The selection of the next Federal Reserve chair is no longer just a matter of policy or personnel. It has also become a test of the Obama administration’s ability to respond pragmatically when confronted with evidence that its preferred course of action would be costly, damaging and potentially futile.
The president and his team have been pushing economist Lawrence Summers for the post all summer long. That's led to an extraordinary level of pushback - from Senators, members of the party base, the New York Times, and Summers' fellow economists. (There have been some Summers defenders as well - although, as Dean Baker notes. they've received a disproportionate level of press coverage.)
The arguments have all been made. Supporters have emphasized Summers' experience and his familiarity with the current Obama economic team. Opponents have noted his poor track record in identifying economic risk, his pivotal role in the deregulation which nearly crushed the global economy in 2008, his personal enrichment from the very banking institutions he'd be regulating, his well-documented difficulties working with others, and the presence of highly qualified candidate Janet Yellen, who would be the first female Federal Reserve chair.
The pragmatic considerations are even more formidable. It's unclear whether the President could even succeed in getting Summers confirmed. But win or lose, a Summers confirmation hearing is likely to become a media circus that diverts Washington from more pressing needs while inflicting serious and potentially permanent damage on the President and his party.
Republican Field Day?
Summers served as Treasury secretary under Bill Clinton, so the hearings would allow Republicans to posture and pontificate (in the guise of questioning the candidate) about the real and perceived failings of that Administration. They would almost certainly take that opportunity to blame Clinton and the Democrats for the crisis of 2008, and for the economic misery which millions have been enduring ever since.
That would put the president and his party on tricky ground. The Clinton administration did support harmful deregulation, but it did so with the enthusiastic support and collusion of the Republican Party, which passed the Gramm/Leach/Bliley deregulation bill through Congress. But those nuances are likely to get lost under the klieg lights.
Then there's the timing: The term of outgoing Fed Chair Ben Bernanke ends on January 31, 2014. The president is expected to make the announcement in late September or October, around the time Republicans are threatening once again to shut down the government over Federal spending. The president could be locked in "hostage" negotiations over a shutdown during Summers' confirmation hearings.
That would be ideal - for the Republicans.
The Left Flank
But Republicans aren't the only ones likely to speak out during these hearings. Summers has already lost the support of progressive Democrats inside and outside Congress. Some progressives will undoubtedly use the hearings to raise the issue of the politically corrupting "revolving door" between Washington and Wall Street. Summers, who has been paid millions by Wall Street banks, is an easy and fair target for these criticisms, and it's a conspicuous problem for this Administration.
Feminists will probably slam Summers, too. They'll criticize him for the foolish and disturbing suggestion, made while he was serving as Harvard's President, that women may be innately inferior at science. They'll bring up his record of haranguing and sidetracking women in government who differed with him on policy matters - women like Brooksley Born and Christina Romer, both of whom later turned out to be right.
They might also weigh in against the Administration and the President for passing over a highly qualified woman in favor of a less-qualified member of the "Boys' Club."
Consumer advocates are also likely to speak out forcefully. They'll probably bring up Summers' broken promises on behalf of the Administration to help homeowners who had been defrauded by the same banks which have made him so wealthy. Then there's the question of Summers' resistance to the appointment of Elizabeth Warren to lead the Consumer Financial Protection Bureau.
Even worse for the President, there's a knotty procedural problem. Summers' appointment has to pass the 22-member Senate Banking Committee before moving on to the full Senate. Democrats have a two-member majority on that committee, but three Democratic Senators have already said they will not vote for Summers. The three - Elizabeth Warren, Jeff Merkley, and Sherrod Brown - are highly respected by the Democratic base.
That means the President will be forced to seek support from Republicans if Summers is to make it to the full Senate for hearings. Remember, these hearings will be occurring as other vital issues come before Congress, including the potential shutdown of the entire Federal government. The President will need to wheel and deal with right-wing Senators to get his Fed chair confirmed, while at the same time fighting to keep the government going and negotiating other critical budget issues.
It gets worse. He'll also need to corral and keep as many Democratic votes on that Committee as he can. That means he'll have to be handing out favors to the left and the right at the same time. The President will need to do an extraordinary amount of horsetrading, and he may run out of horses before he's done.
A Time for Pragmatism
Will the President really decide to face all of this for a nomination that has no guarantee of success, especially when the difficulty is so easy to prevent with a Yellen nomination?
The question is no longer solely whether Larry Summers is the right person for the job. The question now is whether the President and his team can view this appointment pragmatically and make the most practical choice available to them, despite their personal feelings.