Wednesday, September 4, 2013

More on Summers and the Fed

I keep hearing (and reading) more and more that Obama will nominate Summers, rather than Yellen. David Warsh says in his last column (here):
"Evidence is accumulating that the president is on the verge of making a very big mistake. Last week John Harwood, of CNBC, reported that a 'Team Obama' source had told him that Lawrence Summers would likely be nominated in a few weeks."
Further, Warsh does point out an often forgotten problem when discussing Summers possible appointment. He says:
"there is an issue of serious corruption. ... Summers’s best friend and foremost protégé, Harvard professor Andrei Shleifer (and Shleifer’s hedge-fund operator wife) attempted in 1996 to steal from better-qualified competitors Russia’s first license to sell mutual funds – all the while leading Harvard’s State Department mission to teach Russians American-style market fair play. The mission was shut down amid much embarrassment after their actions were revealed; the US Justice Department sued Harvard and Shleifer and got its money back. Summers’s role in the affair and the subsequent investigation, heretofore almost completely ignored, presumably is about to get a good going over in the administration’s “vetting” of his candidacy, in the newspapers, and in whatever comes next."
Mind you, I'm not sure the appointment of Summers, if it really happens, is a watershed as Warsh suggests. Yellen would pursue similar policies (and both would probably be close to Bernanke's stance on the main issues), even if she would be better, and I would prefer her. They are all New Keynesians, and you should not expect a big difference.

PS: Yes Harvard had the spreadsheet mistake, and Keynes is gay and didn't care about the future scandals recently, but one should not forget the Russia consultancy scandal.

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