Tuesday, August 27, 2013

Summers to Fed?

The fact that Summers to Fed has even been discussed is a sign of complete economic illiteracy by the administration. It's genuinely shocking that there isn't a single person in the administration either smart enough or brave enough to say so. 

First, the positive. I think he'll do a better job than his critics suggest on bank regulation. He doesn't like the complex regulatory schemes that others within the administration have favored because he thinks complex rules are too easy to be gamed. On this, I agree. 

However, to anybody who thinks this role is primary (like, clearly, Obama), have you been paying no attention at all to anything happening in stock or credit markets? The stance of monetary policy - QE, tapering, IOR, *interest rates*.... That literally shapes the path of the US economy, and Summers is simply not qualified to carry that out in two important ways. Content wise, I agree with Scott Sumner - he has zero knowledge of monetary policy at the zero bound. His "paper trail" suggests he believes monetary policy is ineffective at the zero bound. This is an absolutely archaic notion, and this belief outweighs any potential role as a financial regulator. It's like asking your pediatrician to be your dentist because he's generally smart and great with kids when he has never worked on teeth before. 

Speaking of great with kids, the other qualification for Fed chair is temperament with the media. Every time you speak, six billion people hang on your every word. Thousands of people make a living interpreting what you say and how it will affect monetary policy over the short, medium and long run. It is a position for somebody who doesn't speak thoughtlessly, who understands the importance of every word they say. Watch one Bernanke press conference and you'll see exactly what I mean - the man is extremely careful to preserve 100% the credibility of every word  coming from both the institution and the position. And should be! Larry Summers is notoriously thoughtless and blunt in his opinions. Has everyone forgotten how he got himself fired from Harvard? How he alienated people there, how he alienated people in the government working there, his style in every meeting?

I believe Larry Summers would have made an excellent Treasury Secretary- better in his little finger than Jack Lew could ever hope to be with his whole body. Summers WAS a good treasury secretary under Clinton and would handle the increased importance of the position with aplomb. But Fed Chair? Is Obama completely incompetent?

I hate the perception, looking at my opinions, that I've moved rightward. I'm as difficult to place as always. I just think this administration is being run by an (economic/managerial) idiot. 

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