Kass: Summers vs. Yellen
Let's now delve into the modest regulatory, monetary, personality and forecasting differences I see between Summers and Yellen.
Summers vs. Yellen: Regulatory Policy
Summers and Yellen share similar views on many regulatory issues, according to a review of their public statements and interviews with friends and colleagues. Both forged academic careers as members of the economics counterculture that attacked the dogma of efficient markets. They both believe that markets require regulation to prevent abuses, ensure fair competition and prevent disruptions of economic growth. Regulatory policy will be important in upcoming years and, as contained in a recent New York Times article, "[T]he next head of the Fed faces controversial decisions, in particular, about what safeguards to impose on the largest financial institutions to make it credible that if they falter, they will be allowed to fail."
Dodd-Frank provides an instruction manual, but the interpretation and construction process remains incomplete. Financial regulation will fall on the new Fed chairman, who in the past has been selected almost entirely based on monetary philosophy. That said, it is hard for me to separate Summers and Yellen as regulators.
Summers vs. Yellen: Monetary PolicyThe reality is that Janet Yellen might be somewhat more dovish than Larry Summers, but even a number of Fed members have questioned the efficacy of quantitative easing and the wisdom that the only prescription to promote economic growth is more cowbell. It remains my view that as we move out over time, it will become increasingly clear that more easing will be ineffective or even counterproductive. So, the marginal differences in Summers'/Yellen's hawkish/dovish monetary views will further lose significance.
Summers vs. Yellen: PersonalityI get that Summers is polarizing and that Yellen is a consensus builder, but I can make the case that the challenges ahead are so monumental that a Volcker-like Fed chairman (i.e., Summers) is preferable to a conciliatory Yellen.
Summers vs. Yellen: Forecasting Accuracy and Oversight
"For my own part, I did not see and did not appreciate what the risks were with securitization, the credit ratings agencies, the shadow banking system, the SIV's -- I didn't see any of that coming until it happened." -- Janet Yellen, Financial Crisis Inquiry Commission (2010)As well, Janet Yellen should be considered no better or worse a forecaster than her predecessors nor relative to Summers' accuracy of projections in the past. Indeed, all of the previous Fed members missed the credit bubble but not many defended the housing bubble and the disastrous Fed policy of letting them play out (as Yellen did) and then tried to print up the pieces. (If you don't believe me, check out this Yellen speech back in late 2005.)
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