Money Printer General: Larry Summers or Janet Yellen?

That’s the debate of the moment, folks. Evan Soltas tells us Brad DeLong and Miles Kimball – both accomplished Summers’ colleagues and collaborators – think he’s the way to go. Matt Klein, also for Bloomberg, thinks Larry Summers’ bet on interest rates in 2004 disqualifies both his competence and humility. Barry Ritholtz thinks Summers’ pro-dergulation politics were a train-wreck and would prefer “anyone but Larry Summers”. Whatever the case, I’m sad this debate doesn’t include Christina Romer, but I’ll bitch and moan somewhere else. (Edit: Actually, that’s a lie, I want Paul Krugman. And a billion dollars, too).

The debate (as stated by others) can be captured almost totally by this matrix:

Larry Summer Janet Yellen
Pros Dominating, cutting brilliance, superstar Monetary credentials, dovishness, brilliance
Cons Dominating, unflinching, arrogant, deregulator Not dominating, not an alpha male

A few months ago, I wrote that Janet Yellen has the edge. I wrote that Larry Summers had what Walter Isaacson said of Steve Jobs: a “reality distortion field” – an uncanny ability to use his rhetoric and excellent debating skills to bend those around him to his view. Much of this view is informed by Ron Suskind’s Confidence Men, what everyone epithetically says of Summers – he is beyond human brilliant – and a personal experience.

I was once (not all too long ago) in a very small room, with a very small number of people and Larry Summers was at the center. I think it was off the record, or something to that effect, but it was basically Larry Summers vs. 2007. I entered that room with Inside Men fresh in my mind. But I left with an unmistakably altered view, both on the man and the matter.

Suskind tells us he had a similar effect on Obama. But when I wrote that Summers’ dominating presence was overrated, I thought that Ashok Rao and Barack Obama were very different from the Open Market Committee. We were educated lay people without PhDs in economics. I’m also sure I can convince someone sufficiently dumber than myself that austerity is a good thing. That doesn’t mean shit. I firmly believed that Larry Summers would face far stronger competition – from Yellen included – in the hallowed halls of Harvard the Federal Reserve. I wrote:

So clearly I think Summers is a gifted scholar. For one, it’s kind of funny Yellen’s experience in the central banking system is taken as a bygone conclusion, with far more emphasis on Summers’ “intellectual leadership”. The question is “to whom”. You take a few smart and relatively well-educated people. You put Larry Summers and Janet Yellen in a room with them. There’s probably a very good chance Summers would come out as the “more impressive” character.

But you take two, highly-competent economists, and I’m willing to bet they’re equally confident in Yellen’s intellectual leadership. Now let’s actually talk policy, for a second. I won’t dwell on this because Yellen’s monetary credentials have been discussed in great depth for a while. She’s the rare Fed Official who actually seems to realize that inflation targeting is a disaster, and has endorsed a nominal spending target in all but name. (Christina Romer, my preferred option, has explicitly supported the same).

Miles Kimball tweeted me that I underestimated how much Larry Summers can dominate a room of economists. Based on what I know, I can’t help but doubt this. But Kimball and I agreed that I probably face a severe selection bias exposed mostly to the econ bloggers who are decidedly firmer in their beliefs than the median economist. And Summers’ ability to sway the FOMC is something both Kimball and DeLong cite as Summers’ relative strength to Yellen, and I’ll cede to that judgement.

But I can’t help but worry about the trajectory of this conversation. There’s basically no talk of Larry Summers’ monetary policy beliefs (and he even mentioned in passing something funny in the Financial Times about low interest rates and bubbles. Ugh.) That’s because the pro Larry Summers crowd writing op-eds are insiders. Brad DeLong is a frequent collaborator, Miles Kimball a colleague, and Ed Luce was his former speechwriter. Miles Kimball tweets me “I would expect Larry Summers to have similar views on monetary policy to those expressed by @delong on his blog”.

But I have no basis on which to understand that expectation. Perhaps I’m not privy to privileged information among elite economists. Maybe I just don’t know Larry Summers’ beliefs well enough. Whatever the case, I have no way of forming an opinion on what Larry Summers will do as a Fed chair. Sure we know that he’s expressed discontent with certain aspects of financial regulation, but it’s unlikely his private beliefs are unrevised. And what about his position on the zero interest rate policy? Quantitative easing? Nominal income targets?

On the other hand, while Larry Summers might be a academe-political superstar, Janet Yellen is a monetary genius. I think I sum it up well here:

It almost goes without saying that Yellen is far more established as a academic and policymaker insofar as monetary policy. All we need is a quick Google search to see the extent to which this is (perceived to be) the case. As former Treasury chief and NEC chairman – and in general a brilliant academic – Summers is the more eminent personality: yielding 6,310,000 search hits to Yellen’s 467,000.

But change the query to “[Larry Summers/Janet Yellen] monetary policy”, Yellen comes ahead at 206,000 to Summers’ 131,000. Now I’m not suggesting this is a particularly smart way to judge scholarship on a subject, but it gives a very visceral sense of Yellen’s online footprint insofar as monetary policy is concerned. Moreover, Yellen’s hits are almost entirely pages that are really concerned with relevant policy.

