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Replacing Larry Summers -- With Whom?

Stocks in this article: CAT GE

The chairman of the National Economic Council is the gatekeeper to the Oval Office for economic information, and principal adviser to the president on policies for economic recovery.

He prepares the daily brief on all the economic data journalists and analysts report and write about. Hence, replacing Larry Summers with someone from industry, for example Anne Mulcahy, former chief executive of Xerox (XRX), would be a mistake even if that is likely to happen.

TheStreet's Political Pulse

Mulcahy simply doesn't have the background to effectively advise the president on the intricacies of topics ranging from the Consumer Price Index to the effects of inventory purchases on actual and sustainable growth in gross domestic product. Think of it like an NFL team -- you want a running back as your featured back, not a wide receiver.

The administration needs private industry expertise but other vacancies will emerge in the Cabinet -- for example, Commerce secretary -- and it would be better to put Mulcahy there, or at Health and Human Services to implement national health care. She is currently chairman of Save the Children.

Whoever the president picks, the person will be liberal. Economists know that temporary investment tax credits and jobs tax credits only have temporary and quite limited effects, but this president likes that sort of thing. Summers' replacement must be an economist that will go along or an industry leader who can polemic an alibi or be excused for not knowing better. This person, if it is an economist, must soft-peddle the limitations of policy tools President Obama likes.

Oft-mentioned Laura Tyson is the perfect fit. She is a champion of industry and manufacturing, is liberal and is an accomplished economist -- she is rather flexible in her interpretation of economic evidence. She is not the Harvard theoretician Northeastern liberal establishment economists would recommend, a.k.a. Alan Blinder from Princeton, but the establishment can't oppose her because of her tour of duty as Clinton Chair of the Council of Economic Advisors.

Summers deputy, Diana Farrell, has liabilities among manufacturers. She has a track record of advocating outsourcing. That would make her a friend of multinationals heavily invested in China, like Caterpillar (CAT) and General Electric (GE), but would hurt her with domestically focused companies that want something done about China.

If Obama goes with Farrell, it is a key indicator he is not serious about outsourcing and doing something about China's currency and protectionism.

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