Yet Another Reason Janet Yellen Should Be Fed Chair

This one comes from former CFTC chairperson Sheila Bair, who participated in a panel today on restoring economic growth in America. Asked afterwards about Janet Yellen’s gender playing a role in the nominating process, she responded:

Janet Yellen can stand on her own. The fact that she’s a women should be irrelevant to this. I think her gender has been working against her. Some people have been saying that if she gets it, it’s just because she’s a woman. That’s nonsense. Of all the candidates I’ve heard about, I view her as the most qualified.

Absolutely. It should be icing on the cake for President Obama that the most qualified candidate would also be a groundbreaking choice.

Bair then brought up another aspect of Yellen’s candidacy that I haven’t seen written anywhere before: her lengthy time in public service.

[Her appointment] would make an important statement about public service. Revolving door is an accepted practice in Washington. I don’t fault people who do it. But there have been a number of high-level appointments where you’ve had people going in and out of Wall Street. Janet’s not one of those people. Most of her recent career has been in public service or in academia. Some people say, ‘Well, she doesn’t have Wall Street experience.’ I view that as a positive. She hasn’t done the revolving door. She’s got a good public image. That would be another thing that argues in her favor. Others who do come from Wall Street or have come back and forth from there  will reinforce the public’s cynicism that I worry about. But she does not have that. It would be a good tribute to those who do spend most of their time in public service.

Yellen is the best candidate for the job. Period. But this is yet another reason to select her. The Obama economic circle is littered with people with recent ties to the financial industry. That’s not a knock on them – as Bair pointed out, it’s common practice in Washington. But the Fed is going to make a lot of major regulatory decisions in the next couple of years. Wouldn’t it be nice if the Fed Chair wasn’t buddy-buddy with a bunch of bankers interested in watering down those rules?

Bair also correctly emphasizes that nominating Yellen would signal to career public servants that their loyalty to their jobs will not harm their chances of being promoted in the future. I think the counterfactual is even more convincing though. Imagine if Obama selects Summers and one of the reasons for doing so is because of his private sector experience. Now, government officials have incentives to leave their jobs to gain such experience. After all, Obama just demonstrated that not having it will reduce their chances of promotion. The revolving door isn’t necessarily a bad thing, as Matt Yglesias pointed out. But it presents the opportunity for rent-seeking and quid-pro-quo agreements that hinder federal agencies. Selecting Yellen sends a signal to government officials that private sector experience – using the revolving door – is not necessary.

Overall, it’s not a big enough reason to choose Yellen over Summers. Most public workers aren’t going to suddenly decide they desperately need private sector experience if Summers is chosen. But it is yet another advantage that Yellen has. At this point, it shouldn’t be a difficult decision for the President: Yellen is the best choice. We’ll find out soon enough.

Justice Sotomayor’s Supreme Court Nomination and Janet Yellen

During my brief vacation last week, I read Jeffrey Toobin’s excellent new book The Oath that examines President Obama’s complicated relationship with the Supreme Court. The book gives a background of the justices and analyzes the major cases brought before the Court over the last couple of years. One passage in particular, on Obama’s consideration of Sonia Sotomayor for an open spot on the Court, struck me:

He sensed an authenticity in [Sotomayor], and no one had to remind the president of the political appeal of appointing the first Hispanic to the Supreme Court. If he had a chance to make history in this way, with an impeccably qualified nominee, Obama was going to do it.

What major appointment will Obama make in the near future that has an impeccably qualified nominee who would make history as well? Janet Yellen to head the Federal Reserve of course! The Supreme Court and the Fed are certainly different institutions and Obama has clearly shown an affinity to Larry Summers that he did not have for the other prospective Supreme Court nominee, Diane Wood. But the similarities are still striking.

Meanwhile, more reports are floating around that Obama is leaning towards Summers for the job. As I’ve said before, I’m very skeptical about any reporting on who the next Fed Chair will be. Maybe it’ll be Summers. Maybe Yellen. We’ll know in a short time. The decision will be kept under lock-and-key until the President announces his choice. Until then, we can hold out hope that Toobin’s intuition on Obama’s Supreme Court nominee holds true for his Fed Chair nominee as well.

The Housing Recovery Has Stalled

Over the past year, everyone has come to agree that a housing recovery is happening. It wasn’t happening everywhere, but overall , the country was seeing a housing revival. But over the past couple of months, this recovery has started to stall and most people haven’t noticed yet.

Look at housing starts:

Housing Starts.
Housing starts increased from the end of 2011 through most of 2012, but have since fluctuated between around 850,000/month and 1,000,000/month. In fact, starts are in a downward trajectory the last couple of months. In July, single-family housing starts fell 2.2%, against expectations of growth, to reach their lowest levels since November of last year. The data may be noisy, but the overall trend in 2013 is clear: housing starts have stalled.

So far, it’s not clear that people have noticed. Take Wonkblog’s Neil Irwin, who wrote about housing starts last week. He noted the dual forces of increased housing starts and rising mortgage rates, concluding:

But the July data is the first real evidence we’ve seen of whether higher mortgage rates will affect the housing industry more broadly. And the early signs, at least, are that builders are not being scared off by higher mortgage rates that make the houses they sell less affordable.

The data seems to tell the exact opposite story.

As Irwin notes, interest rates have risen dramatically since May:MortgageSince then, housing starts have fluctuated. The increase in July was just the result of a poor result in June. Housing starts are still below there May level. So, as mortgage rates have risen, are builders “not being scared off”? The answer is unclear. It’s certainly, not a “yes,” as Irwin writes. It’s also only a couple of months of data. But it’s worrisome data at that. The economy is already recovering at a tepid place and a slowdown in housing would further reduce it.

This is yet another fundamental reason that President Obama should nominate Janet Yellen to head the Federal Reserve. Yellen is more dovish than Larry Summers and at least one economist believes the recent rise in rates is because Wall Street fears a Summers-led Fed would reduce asset purchases faster than a Yellen-led one would. If Obama does select Summers and interest rates rise, it could lead to even further contraction in the housing market and hamper the recovery even more. Given the recent data, that’s not a risk the President should take.