By: Thomas Bolder
New York, NY – Just a few short months ago, the favorite to succeed Ben Bernanke as head of the Federal Reserve was the central bank’s Vice Chair Janet Yellen. All sorts of surveys among economists pointed to Yellen as the person United States President Barack Obama would tap as the next most powerful person in the country.
Reports have surfaced over the past couple of weeks that former Treasury Secretary and ex-director of the White House National Economic Council Larry Summers is now the frontrunner to become Chairman of the Federal Reserve next year when Bernanke opts not to seek a third term.
Finance experts have been alluding to the fact that Summers has kept close contact with the White House since leaving his post. According to records, the former Harvard University president has visited 1600 Pennsylvania Avenue at least 13 days. Yellen, meanwhile, has only been to the Oval Office once since Obama became president – even Robert Ferguson, former Fed Vice-Chair, has been to the White House more often (10 times).
Summers played a tremendous role in the president’s economic decisions in 2009 and 2010. He was one of the architects of the bloated stimulus package, but was harshly criticized for having ties to private companies that he then had influence over as a civil servant – Summers earned $5 million from the hedge fund D.E. Shaw and received $2.7 million in speaking fees from Wall Street firms that received taxpayer bailout funds.
Regardless of the two individuals’ past records, the philosophies of Summers and Yellen are quite similar and neither should be selected to run the Federal Reserve. The wisest thing for the central bank to do would be to tap Austrian Economists to lead the Board of Governors (but that won’t happen anytime soon).
Although Yellen was initially seen as an opponent to inflationary measures and the policy of low interest rates, soon after she was sworn in, she quickly changed her tune and espoused the virtues of this Keynesian doctrine.
“It is conceivable that accommodative monetary policy could provide tinder for a buildup of leverage and excessive risk-taking in the financial system,” Yellen said in a statement.
One positive aspect regarding Yellen’s tenure thus far has been her honesty, whether intentional or unintentional, regarding Fed policy. It was reported that Yellen admitted that the unemployment rate is actually a lot higher than the seven or eight percent figure, while also conceding the central bank’s initiatives haven’t helped the recovery.
Nevertheless, Yellen has towed the line in agreeing with the quantitative easing measures and the inflationist steps. This has worried several Republican Senators, who view that inflation could accelerate if the economy improves over the course of the next few years. In fact, it is quite possible the GOP senators could block her appointment because of her support of the Fed’s campaign. However, financial experts concur that she wouldn’t hurt financial markets because she already holds considerable influence.
Yellen hasn’t spoken much about her future so it is somewhat difficult to foresee how she is to handle her role as head of the Fed. Her colleagues, though, such as Christina Romer, a former chairwoman of Mr. Obama’s Council of Economic Advisers, noted Yellen should be the very first pick.
“In the realm of plausible candidates, she is by far the best,” said Romer in an interview with the New York Times.
In his past speeches and writings, Summers sounded like a libertarian because he explained that unemployment insurance and welfare payments contribute to unemployment and corporate and capital gains taxes are insufficient forms of taxation. However, during his years in the Obama administration, he proved that he believed in the status quo and that the marketplace needed government intervention.
One can state profoundly how wise markets are. But when people have the opportunity to restrain government and to permit capitalism, free markets and a free people to do their work, these individuals should look back to what they have been preaching for years.
Perhaps Summers’s participation in the Michael Dukakis presidential campaign of 1988 proved that he was inept and shouldn’t be involved in politics.
In the end, the appointment of either Summers or Yellen will come down to this: whoever wins, the American people lose and the status quo wins.
Here are some fantastic picks to succeed Bernanke:
Gary Johnson (maybe)
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