Yellen has a perfectly solid relationship with Bernanke, as best as I can tell, but she’s more of her own thinker within the institution. She has spent her time as vice chairwoman urging Bernanke and her other fellow policymakers to shift policy to try to do more to combat unemployment, and thinking through ways to do just that. She even had one economist who functioned for a time as something of a de facto chief of staff, Andrew Levin. And people dealing with her within the Fed have viewed her not so much as Bernanke’s emissary but as her own intellectual force within the organization… She is always meticulously prepared, a careful and systematic thinker who chooses her words carefully.
There has been a lot of commentary on Neil Irwin’s report on why the White House doesn’t want Janet Yellen to chair the Fed, with good reason. The merits of Yellen versus Summers aside, it sounds as if the WH wants Summers, and doesn’t want Yellen, for all the wrong reasons. They want a team player — and consider Yellen’s somewhat independent stance as a liability, even though she has been consistently right. They consider Yellen diminished because she wasn’t part of the team making policy in 2009 — when most people outside the WH don’t consider 2009 anything like a policy triumph.
Let’s break that last one down a bit more. It is overwhelmingly clear that, as some of us warned at the time, the stimulus was too small and too short-lived. We can argue until we’re blue in the face whether the WH could have gotten a bigger stimulus, or at least built into its plans a mechanism to get additional stimulus down the road, say via reconciliation; we can also argue about whether it could have driven a harder bargain with the banks, possibly taking one or two into receivership to encourage the others. What’s clear, however, is that the inner circle badly misjudged the scale of the problem — and their overoptimistic forecasts and pronouncements haunt them to this day.
Oh, and Yellen was right when they were wrong.
Voltaire:
It is dangerous to be right in matters on which the established authorities are wrong.