Janet Yellen is back where she started: The presumptive next chairman of the Federal Reserve. Larry Summers, President Barack Obama’s favored candidate to run the Fed, withdrew his name for consideration for the post last evening -- leaving the job almost certainly to Yellen.
Summers had the support of not just Obama but also his coterie of economic advisers -- Jason Furman, Tim Geithner, Jack Lew, Gene Sperling -- who grew close to one another and to Summers during the Bill Clinton administration. If Summers had the inside track, however, an odd mix of supporters boosted Yellen: economists outside the White House, the press and a band of Summers-hating progressives.
The last group dealt the deathblow this week. To them, Summers wasn’t one of the most accomplished economists of his generation (as he surely is) but a mistaken deregulator and an incorrigible misogynist. However unfair and overstated, the case against Summers swayed Democratic senators on the banking committee, which would have had to give an initial nod to the nomination before it could go to the Senate floor.
Senators Sherrod Brown, Jeff Merkley and John Tester said they’d vote no -- and though she never spoke against Summers, Senator Elizabeth Warren wasn’t a likely yea vote, either. Because Democrats hold a two-seat majority on the committee, the lack of support would require Republican cooperation. That would have complicated but not killed the nomination. If the White House really wanted Larry Summers at the Fed, they could have had it.
But it would have cost them with their own people. Liberals feel like they’ve been run over repeatedly: military strikes on Syria, broad surveillance from the National Security Agency, budget sequestration, you name it. So they sympathized with the important thrust of the case against Summers: that the White House has picked the other side in a battle between the moderate Clinton-era insiders and an insurgent progressive base.
This was really never about monetary policy -- which is sad, given that it’s the only function of the Fed where it has independence. And I don’t think this was about Summers’s record on financial regulation, although that’s debatable. It was clear that Summers’s views had changed (even if how fully they had changed wasn’t so clear), as I wrote when he was under close consideration. Nor is it as if the issue stopped the Senate from confirming enough of his colleagues, who shared the same opinion at the time, to make the West Wing a family reunion.
No, this was about tribalism. In the mind of progressives, the Democratic Party has let them lead on social issues -- see Obama’s quick “evolution” on same-sex marriage -- but locked them out of the room where tax rates are set, trade agreements signed, budgets drawn up and regulations stamped. It could only keep them pounding at the door for so long.
“This is a complex moment in our national life.” That’s what Summers wrote in his withdrawal letter. He doesn’t elaborate, and it’s an odd remark to leave hanging. I think he’s writing about change in the Democratic Party as it junks the centrists’ prerogative to set economic policy. I think he’s writing, too, about betrayal. The White House put him into public consideration and then sat there while the left took a scalp.
The politicization of this contest was in error. Never before has there been a “race” for Fed chairman, and there shouldn’t have been one this time. As Summers himself wrote in a famous paper, monetary policy needs its independence. It caps, too, a disturbing trend: Republicans scotched Peter Diamond’s nomination in 2011, as did Democrats to Randy Kroszner’s in 2008.
This is a precedent we will regret when, in some distant future, we once again need the Fed to crush inflation at the cost of mass unemployment or when, as now, we want a Fed chairman that would accept some inflation to pull us out of the remnants of a deep recession. It’s why Obama could never make Christina Romer a Fed governor today even though she has the stuff.
I’m a big fan of Janet Yellen. I think she has the ideal combination of experience at the Fed and ideas as to where it should go -- most important to me, she has masterminded the Fed’s all-important communications strategy. But I’m as big a fan of Larry Summers as ever, and this was no way to pick the leader of a central bank.
(Evan Soltas is a contributor to the Ticker. Follow him on Twitter.)