Wall Street breathed a sigh of relief on Sunday when Summers announced his withdrawal from the race to become the next chairman of the Federal Reserve. Here are 3 reasons why Wall Street celebrated the Summers' withdrawal, and why the rest of America should too.
While Summers' views on monetary policy have largely been kept secret, he is known for his "hawkish," or aggressive, attitude toward Fed policies, which is dangerous for our nation's economic state. The market feared that, if elected, Summers would increase interest rates and end the Fed's recent program of bond purchases too quickly. This would be bad because when interest rates increase, the value of assets such as bonds decrease, which discourages individuals from borrowing and crimps mortgage lending and refinancing. When the Fed and individuals both stop buying bonds, our economy will see an increase in instability and debt.
Although President Obama has expressed his support for Summers, more experienced economists disagree. Joseph Stiglitz, Nobel prize winner for economics in 2001, said there are few economists who deserve more blame for the financial train wreck of the last five years than Summers. He further commented that “as a Treasury Department official during the Clinton administration, Mr. Summers supported banking deregulation, including the repeal of the Glass-Steagall Act, which was pivotal in America’s financial crisis. His great ‘achievement’ as secretary of the Treasury, from 1999 to 2001, was passage of the law that ensured that derivatives would not be regulated — a decision that helped blow up the financial markets.”
Since 2009, Summers has served as President Obama's primary financial adviser, guiding the president through his management of the tough economic crisis. Unfortunately, President Obama hasn't done a great job with managing the economic crisis, and most Americans know this. In fact, a Wall Street Journal/NBC News poll released last week found that 52% of Americans disapprove of President Obama's handling of the economy. This suggests that while Summers and the president may be on the same page when it comes to financial management, the rest of America has already moved on to the next chapter.
Although most can appreciate that Summers is a brilliant economist, he fails from a political stance because he has no interest in listening to constituents and implementing policies on behalf of the people.
Before you read the title and dismiss this argument as ad hominem, hear me out. Summers is the kind of guy who holds himself to very high regard, and when this kind of attitude is combined with his famous "abrasive" personality (even allies have used this adjective to describe Summers), it's hard to imagine he would work well with many. This is particularly problematic in the Fed because unlike in the White House, for instance, the decision making process in the Fed relies much more heavily on a consensus than on a single leader. In our already tumultuous economy, the last thing we need is more conflict arising from something as frivolous as the Fed chairman's bad personality.