth Warren has plenty of reasons, I’ve no doubt, to vote against Larry Summers on the merits. But surely she has not forgotten that Summers apparently blocked her own nomination to head the Consumer Financial Protection Bureau, the agency which she conceived of and fought passionately to bring to fruition.

Now, Summers could never have predicted that Elizabeth Warren would go off and, gosh, run for Senate and win. Right?

Maybe, maybe not. But having rejected Warren for wrongheaded and perhaps sexist reasons—quick, name an influential Obama economic advisor who is female—he underestimated Warren. Only to find that this time around, his fate is partly in her hands.

Is that a dish of nice cold revenge I see being passed around Capitol Hill?

The paper blasts Summers in a very strongly worded editorial that basically says the President would be an idiot for nominating him to chair the Fed.

Mr. Summers’s reputation is replete with evidence of a temperament unsuited to lead the Fed. He is known for cooperation when he works with those he perceives as having more power than he does, and for dismissiveness toward those he perceives as less powerful. Those traits would be especially destructive at the Fed, where board members and regional bank presidents all bring their own considerable political power and intellectual heft to the Fed’s decision-making on monetary policy and financial regulation. Putting Mr. Summers in charge would risk institutional discord or worse, dysfunction.

And that’s just one paragraph—there are more! Several more!

How much, I wonder, does President Obama want this fight—even as he drains his political capital trying, it appears not very successfully, to get members of his own party to vote for military action against Syria?

As the Yankees gear up for their four-game series against the roughnecks from Boston, here are two crucial facts.

1) Ounce for ounce, the beer at Fenway is the most expensive in Major League Baseball, a full 20 percent more expensive than that at Yankee Stadium.

2) Red Sox pitchers throw at Yankee hitters a lot more than Yankee pitchers throw at Red Sox hitters. A lot more.

Yankees sweep, anyone?

(I’d settle for three out of four…)

No, that isn’t a reference to visitors to Larry Summers’ vacation home in Truro.

Alec Wilkinson in the New Yorker has a nice piece about the return of great white sharks to the waters off Cape Cod. I am deeply jealous that he got to write it (and I didn’t)…but it’s a good read, so there you are.

There are two ongoing stories in the news and, for purposes of blog links, in the New York Times that may seem unrelated—but I think they aren’t: President Obama’s determination to bomb Syria could very well affect Larry Summers’ nomination to be Fed chair.

Let’s assume that Summers is Obama’s pick; I think that’s a safe bet by now. In fact, it appears that the president never even seriously considered Janet Yellen.

The Fed chair must be approved by the Senate, and Summers faces significant Republican opposition in the Senate. He also faces some Democratic opposition. There will be a fight in the Senate if Obama nominates Summers, and Obama will need the votes of every Democrat, including progressives such as Elizabeth Warren, he can get.

(I myself don’t see how Elizabeth Warren votes for Summers without completely and permanently undercutting her political identity. But…let’s play this out.)

Before Obama nominates the Fed chair, though, he must deal with the Syria issue. (Summers would probably have been announced as the nominee this week if it weren’t for Syria.)

And Syria will also require support from Senate Democrats—like Elizabeth Warren—who probably have deep misgivings about military action against Syria.

Here’s what I think: Obama gets one of these votes from the Senate liberals. He doesn’t get both. There is simply no way that he can twist their arms and ask them to take a bullet, as it were, on the Syria vote. And then go back to them a week or so later and say, now that I asked a lot of you on Syria, I’m going to put you in the exact same political position—infuriating your base, compromising your principles—and ask you to support Larry Summers.

In fact, I think the president may actually feel an anti-Summers backlash because of the Syria vote. A “are you kidding me?” sort of anger. I held my noise and voted for you on Syria, but I’m not happy about it and I’m going to take it out on Larry Summers.

Which vote is more important to Obama? It doesn’t matter. The Syria ball is rolling; he can’t back out now. Harry Reid could bring a motion supporting military action to the Senate floor as early as Monday. It will be very interesting to see which Democrats vote for it.

And by the way: Today’s NYT story on brutalities by Syrian rebels, with its 3/4 page above the fold pic of rebels about to assassinate prisoners of war, makes the Syrian vote a lot harder for Obama.

It would take the political genius of Lyndon Johnson to pull this off in the Senate. I don’t think Obama can do it; there will be political fallout.

Here is a question I would put to Summers supporters. Putting aside matters of policy and whether Summers is the right choice on the merits…has anyone ever benefitted politically by backing or allying themselves with Larry Summers?

So if you do back or ally yourself with him…are you willing to pay the price?

Somewhat late to the party, the Times looks at the increasingly certain prospect of Larry Summers as the next Fed chair and writes that, even before Summers becomes chair, the markets are dropping as a result.

The jitters even have some analysts betting that a Summers nomination could lead to slower economic growth, less job creation and higher interest rates than if the president named Janet L. Yellen, the Fed’s vice chairwoman.

…Julia Coronado, chief North America economist at BNP Paribas…estimated that this Summers effect would reduce domestic economic growth by 0.5 to 0.75 percentage point over the next two years, which could reduce job creation by 350,000 to 500,000 jobs.

I agree with David Warsh (and thanks to RT for posting his column):

The nomination of the next chair of the Federal Reserve Board has serious implications, for the world, the United States, and for Obama’s presidency. Evidence is accumulating that the president is on the verge of making a very big mistake.

The side of Barack Obama that thinks it’s a good idea to nominate Larry Summers to run the Fed is the side of him that depresses and disappoints me. That and a buck-fifty will buy you a cup of coffee, but there is a larger importance to it: Obama’s apparent devotion to Summers reflects his desire to work with and mollify the status quo, and shake things up far less than one wishes he might. (The irony is that even the status quo—i.e., Wall Street—appears not to want Summers as Fed chair.)

There is one scenario that could be playing out here that holds out some hope: It’s possible that the stories of Summers’ inevitability have been planted, prematurely, by his advocates to damage Yellen and make Summers, well, inevitable. They have damaged Yellen, there’s no doubt of that. But that doesn’t mean that Summers is inevitable.

I expect we’ll find out in the next few days. Even the president must know that this bit of political theater isn’t doing anyone any good—including himself.