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August 14, 2013

Hicks: Excellent choices for Bernanke successor

Summers and Yellen top the list

A great debate underway regarding the successor to Federal Reserve Chairman Ben Bernanke seems to come down to economists Lawrence Summers or Janet Yellen. The debate is full of interesting insight but it’s the immediate challenges of the Fed that matter more.

Both Summers and Yellen have remarkable credentials. Both have led the council of economic advisers and are related to Nobel Prize winners. Summers has been secretary of the U.S. Treasury; Yellen was president of the San Francisco Fed. Yellen is a former dean at Cal Berkeley; Summers is a former president of Harvard.

Both are center-left economists whose academic research is foundational to our understanding of many major problems the world faces. Both are fine classroom teachers. It is worth recognizing that both could easily earn 10 times the Fed chairman’s salary in the private sector.

Many in the president’s party are pushing hard for Yellen because of gender and against Summers because he is linked to the financial services sector. Both arguments are silly, of course. To raise Yellen’s gender as a qualification diminishes her astonishing accomplishments. She is as well-qualified as anyone living.

The anti-Summers argument is equally absurd, but for the American left, the financial sector has replaced mining as public enemy No. 1. I don’t know why, for the financial sector — especially Wall Street — has long been a friend of Democrats.

I can only surmise the left’s hatred shifted from mining to finance following the 2008 election. It could be the EPA has so slowed mining that it has dropped off the radar of alleged evildoers, or it could also be that the recession dried up campaign donations from the financial sector.

The absurdity of this is that the Federal Reserve is the largest regulator of the banking system. Intimate familiarity with the financial sector is necessary for the job, but that is not the prime challenge facing the Fed.

The great problem facing the Federal Reserve in the years to come lies in deciding how and when to tighten monetary policy. The next chair must communicate these decision points to a skeptical public and policymakers. This involves explaining the results of complex mathematical models to reporters and members of Congress, which is not a trivial task.

If these were normal times, Summers would have an edge. He is a masterful macroeconomic researcher. However, these are especially abnormal times, and Yellen’s research, including important macroeconomic work, gives her the edge. Whichever economist the president chooses is ready for the job.

Michael Hicks is director of the Center for Business and Economic Research at Ball State University.

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