Larry Summers, Anger Translator
Is this who you want after Ben Bernanke?
As much as anyone can deserve a job, Janet Yellen deserves to succeed Ben Bernanke as chair of the Federal Reserve’s Board of Governors. Her qualifications and service to the Fed are outstanding. But imagine for a moment if Larry Summers, the economic super-genius and political bull-in-a-china-shop who is rumored to be President Barack Obama’s pick for the job, had been sitting in Bernanke’s chair during his congressional testimony last month. Here are excerpts of real questions from members of the House Committee on Financial Services, Bernanke’s responses … and what Summers might have said:
Chairman Jeb Hensarling (R-TX): "A recent survey of 55 economists by the Wall Street Journal gives the Fed a D- for its guidance, so can you comment on your guidance?"
Bernanke: "I think it’s been very important that we communicate as best we can what our plans and our thinking is. I think the markets are beginning to understand our message, and the volatility has obviously moderated."
Summers [speaking slowly and deliberately, in gravelly near-monotone]: "I don’t mind explaining stuff. I like explaining stuff. That’s why I teach. But if I explain stuff three times. And people still don’t get it. I start to lose confidence." [Looks to the side, slaps forehead] "Now. You guys are blaming me. For the fact that a bunch of jock derivatives traders. Don’t understand monetary policy. This is not the place to discuss, in detail. The labor market in finance."
Ranking member William Lacy Clay (D-MO): "Under the sequester, state and federal governments have lost jobs. Any forecast on, if the sequester stays in place, what the condition of the economy will be next year or so?"
Bernanke: "In this recovery, even as the private sector has been creating jobs, governments at all levels have cut something on the order of 600,000 jobs. In previous recoveries, usually the government sector was adding jobs. And so that’s one reason why the recovery has been as slow."
Summers [scratches back of head]: "I have not done a systematic study. But my guess would be. That the sequester. Was the worst idea. In the history of economic policy. The Smoot-Hawley Tariff Act of 1930. Probably cost the economy less. In six months. Than the sequester."
Rep. Spencer Bachus (R-AL): "I’ve not seen a lot of discussion concerning the reduction in Treasury issuance with the deficit coming down. It seems like that would give you more latitude to reduce your purchases of Treasuries, so would you like to comment on that?"
Bernanke: "Well, the Fed still owns a relatively small share of all the Treasuries outstanding. It’s true that as the new issuance comes down, that our purchases become a larger share of the new flow of Treasuries coming into the market. Our view of it, which, you know, people disagree, is that what matters is the share of the total that we own, not the share of new issuance."
Summers [slumps in chair, looks at desk, suppresses chuckle]: "I’ll make three observations. Observation one. The national debt outstanding. Is $16 trillion. Observation two. The Fed owns less. Than $2 trillion. In Treasuries. Observation three. If a student of mine at Harvard. Asked that question. I would call. The admissions office."
Rep. Maxine Waters (D-CA): "Would you agree with the IMF’s conclusion that the austerity policies currently in place have significantly depressed growth in the United States, and to what extent can monetary policy offset the adverse consequences of the current contractionary fiscal policy?"
Bernanke: "Well as I’ve said many times, I think fiscal policy is focusing a bit too much on the short run and not enough on the long run. The near-term policies which include not only the sequester but the tax increases and other measures, according to the CBO [Congressional Budget Office] are cutting about 1.5 percentage points from growth in 2013."
Summers [shakes right hand in front of face]: "If you guys think. That anything the Fed does. Can completely offset the damage. That this august body. Has inflicted on the economy. You’re insane." [Smiles to himself] "You can win a football game. With offense. You can win a football game. With defense. But you can’t win a football game. If the offense. Stays in the locker room."
Rep. Bill Huizenga (R-MI): "I would be reticent if I didn’t pass along a question one of my friends had — should he refinance right now? I think that’s probably a question a lot of people have, I know I did not that long ago."
Bernanke: "Uh, I’m not a qualified financial advisor."
Summers [groans audibly, stares at Huizenga, starts speaking even more slowly than usual]: "You have been given. The immense privilege. Of serving the American people. In the nation’s greatest deliberative body. You have five minutes. To discuss. The most important economic issues. Facing our country. With one of. The world’s greatest. Economic minds. And this. Is your question? This. Is my answer."