On Rhetoric, Civic life, Gender, and Cynicism

As the current Chairman of the Federal Reserve, Ben Bernanke, is expected not to seek renomination for another term, President Obama must choose whom to replace him. The Fed chairman is always chosen by the President, confirmed by the Senate, and acts as the executive of the Fed’s Board of Governors, establishing the Fed’s policies. Essentially, he can set and influence market rates of interest using various methods in attempts to maintain comfortable inflation and unemployment rates. He also maintains the supply and availability of money and leads bank regulation. Although the Fed chairman has specific roles, his rhetoric and actions have a massive influence on the market, such as when Bernanke suggested the Fed may soon slowly increase interests rates, which caused investors to react irrationally in fear that the cost of stocks and bonds would increase accordingly. Clearly then, the President must carefully consider the candidates for the office.

It is believed that President Obama is currently considering Janet Yellen and Larry Summers to succeed Bernanke as chairman of the Fed. Although Yellen is widely supported by progressive liberals since she would be the first female chairman, she certainly has other characteristics that should be more heavily weighted. She is currently Vice President of the Board of Governors, and she was the President of the San Francisco Federal Reserve Bank. Under President Clinton, she also chaired the Council of Economic Advisors to the President. Yellen would not need any on-the-job training and could assume her roles immediately, for the most part. However, she does not have any private sector experience. Of course, the Fed should not be too intimate with Wall Street, but lacking private banking experience may disable Yellen from understanding how American banks will react to her policy and rhetoric. Lacking experience in private banking, she may also not be able to make tough decisions quickly, which is a characteristic of bankers in the cut-throat, fast-moving environment of American finance.

The other potential candidate, Larry Summers, also lacks much private sector experience, but he was Clinton’s Secretary of the Treasury and has advised President Obama. Summers’s greatest flaw may be that he valiantly supported the deregulation of derivative contracts, which essentially allowed investment and commercial banks to merge, creating the “too big to fail” banks that inflated and burst the housing bubble, causing the 2008 financial crisis. Summers believed the finance market could regulate itself and would not hand out risky loans, but clearly, that was not the case in this situation. Because the Federal Reserve has a crucial role in implementing and maintaining regulation of American banks, allowing someone who believed those banks should be able to run freely is a dangerous idea indeed. Even free-market economist Ben Bernanke realized the need for appropriate, but not excessive, regulation.

Neither Summers nor Yellen are perfect candidates, and the Fed chairman can potentially serve for over sixteen years. It would be wise for President Obama to consider other options. If he must pick between two relative evils, however, it may prove safer to choose Yellen, who at least is seen as less harsh and abrasive, as compared to Summers, by bankers and investors, so she may not invoke irrational exuberance or fear in investors and bankers as well as in the congressmen who will want to influence her. President Clinton was far more moderate on economic issues than President Obama is, so hopefully Yellen may reflect that. This would be crucial because the Fed has not been led by a “liberal” since the 1970s. And if history indicates anything, the American economy may not be pliable enough anymore to handle tough Keynesian control of the money supply. Everything is good in moderation, and Yellen may just be moderate enough.