The Fed Contenders: A Reading List

Bobby Yip/Reuters (left); Franck Robichon/EPA Lawrence H. Summers and Janet L. Yellen.

We know, you can’t get enough. So here are some suggestions for further reading about Lawrence H. Summers and Janet L. Yellen, the leading candidates to replace Ben S. Bernanke as chairman of the Federal Reserve. President Obama has said that a third candidate, Donald L. Kohn, a former vice chairman, is also under consideration.

Lawrence Summers

The list of essential reading about Mr. Summers begins with Ryan Lizza’s 2009 New Yorker profile of Mr. Summers as President Obama’s chief economic adviser. The article is dense with telling anecdotes and amusing quotes. And this: “It was Summers’s instinctive skepticism and ability to penetrate to the heart of an issue that had initially impressed Obama,” Mr. Lizza wrote. The president “wanted Larry’s brain.” But there was a problem, too: “How to exploit Summers’s intellectual energy while avoiding his managerial weaknesses.”

Lots of people like Larry’s brain. “You can bring him up to speed on anything in 15 minutes,” Brad DeLong, an economist at the University of California, Berkeley, who has known Mr. Summers for decades, wrote in 2008. “And if you can be interesting enough to keep his attention for half an hour, he will start throwing out hypotheses and what-ifs and suggesting connections you would never have thought of.”

There’s no need to rely on secondhand accounts. Mr. Summers’s talent for rendering summary judgment on complex economic questions is on display in the columns he has written for Reuters and The Financial Times in recent years. One memorable example began, “The central irony of financial crisis is that while it is caused by too much confidence, too much borrowing and lending and too much spending, it can only be resolved with more confidence, more borrowing and lending, and more spending.”

Indeed, some economists regard this as Mr. Summers’s primary talent, according to a 2009 Vanity Fair profile by William Cohan. “Some rival economists questioned the depth and breadth of Summers’s insights into economics â€" some think him best at taking the ideas of others and articulating them with more aplomb,” Mr. Cohan wrote.

At the same time, the president is not the only one with questions about Mr. Summers’s interpersonal skills. The critiques usually center on his unsuccessful tenure as Harvard’s president, including his controversial 2005 remarks about women in science. But his terms in government, including his most recent tour of duty, have produced a fair share of anecdotes about similar problems.

David Leonhardt offered a nuanced take on the merits and demerits of these tendencies in a 2007 profile for The New York Times Magazine. “At faculty seminars, he would sometimes interrupt another professor a few minutes into a presentation, succinctly summarize the undelivered portion, poke holes in the argument and offer suggestions about how to make the same points in more compelling fashion,” Mr. Leonhardt wrote. “To the great amusement of his colleagues at Treasury, he occasionally did the same thing to officials from foreign governments who had come to call on him. But the notion that Summers can be a bully misses one thing: he likes it when people fight back. As a result of this intellectual playfulness, many people find it thrilling to talk with him. He loves to examine an idea from every possible angle, searching out the weaknesses in order to arrive at a better conclusion. Henry Kissinger has said hat Summers should be given a permanent White House job, a sort of fixer of flabby policy ideas.”

Janet Yellen

I profiled Ms. Yellen in April, noting that “no Fed chairman has been as deeply steeped in both the theory and practice of central banking.” The article also described her successful advocacy in the 1990s for the view that some inflation was a good thing. Ms. Yellen’s critics, however, have long questioned whether she is sufficiently committed to preventing too much inflation.

Ms. Yellen, the Fed’s vice chairwoman, received relatively little media attention before this year, but it’s worth reading a 1997 BusinessWeek profile. Among other things, it quotes the Yale economist and Nobel laureate James Tobin as saying that Ms. Yellen “has a genius for expressing complicated arguments simply and clearly.”

Ms. Yellen’s lucidity is on display in her speeches, notably her November 2012 account of why central banks increasingly try to explain what they are doing and why.

The theme: “A growing body of research and experience demonstrates that clear communication is itself a vital tool for increasing the efficacy and reliability of monetary policy.”

