Have Fed Chair Odds Really Changed?

First, current Federal Reserve Vice-President Janet Yellen was President Obama’s likely selection to take over for Ben Bernanke when his term expires next year.

Then, Ezra Klein reported that the race was between Yellen and Larry Summers with Summers the current odds-on favorite.

Then, Senate Democrats revolted and the liberal blogosphere exploded against Summers.

Last Friday, Klein posited that a dark horse candidate could emerge, such as Roger Ferguson.

Let’s take a moment to calm down, ignore “inside sources,” and look at what has really changed over the past couple of weeks.

1. Liberals are as hardened as ever against Summers
2. Summers’s few statements on monetary policy indicate he’d be more hawkish than Yellen.
3. WSJ analysis showed that Yellen’s economic predictions have been correct more than anyone else’s at the FOMC.
4. Wall Street overwhelmingly wants Yellen over Summers.

Numbers 1, 3 and 4 there overwhelmingly favor a Yellen selection. For most liberals, number 2 would also work in Yellen’s favor, but Obama’s recent interview with the New York Times indicates that he’s still concerned about inflation and may want a more hawkish Fed Chair, as Summers would be.

So, given all that, how can Yellen not be the favorite? Klein is well-connected within the Administration and if anyone had an inkling on which direction Obama was leaning, it’d be him. But it’s worth remembering how secretive this selection is. Here’s Wonkblog’s Neil Irwin just a few weeks ago:

The most important thing to know at this stage is this: The people who know aren’t talking, and the people who are talking don’t know.

For a decision of this much importance and sensitivity, the president is likely to rely on a very small number of senior advisers to come up with a short list of candidates and advise him on their strengths and weaknesses. For the Fed chairmanship, the process is reportedly being led by treasury secretary Jack Lew, and likely also includes Denis McDonough, the chief of staff. It probably includes Gene Sperling, the top economic adviser in the White House, and possibly Jason Furman, who has been nominated to lead the Council of Economic Advisers. Perhaps a close Obama adviser like Valerie Jarrett gets a seat at the table, and somebody from the ever-discreet presidential personnel office in the White House.

Whoever makes that exact list, those are the only people who actually know the state of play on the decision — who’s up, who’s down, what attributes the president really cares about. The details of the decision-making will remain closely held even within the White House until an announcement is imminent. And those on that short list of people actually in the know will reliably clam up and reveal absolutely nothing when the topic comes up, whether it is with a former colleague outside government or a reporter, even when off the record.

Former White House economic adviser Jared Bernstein said the same thing last week:

No one knows who it will be.  Sure, there’s a short list and Summers and Yellen top it–btw, I wrote those names in no other order than alphabetical.  I would very heavily discount anything you read that says anything much more than what I’ve just told you.

I’m actually a bit surprised to see Klein buying into all of this back-and-forth about who’s leading the race. Maybe he has great sources or the Administration was using him to see potential reaction to choosing Summers. Either way, the developments over the past few weeks would seem to increase the chances of Obama choosing Yellen, not hurt them. Will Yellen be the eventual selection? Maybe. Maybe not. We’re not going to know for a while. But don’t discount her because a few rumors hint at the President leaning in a different direction. The fundamentals still point to her and if anything, have only improved over the past few weeks. She’s still the odds-on favorite to be the next Fed Chair.

GOP Chooses Big Business Over Free Markets

I don’t link to other articles and blog posts on here enough. I’m trying to do it more. So here’s a piece by Ezra Klein on former Republican Study Committee staffer Derek Khanna and his support for more relaxed intellectual property laws, starting with allowing consumers to legally unlock their cell phones and to create a backup of legally purchased DVDs. In November, Khanna wrote a memo for the RSC on how to reform copyright law. It was filled with great ideas and received widespread praise across the blogosphere. Unfortunately, Republican congressmen immediately faced significant pushback from Big Business, which is very happy with the current restrictive copyright regime. The RSC pulled the memo after a few hours and informed Khanna a few weeks later that he would not be retained at the start of the new Congress. Big Business had won.

Here’s Klein:

There’s a difference between being the party of free markets and the party of existing businesses. Excessively tough copyright law is good for big businesses with large legal departments but bad for new businesses that can’t afford a lawyer. And while Khanna, like many young conservative thinkers, believes in free markets, the Republican Party is heavily funded by big businesses.

If Republicans really were for free markets, they would openly embrace Khanna’s reforms, such as stricter term limits on copyright, expanded fair use and reduced statutory damages. These policy ideas push government policy towards free markets and less regulation. As Khanna writes at the end of his memo, “[c]urrent copyright law does not merely distort some markets – rather it destroys entire markets.”

By ignoring and refuting Khanna’s ideas, Republicans are confirming what many Americans already believe: the GOP is the party of the rich and Big Business. Republicans cannot claim to be in favor of free markets and small government when they oppose such sensible reforms that would reduce government overreach in intellectual property law. It’s hypocritical to claim otherwise. At the same time, this is the perfect opportunity for Republicans to improve their image. Supporting copyright reform would prove to Americans that they are still the party of free markets.

Alas, there have been no sign that the GOP will embrace Khanna’s ideas. As for the young Republican, he’s pushing ahead promoting intellectual property reform and just earned White House support for allowing consumers to unlock their cell phones. That’s a big victory for Khanna, but there is lots more work to be done. Unfortunately, it doesn’t look like he’ll have Republican support in his pursuit of freer markets.

Switching to Chained-CPI and How Politicians Spin it

I’m getting a bit annoyed at the liberal blogosphere about how they’re spinning the proposal to use chained-CPI for Social Security. Here’s Ezra Klein:

The way we measure inflation right now really does mismeasure inflation. Chained-CPI really is a bit more accurate. But that’s not why we’re considering moving to chained-CPI. If all we wanted to do was correct the technical problem, we could make the correction and then compensate the losers.

But no one ever considers that. The only reason we’re considering moving to chained-CPI because it saves money, and it saves money by cutting Social Security benefits and raising taxes, and it’s a much more regressive approach to cutting Social Security benefits and raising taxes than some of the other options on the table.

The question worth asking, then, is if we want to cut Social Security benefits, why are we talking about chained-CPI, rather than some other approach to cutting benefits that’s perhaps more equitable? The answer is that chained-CPI’s role in correcting inflation measurement error is helpful in distracting people from its role in cutting Social Security benefits. Politicians who are unwilling or unable to offer a persuasive political or policy rationale for cutting Social Security benefits are instead hiding behind a technocratic rationale. We’re not “cutting benefits,” we’re “correcting our inflation measure.”

Emphasis mine. I sympathize with Ezra’s annoyance here. Switching to chained-CPI is being billed as a “technical fix.” If we wanted to implement such a technical fix, we don’t need it to be part of a grand bargain. Social Security benefits should increase with inflation. If we’re using the wrong measure of inflation, then we need to fix that. The reason Republicans are so set on fixing it now is because their ultimate goal is to cut benefits, not to correct the inflation measure. Thus, Ezra’s right when he says:

We’re not “cutting benefits,” we’re “correcting our inflation measure.”

However, Ezra makes the exact same error in the bolded section above. Continue reading “Switching to Chained-CPI and How Politicians Spin it”