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Even if he somehow misses the point that Summers' "out of the box thinking" has almost always been spectacularly wrong headed.

Why Obama should pick Summers to lead the Fed - FT.com

Five candidates are way above the rest: former Treasury Secretary Lawrence Summers; current Fed vice-chair Janet Yellen; former Fed vice-chair Alan Blinder; former Council of Economic Advisors chair Christina Romer; and former National Economic Council chair Laura Tyson. These are the Fabulous Five. Choosing any of them would make me happy. Choosing anybody else would be an unforced error.

If times were normal, my first choice among the Fab Five would be obvious: Ms Yellen. Back in 1994, the Clinton administration pulled Ms Yellen out of the academy and on to the Fed. She was a brilliant choice, with a profound understanding of economics and a proven record as a consensus-builder. She is often the most insightful person in the room, but does not feel the need to constantly prove herself such - and she has a 15-year record of success in Washington.

But these are not normal times. In normal times, the "short run" in which the economy remains below its normal relative level of activity is a year or so. It has been five years since we saw normality, and few would lay long odds that we will escape without a lost full decade.

In normal times the Fed's senior policy makers are economic priests following a settled gospel of technocratic economic management. But right now, as John Maynard Keynes said in a similar crisis in the 1920s: "no one has a gospel". Therefore, Keynes said then, "the next move [must be] with the head . . ." And the Fed, over the next four years, is the best place to do the thinking that must be done to recover and rebuild.

And this is why my preference is for Mr Summers. He is the most creative thinker around. If I prepare for four hours for a one-hour discussion with Mr Summers, it takes him 15 minutes to get up to speed, for the next 30 minutes I am holding my own, and for the last 15 he is coming up with insights that I would have missed had I spent 12 hours thinking the issue through. Unless things start getting better faster, in a year or two it will be clear that the Fed's current policy consensus is past its sell-by date. And in that case a lot of outside-the-box thinking will be called for.



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by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Thu Aug 1st, 2013 at 11:26:32 AM EST

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