The Princeton University economist Alan Blinder, a former Fed vice chairman, has praised Ms. Yellen for repeatedly demonstrating “superb judgment” in her evaluation of economic conditions and her policy prescriptions. A recent Wall Street Journal analysis found that Ms. Yellen’s economic forecasts since 2009 have been the most accurate of any Fed official.

Professor Blinder also offered an endorsement of her leadership skills. “Perhaps the most important, but least understood, asset Janet Yellen would bring to the table is an ability to manage the fractious F.O.M.C.,” he wrote, referring to the Fed’s policy-making Federal Open Market Committee. “If the F.O.M.C. erupts into open warfare, it will shake the markets to their boots and imperil the economy. That would not happen under a Chairman Yellen.”

Monetary Policy

There are indications that Mr. Summers and Ms. Yellen “disagree about the central issue confronting the central bank: how much longer and how much harder to push for economic growth.” They share a conviction that the Fed can and should seek to stimulate the economy during periods of slack demand. But Mr. Summers appears to have less confidence in the tools available to the Fed at the moment, and greater concern about the potential consequences.

Mr. Summers has largely avoided talking about monetary policy in recent years, at least in public settings, but there are plenty of breadcrumbs. At a private investment conference in April, he said the Fed’s bond-buying campaign probably wasn’t doing much good. He added that it also wasn’t likely to cause inflation, but in a 2012 paper he worried that the Fed’s stimulus campaign could destabilize financial markets. Ms. Yellen, by contrast, has regularly defended the Fed’s policies as both safe and effective.

Both Mr. Summers (in a column for The Financial Times) and Ms. Yellen (not least by voting for it) have publicly endorsed the Fed’s other effort to suppress interest rates, by declaring its intention to hold short-term rates near zero at least as long as the unemployment rate remains above 6.5 percent. (Mr. Summers endorsed the idea but not the specific threshold.) But Mr. Summers has a history of skepticism about the Fed’s move toward predictable policy-making, beginning with his 1991 declaration that “monetary rules should be avoided.” Support for such rules has strengthened over the last two decades, but the Stanford economist John Taylor, a leading proponent, wrote last week that Mr. Summers appears to have retained his skepticism.

Financial Regulation

Ms. Yellen has received mixed reviews for her work as a financial regulator, a role she played most prominently as the president of the Federal Reserve Bank of San Francisco between 2004 and 2010. “The picture that emerges,” wrote the author of the most detailed examination, Alison Fitzgerald of the Center for Public Integrity, “is of an overseer who tried to point out dangers in the banking system before the situation came to a crisis in 2008, but who didn’t act forcefully against banks that she saw taking excessive risk because she didn’t believe she had adequate authority.”

Ms. Yellen was among the first Fed officials to worry about problems in the mortgage market - a low bar, to be sure - and she told the Financial Crisis Inquiry Commission that she was proud that Countrywide Financial had found the San Francisco Fed’s scrutiny so uncomfortable that it chose to be regulated by the Office of Thrift Supervision instead. In 2010, however, she pressed to reduce the demands that the Fed was placing on Wells Fargo, the largest bank in her district.

Since the crisis, she has not only supported the administration’s overhaul of financial regulation, but suggested that further steps were necessary in some areas. She singled out derivatives trading in a January speech, drawing the ire of industry groups.

Mr. Summers was a leading figure in the Clinton administration’s push to reduce regulation of the banking industry and to limit or forgo entirely the regulation of newer kinds of financial activity like derivatives trading. President Clinton in 2010 said that he was mistaken in heeding Mr. Summers and other advisers by leaving derivatives unregulated. “Summers, as far as I am aware, has never publicly acknowledged his intellectual and policy errors,” John Cassidy wrote on The New Yorker’s Web site.

More recently, of course, Mr. Summers was again a central figure in the Obama administration’s effort to strengthen financial regulation in the wake of the 2008 crisis, supporting measures including stronger bank capital requirements and increased oversight of a wider range of financial activities. At the same time, he argued successfully for the administration to reject stronger reforms sought by many liberals, such as restrictions on the participation of retail banks in financial markets. He also fought against some changes the administration eventually embraced, including the “Volcker Rule” that seeks to limit speculative investment by banks.