Deriving from his comparative fame, even Larry Summers’ “monetary policy” search hits are of no relevance. At the top are links to his Wikipedia entrya brilliant profile comparing Larry Summers and Glen Hubbard, something about healthcare, and Now please don’t get me wrong. Summers’ is probably one of the smartest economic policymakers alive today and would make great choice for central banker. But Yellen’s history and deep erudition in this subject – as well as a functioning understanding that “full employment” is 50% of the Fed’s mandate, not just scribbles on a paper – are unquestionably in her favor.

Larry Summers has without doubt engaged in private deliberations to which Barack Obama is privy. That means, ultimately, I have to resign my opinion to Obama’s judgement on monetary policy. History tells me this is not good. To the contrary, I know with excellent confidence that Janet Yellen knows her monetary policy, and rightly believes that dovish expectations will lead to higher employment. I even think she secretly supports a nominal income target.

Google “Larry Summers monetary policy” – tell me what you can get.

The asymmetry of this debate has shifted the conversation entirely from concrete monetary positions – on which I can inveigh my unsolicited opinions – to a sidebar about personality. I’m sorry but that’s just not the most important thing for a Fed chair. We’re not talking about a Treasury Secretary embroiled in politics, here.

And that’s why this conversation still gives Larry Summers the edge. When it comes to personality, academics tend to like the cutting alpha male. Genius associates itself subconsciously with everything Larry Summers represents. But the discussion on policy is vacuous. It’s taken as a foregone conclusion that his good analytical command implies that Larry Summers will follow the right monetary policy. In 2005 I would have said the same thing about Ben Bernanke – the analytical god of unconventional monetary policy. Come 2013, I don’t think Bernanke has lived up to his mandate, and many of us have updated our priors.

That said, I think Ritholtz, Klein, and friends levy an unfair criticism of Summers. It’s always something about his choice of deregulation, or a bet he made at Harvard. Unfortunately one micromotive (an interest rate swap) correlates nothing to his macrobeliefs. That he’s “pro Wall Street” says little of his command of monetary mechanics. That he’s arrogant says nothing of his private maturity in leading the world’s most important institution.

Here’s a heuristic. Larry Summers has – for many people – been a hated man for a long time. But the criticism this time is just a carbon copy of everything that’s been said before. You would expect that there would be specific concerns for a specific job. But there aren’t.

That’s a two way street. The pro-Summers commenters also offer little in his support that couldn’t have been said in service of his appointment to the National Economic Council in 2009. That says a lot about the ambiguities of the rhetoric in his favor, and we need more recognition to this effect.

Larry Summers is an arrogant, Bob Rubin acolyte? What is new? Larry Summers is a brilliant man and an even better debater. What is new?

I would rest easy that we can’t go wrong either way, but I do not trust Barack Obama’s monetary acumen.

  1. I’m sure Summers is brilliant etc. but I also think there’s a positive feedback effect in which completely unremarkable things that Summers says are taken as evidence for his brilliance. See here, for example.

    I’m not trying to slam Summers here, I just think there’s a way in which people within a closed society (in this case, economists) can puff each other up and give each other way too much credit for commonplace insights.

    • Interesting. You may be right. It reminds me of something from middle school. Beginning of the year someone says you’re smart, and other people hear that and suddenly confirm their biases if I said something smart, and ignored me for every stupid answer. And suddenly that builds up into this completely baseless perception to that effect.

      Now. I don’t think Larry Summers is like that. Impressing Harvard PhDs is clearly harder than random selections from your school. But I see what you’re saying – but it might not change things to the extent Summers operates only within economists. I was very surprised of the feedback I received on my other piece on Summers – which apparently didn’t give him enough credit – and economists really do seem to treat him as the smartest.

      And if the FOMC shares that same respect (or is loyalty a better word?) it does speak to his ability to get things done for the better. Or, perhaps dangerously, for the worse. Here’s a snippet from Scott Sumner, who does not like Summers at all:

      Me: [What do you think of Larry Summers]

      Scott: Ashok, I’d prefer Richard Fisher to Summers, he’d be an unmitigated disaster.

      Me: Wow – that’s a strong statement. What exactly do you think Summers would do that’s so dangerous? It’s not like the FOMC will bow down to every whim.

      Scott: Ashok, He’d have much more influence than Fisher, who they’d ignore.

      So it seems like it doesn’t matter that it’s all positive feedback so long as economists go with it. And I have no reason to believe that they don’t. In fact, within the past few days I’ve substantially updated my prior on how smart I think economists think Larry Summers is.

      You’ll find this link interesting, if you haven’t already seen it: [Larry Summers: The Neo-Keynesian Aristocrat]

    • Fact of the matter is it sometimes scares me that Fed Chair options are basically shortlisted by who the economics discipline thinks is competent. Of course the President plays a role, but only through the filter of his econ team. It’s a dynamic that’s always sorta worried me. It’s actually one of the things that once attracted me to a libertarian-ish view that I’ve shed since then.

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