I think Janet Yellen would be a pretty bad choice for new Fed chairman, but she is much preferable to Larry Summers.
So among the bookmakers’ favourites I prefer Yellen to Summers. That is easy.
However, I have another candidate. Chuck Norris! Or rather I strongly believe that monetary policy needs to be strictly rule based and if you have a rule based monetary policy who is fed chairman isn’t really important.
Under a strict monetary policy rule monetary policy will be fully “automatic” espcieally if you introduce “A Market-Driven Nominal GDP Targeting Regime”. This is of course what we call the Chuck Norris Effect – that the markets are implementing monetary policy. Or said in another way lets call the computer Milton Friedman wanted to run the fed Chuck Norris.
But there is of course no chance that we will get this kind of strict rule based monetary policy in the US. Therefore, if I was President Obama I would give Richmond fed economist Robert Hetzel a call.
Why pick Hetzel? Well because he is the best qualified for the job. It is that easy. Anybody who reads my blog should understand why I think so.
Add to that nearly 40 years expirience within the fed system and Hetzel has probably participated in more FOMC meetings as an advisor to different Richmond fed persidents over the years than any other living economist in the world (I am guessing here, but if you know anybody else with this kind of expirience please let me.)
I am of course dreaming, but I won’t pick Yellen just because I think Summers would be a bad choice.
PS Happy 101st birthday Milton Friedman. See my personal tribute to ‘Uncle Milt’ from last here.
The Market Monetarist 
WaltFrench
/ July 31, 2013yes, certainly if Chuck Norris were the Chairman, I’d approve of putting strictures in place that would prevent him from actually doing anything.
But how would those rules be created in the first place? Don’t we need a Yellen, Romer, Summers or whomever to be our trusted authority? Haven’t we already seen a raging debate about how to apply the Taylor Rule at the ZLB, with major economists arguing with Taylor?
Lars Christensen
/ July 31, 2013Walt,
You are to some extent correct. The primary task of the new fed chairman should be to clearly define the rules. Bernanke has failed massively on that. Here has done better on that over the past year, but failed badly from 2008 and until September last year, where he took a babystep towards a rule based framework.
I fear that Summers as chairman would mean MORE discretion – he has often in actions shown that he tend to think that he knows better (on most issues).
Bob Hetzel would be the man you need to put such rules in places, but fundamentally the need this to be change through legislation. On that unfortunately I am quite pessimistic. The Dems don’t want monetary policy rules and apparantly the only rule Republicans can think of is the gold standard. NGDP targeting is not exactly hot on the Hill.
WaltFrench
/ July 31, 2013Summers might indeed mean more discretion… than Bernanke has moved to. Compared to a Greenspan, or somebody else? Could he be more inscrutable?
Methinks the transparency thing would be very hard to put back into the box; anybody will be expected to clearly spell out policy.
GF
/ July 31, 2013I’d recommend this excellent article to anyone looking for an intro to Hetzel. MonPol at the ZLB and rules vs. discretion.
http://www.richmondfed.org/publications/research/economic_quarterly/2004/summer/hetzel.cfm
brendan
/ July 31, 2013Hetzel and Romer seem much more intelligent than Yellen. Or to put it more nicely, I find their reasoning more persuasive than hers. Right or wrong, she comes across as a Dove, period, whereas I think Hetzel/Romer would inspire more trust among their skeptical colleagues that they’d tighten when needed. I just can’t see Yellen persuading right-leaning hawks that Bernanke was unable to move, whereas a guy like Hetzel could. Goes for Summers too; any right-leaning hawk Bernanke couldn’t persuade, Summers/Yellen have no shot.
Am I off base? And how much of Bernanke’s failure to ‘define the rules’ was caused by his reluctance to try to define rules that weren’t backed by a consensus of his colleagues?
Lars Christensen
/ July 31, 2013Brendan,
I think you make a very good point. Bernanke from the very started failed to get the FOMC to commit to a monetary policy rule. That would have made his job much easier if he had done so. Robert Hetzel understand that it is much more to the the ‘framework’ sorted out before starting to talk about “hawks” and “doves”.
Yellen has at least argued that she favours a rule based monetary policy, but I am not sure on that. Summer directly have said he favours discretion over rules.
Benjamin Cole
/ August 1, 2013Fed Chief: Hetzel, though I like Sumner, or Marcus Nunes, if we would allow a Brazilian in there.
My fear is that Yellen will feel a need to prove her mettle and not be the Fed Chairwoman who let inflation out of the bag.
She has written papers favoring a 1.5 percent inflation target on the PCE.
When did such microscopic rates of inflation became the norm for economists?
And if you are at 1.5 percent inflation, and interest rates are also low, and you hit a bad recession–then QE becomes a conventional policy tool. As you hit ZLB in a few minutes.
Really, economists who say they favor a 1.5 percent inflation ceiling need also to say they favor QE as the conventional tool of choice.
Oh, btw, I thought the purpose of macroeconomic policy was to obtain sustained solid real growth. I did not know that minuscule rates of inflation are the true goal of macroeconomics—as even defined by the “dove” Yellen! (See Tim Duy’s post this week)
BTW, Volcker just wrote a piece for the New York Review of Books suggesting central banks should only be concerned with inflation…it just gets worse and worse.
jeffvision
/ August 1, 2013Yellen is the political favorite given that she will likely not put up much of a fight when congress calls on the big monetization guns.