Everyone is reporting that later today Janet Yellen will be officially nominated to be the new Federal Reserve Chairman. That’s overall good news. Listening to NPR this morning, I was kind of annoyed to hear people talking about what a monetary dove she is and how she will focus on unemployment. I have no doubt that she is indeed a bit dovish compared to Ben Bernanke. Ditto about concern for full employment. But come on: Yellen has been thoroughly vetted by the banking system. She would never have reached such institutional heights had she not been a team player—the team, of course, being the oldest team in American: the Washington Plutocrats.
There is some chatter that because of Yellen’s academic work on the use of monetary policy to increase employment, she might be more aggressive in that regard. But roughly the same thing was said about Bernanke. He had done a whole lot of work on unorthodox monetary policy as a means of stimulating the economy when interest rates were already effectively at zero. But as Fed chair, he did very little of that. I expect the same thing from Yellen.
Many people have wondered why Bernanke did so little, and will likely wonder why Yellen goes on to act similarly. I think it is all about tribal identification. Why should a Fed chair stick his or her neck out in the job? Doing something unusual could have disastrous consequences. No one will blame them for doing what is tried and true. The possible up side for such neck sticking would be huge for people like me and almost everyone I know. I don’t think that either Bernanke or Yellen have close friends who are in any pain because of high unemployment. But they have lots of friends who are hurt by inflation.
None of this is to say that the Yellen pick is bad—not at all. If we want consistency and dependability anywhere, we want it at the Fed. But if I had had my druthers, I would have selected Christina Romer. Now that might have stirred things up at the Fed. But Obama didn’t even listen to her when she was chairman of the Council of Economic Advisers. He’s far too conventional to nominate her for Fed chair. And the Republicans would have been apoplectic. So Yellen is a good pick and I’m sure she will do at least as good a job as Bernanke, and far far better than Greenspan.
But now that the whole thing is done, I can’t help but think back on the whole Larry Summers controversy. I am divided about him, but I never thought he should be Fed chair. But I am totally with Brad DeLong in thinking that Obama treated him very badly. If Obama really wanted Summers in the job, he should have supported him. He shouldn’t have allowed Summers to hang out in the wind. What’s more, he should have seen the problems ahead of time. Yellen was always the obvious pick, and allowing Summers to be seen as the top choice was not only bad for Summers, it made the administration look sexist.
As a result of all this, the Yellen nomination casts a shadow. But it isn’t on her. It’s on Obama. Now we just need to get her confirmed and see what she does. And I fully believe that will end up being the usual thing with some minor variations. And that’s just fine. Minor variations can make a huge difference.