Progress at the Fed? [OPINION]
Former Treasury Secretary Larry Summers has withdrawn himself from consideration as a replacement for outgoing Chair of the Federal Reserve, Ben Bernanke. This opens the door for current Vice Chair, Janet Yellen, who has emerged as the favorite of the left.
There are many who argue that in terms of day to day impact, the Chair of the Fed has more influence than the President. Could we actually be putting a progressive into a position where she could do the most good for the US economy?
Avoiding a Summers led Fed is a step in the right direction, but don’t break out the bubbly prematurely. Obama hasn’t nominated Yellen yet, and even if he does, despite being an improvement over the alternative, she is not exactly a dyed in the wool progressive.
Both Summers and Yellen were part of the Clinton team in the 90s that pushed for NAFTA and the repeal of Glass-Steagall. That deregulation of Wall Street is directly responsible for the creation of the “Too Big To Fail” banks at the center of the financial crisis. If the story ended there, Yellen wouldn’t be any more suitable than Summers.
Since the Clinton Administration, Summers failed to see the writing on wall regarding the housing bubble and resultant financial crunch, was the lead Obama advisor pushing for the insufficient stimulus funding in an attempt to avoid the political stigma of a trillion plus dollar price tag, and made a reputation for himself as a sexist through his poor relationships with female colleagues and his “innate ability” statement as president of Harvard.
During that same time frame, Yellen distinguished herself as the head of the San Francisco Reserve Bank, eventually being promoted to Vice Chair. Yellen recognized the dangers of the housing bubble and financial collapse at a time when the cautions of many prominent economists were being ignored by her colleagues at the Fed.
There are basically three things that the Federal Reserve Bank is supposed to do: avoid unnecessary inflation, keep unemployment as close to the natural rate as possible, and serve as a watchdog for the banking sector. Since Greenspan, the Fed has focused on the first directive, virtually ignored the second, and only worked to eliminate existing bank regulations.
We need a new Fed chair who will completely reverse the Greenspan course, and despite his Democratic Party bona fides, Summers was not going to be that person. His connections to Wall Street make him exactly the kind of Democrat that has weakened the party brand and confused the would-be working class voter as to which party has their back.
It isn’t exactly clear what Obama saw in the now preempted Summers nomination. One can understand wanting to reward loyalty, but the failing upwards that a Summers chairmanship would represent is almost Dubya Bushian in its tone deafness.
Despite her somewhat spotted past, Yellen’s champions in the Senate assure us that the pro Main Street quotes attributed to her in recent years mean that she will take the Fed back in the direction it was meant to take.
You can be sure that no matter who Obama’s nominee was, Republicans would have decried that person as no less than the second coming of Karl Marx. So, whatever additional reservations they might have about Yellen, need to be completely ignored. Democrats have the power to get her through the Senate, and they need to use it.
If Yellen is the nominee and eventual Chair, we can only hope that the lessons of the last 20 years have not been lost on her. What is good for Main Street turns out to be good for Wall Street as well, but it doesn’t necessarily work in the opposite direction.
The “Too Big To Fail” banks are even bigger today than they were 5 years ago, and with Congress immobilized we need a Chair who is willing to use all the powers granted to the Fed to boost the entire economy, not just the stock market.
The opinions expressed in this commentary are solely those of John Gossom and do not reflect Results Radio, Townsquare Media, its sponsors or subsidiaries.