Summers Withdraws from Candidacy

The big economic news of the day (at least so far today) is that Lawrence Summers has withdrawn his name from candidacy for chairman of the Federal Reserve to succeed Ben Bernanke:

WASHINGTON— Lawrence Summers pulled out of the contest to succeed Ben Bernanke as chairman of the Federal Reserve after weeks of public excoriation, forcing President Barack Obama to move further down the list of contenders to head the central bank.

[…]

Mr. Summers, a former Treasury secretary who has been one of the president’s top advisers, withdrew in a phone call with Mr. Obama Sunday morning. In a subsequent letter to Mr. Obama, he wrote: “I have reluctantly concluded that any possible confirmation process for me would be acrimonious and would not serve the interest of the Federal Reserve, the Administration or, ultimately, the interests of the nation’s ongoing economic recovery.”

Mr. Obama said in a statement Sunday that he accepted Mr. Summers’s decision and described him as “a critical member of my team as we faced down the worst economic crisis since the Great Depression, and it was in no small part because of his expertise, wisdom, and leadership that we wrestled the economy back to growth.”

I think it’s clear, as Politico observes, that the proximate cause of Dr. Summers’s withdrawal is opposition from Democratic senators:

Opposition to Summers among Senate Democrats has been obvious for weeks but it escalated on Friday when Sen. Jon Tester (D-Mont.) announced he would vote against Obama’s former economic adviser if he was nominated.

At least three other Democrats on the Senate Banking Committee were expected to oppose Summers — Sherrod Brown (D-Ohio), Jeff Merkley (D-Ore.) and Elizabeth Warren (D-Mass.) – raising the politically uncomfortably scenario of Obama needing to rely on Republican votes just to get his choice for a Fed chief out of committee.

but speculation abounds as to the real reasons for opposition to the Summers candidacy. Brad DeLong suggests that it’s because Dr. Summers is, incorrectly, considered a “Monetary hawk” or a “tool of Wall Street”. Indeed, I’ve seen some claims that Summers’s withdrawal from candidacy marks the end of “Rubinomics”, economic policy dictated by and for bond traders and speculators.

National Journal says it’s due to a string of failed economic policies:

And Summers has made a lot of errors in the past 20 years, despite the eminence of his research. As a government official, he helped author a series of ultimately disastrous or wrongheaded policies, from his big deregulatory moves as a Clinton administration apparatchik to his too-tepid response to the Great Recession as Obama’s chief economic adviser. Summers pushed a stimulus that was too meek, and, along with his chief ally, Treasury Secretary Timothy Geithner, he helped to ensure that millions of desperate mortgage-holders would stay underwater by failing to support a “cramdown” that would have allowed federal bankruptcy judges to have banks reduce mortgage balances, cut interest rates, and lengthen the terms of loans. At the same time, he supported every bailout of financial firms. All of this has left the economy still in the doldrums, five years after Lehman Brothers’ 2008 collapse, and hurt the middle class. Yet in no instance has Summers ever been known to publicly acknowledge a mistake.

and inadequacies of temperament, which I think gets to the root of the opposition Dr. Summers has been meeting in the Senate.

There is a trait that can be a fatal flaw in dealing with bigwigs, as senators unquestionably consider themselves: inadequate deference. I tend not to be particularly deferential to anyone and I’ve encountered it myself. There are really only two likely outcomes of that. Either they despise you because you don’t kowtow or, if you’ve got the goods and lay the groundwork properly, they trust you because they can rely on you to tell them the truth. Unfortunately, Dr. Summers also persistently leveraged his academic accomplishments into political judgments, disqualifying himself as “truth-teller”.

Now the speculation game is on as to who will succeed Ben Bernanke if not Lawrence Summers. Names that have been mentioned include Vice Chairwoman of the Federal Reserve Janet Yellen, Donald Kohn, a former vice chairman of the Fed, former Obama Treasury Secretary Tim Geithner who’s said he doesn’ want the job, and Roger Ferguson another former Fed vice chairman. I think a lot depends on how dearly the Obama Administration wants a Fed Chairman with close ties to it. The next nominee may be someone who hasn’t been mentioned yet.

Update

I swear I hadn’t read the observations of the Wall Street Journal editors when I wrote the above:

The real reason to oppose Mr. Summers for the Fed job is that he would have been an exceptionally political Fed chairman at a time when the institution needs the opposite. Mr. Summers is part of the Robert Rubin tong, which dominates the current White House economic staff and Treasury. If Mr. Summers had been chosen to run the Fed, he would have owed a great deal to the White House and might have turned the Fed into a political subsidiary.