Personnel Isn't Policy, Policy Is Personnel

Or: The Calling of Larry Summers and Janet Yellen

I’m back! Even though this newsletter is free, I feel bad about not writing. What’s going on, uhhh, since the beginning of the year has not been conducive to thinking about the subjects I want to write about or really much thinking at all. Despite that, there’s actually been an influx of new subscribers, taking the total to over 1,000, which is thrilling and kind of scary — I want to write stuff worthy of the time you’re investing in me. As always, I really value your emails and feedback, and don’t hesitate to share this post or any other on the social media platform of your choice.


Janet Yellen is a fiscal and monetary hawk.

Or at least she was. Sorta. But no longer.

As the Biden administration springs into action, there’s been much attention paid to the aggressive stance senior officials in the White House and those appointed to agencies and cabinet departments are taking on fiscal policy. This will not be an administration that seeks to fetter itself with commitments to deficit reduction any time soon, it will not be scared by business and think tank worries about the debt, and there’s no “deal” over entitlements and taxes in the offing. Instead, the Biden administration is out of the gate with a $1.9 trillion stimulus proposal and Yellen openly sidelining deficit concerns to stem the pandemic and boost the economic recovery. She will likely be confirmed with over 90 votes in the Senate.

But the Biden administration, as might be expected, has many of the same figures from the Obama years and even the Clinton years. Biden himself has been a Democrat-elected official since 1973, his deputy chief of staff was the architect of welfare reform, his designated Office of Management and Budget director has been at the center of Democratic policy making since the 1990s, the National Economic Council is run by an Obama veteran, and Yellen herself was Obama’s choice to run the Federal Reserve and the chair of Bill Clinton’s Council of Economic Advisors after some time on the Fed Board. While on the Fed and in the Clinton White House, she supported policies that would be anathema to the current administration, she was affiliated with deficit hawk groups that, for now, have no particular hold over current Democratic Party thinking.

And yet I have no doubt that Yellen will be an effective advocate and architect of exactly what the Biden administration and Democratic congress wants to do right: spend money on families, Covid relief, the environment, and not get too stressed about the deficit.

—Elizabeth Warren likes to say that “personnel is policy.” And she’s serious about it — she’s widely credited with spiking Larry Summer’s appointment to be Fed Chair, thus opening up the role for Yellen. She went to work on a Democratic investment banker who was up for an appointed Treasury job and was seen as an obstacle to Lael Brainard, a Fed governor and former Clinton and Obama Treasury official, getting the top job that Yellen will ascend to.

The early Obama years were often seen as, or at least depicted by journalists, a contest of wills in the economic team.

You had the Council of Economics Advisor chair, Christina Romer, an esteemed macroeconomics from UC Berkeley and the only woman of such high rank, squaring off against Larry Summers, who dismissed a $1.2 trillion stimulus bill as “non-planetary.” There was the glamorous nerd heading up the Office of Management and Budget, Peter Orszag, as a persistent advocate of moving to address the long-term budget gap. And then there was the impish and profane former ballet dancer Rahm Emanuel, whose lack of a middle finger, the president once said, rendered him mute. Out of this voluble cacophony came an economic policy that lurched from stimulus to deficit reduction, from great expectations to failed grand bargains.  

But it wasn’t Larry Summers who allegedly told Romer that monetary policy had “shot its wad,” or tried to explain high unemployment with reference to bank tellers and ATMs

It was Barack Obama.

Lots of brilliant people work in public policy, and especially economic policy, which, especially on the Democratic side, tends to be populated by eggheads with PhDs in economics from Harvard and MIT or law degrees from Yale. But these are as much political operatives as they are intellectuals. They are pointedly not disinterested professorial types, if they were, they wouldn’t spend so much time in the nitty gritty of electoral politics and policymaking. This is not to say they’re dishonest or hypocritical, just that their job is as much to give shape to and implement the instincts of their boss as it to pursue some kind of platonic truth about the economy.

We are attuned to a model where advisors influence and shape the thinking of their “principal,” but it seems just as likely that the principal shapes the advisors, or essentially farms out different “modules” of thinking to different people (a deficit hawk here, a stimulus advocate there, a health care reformer over there) and then shifts the degree to which she takes their input in accordance with what she already wants to do. Inasmuch as the advisors differ, they differ within a fairly narrow band set by the principal.

And it’s not like the Obama and Bidens of the world form their ideas in a vacuum. There’s a back and forth between their instincts, the political moment, the objective state of the world, their personal history, and so on. They’re not so different from the people giving them advice.

Which brings us back to one man who was a senior advisor for Clinton and Obama but pointedly not one for Joe Biden, at least formally. Larry Summers.

Many economic policy observers seem to have adopted a personalized view of Summers’ pronouncements since leaving the Obama administration and especially since not getting the Fed job.

When he was skeptical of Yellen’s “lift off” of interest rates (a decision that may have helped spark a manufacturing “mini-cession” that was one of the factors in Donald Trump’s 2016 win), many attributed it to his grumpiness over not getting the top job. But since then, regret over the 2015 interest rate hike has essentially been baked in as Fed policy, with Lael Brainard saying it was a mistake and Jerome Powell, a Republican Trump-appointee who served in the George H.W. Bush Treasury, setting up a new framework for interest rate decisions that will keep rates near zero even as the economy improves.

When Summers opposed $2,000 checks, it seemed to have as much to do with distaste for the transpartisan populist duo Josh Hawley and Bernie Sanders (mutual, no doubt) as it did the policy himself. His campaign against the academic research underlying Warren’s wealth tax proposal has been chalked up to revenge for denying him the Fed chair. But at the same time, Summers has another paper attributing much of the economic oddness of the last 40 years to the “decline of worker power,” an argument that would find friendly reception in Warrenite and even Sandernista circles.

He is as on board for more spending as anyone in Greater Bidenberg — but will remain at least somewhat estranged, even if the winds of change blow from the same direction both within and without it.