Joseph Stiglitz (Courtesy of Wikimedia Commons)
The big election race of 2013 is for the position of Federal Reserve chairman.
The United States is not an economy democracy, however. So there will be no popular vote on who will make the most critical decisions on jobs, investments, interest rates and a host of other defining issues for working families, communities, states and the nation.
But there is a campaign going on. In order to influence the selection of a new chair by President Obama and the Senate confirmation process: contenders are positioning. Camps and caucuses are organizing. Endorsements are being made. Issues are being placed on the table.
So let’s invite the American people into the process.
Let’s tell them how powerful the Fed is, and what it could do to address poverty, unemployment and the economic challenges faced by cities like Detroit.
One member of Congress, Michigan Democrat Dan Kildee, is already inviting us to imagine the possibilities.
In response to the threat of bankruptcy that looms for Detroit and other cities, Kildee has argued that the Fed should be actively engaged in developing solutions for cities that are in economic turmoil after decades of deindustrialization and federal and state neglect. “While Detroit’s problems may be extreme, they are certainly not unique,” says Kildee. “Municipalities in Michigan and across the country are increasingly facing insolvency that requires us to rethink the way we support our cities.”
When Fed Chair Ben Bernanke appeared before the House Financial Service Committee in mid-July, the congressman said, “I would ask if you would think about how you would advise Congress or how the Fed itself might pursue policy that would have the effect of potentially avoiding—but certainly mitigating—the economic effect of municipal financial failure.”
Kildee’s point is well taken, not merely with regard to the debate over Detroit—but with regard to the debate over who will head the Fed.
One potential contender for the job, Lawrence Summers, has a record of delivering for Wall Street and the big banks—as an advocate for deregulation, privatization and the elimination of essential regulatory protections such as the Glass-Steagall Act. As economist Dean Baker noted after the economy melted down in 2007 and 2008, “The policies [Summers] promoted as Treasury Secretary and in his subsequent writings led to the economic disaster that we now face.” But Summers is also an over-the-top advocate for the sort of free trade agreements that have left communities across this country with shuttered factories and high unemployment. He’s so disinclined toward the public investments that might renew those communities that Congressman Peter DeFazio, D-Oregon, has said, “Larry Summers hates infrastructure.”
So count Summers out.
There are better choices, such as Janet Louise Yellen, who in her writings and in her tenure as the vice chairman of the Board of Governors of the Federal Reserve System has evidenced a higher commitment to the Fed’s mandate to promote high employment. She’s clearly a candidate—so much so that on Tuesday she got her first newspaper endorsement: from The New York Times.
But Senator Bernie Sanders has suggested a pair of dark-horse contenders who—in a real race for the Fed chairmanship—would offer working Americans a genuine choice.
Declaring that “it’s time for new leadership at the Federal Reserve and a new approach to our troubled economy,” Sanders has identified Nobel Prize–winning economist Joseph Stiglitz and former US Labor Secretary Robert Reich as “excellent candidates” to replace Chairman Ben Bernanke when the chairman finishes his term January 31.
“We need a new Fed chair who will act with the same sense of urgency to combat the unemployment crisis in America today that has left 22 million Americans without a full time job,” argues Sanders. To that end, Sanders rejects Summers as a contender, writing to President Obama that “it would be a tragic mistake to nominate anyone as chair of the Fed who continued those failed policies. Instead, we need a new chair who will have the courage to hold Wall Street accountable for their fraud, recklessness and illegal behavior, and stand up for the needs of ordinary Americans.”
But Sanders also recognizes that in the race for the Fed chairmanship progressives should have a contender. Or, perhaps, two.
“As you consider whom to nominate as the next chair of the Federal Reserve, I urge you to consider someone who will put the needs of the disappearing middle class ahead of the interests of Wall Street and the wealthy few,” Sanders wrote to the president. “There are a number of excellent candidates who are capable of doing that. Nobel Prize economist Joseph Stiglitz and former US Secretary of Labor Robert Reich are just two names that come to mind.”
The reality is that, while the names of Stiglitz and Reich come quickly to the mind of Sanders and other progressives, they may not be at the top of the White House list. But they should be. On the immediate issue of Detroit, Reich has written brilliantly on the importance of recognizing, “in an era of widening inequality,” that the real question is whether Americans are going to “[write] off the poor” who reside in urban America. On the broader question of the economy, Stiglitz is arguing that “so-called ‘free trade’ talks should be in the public, not corporate interest.”
Those are not ideas that are now at the center of the discussion about who should head the Fed.
But they should be.
And they can be.
This is the point of treating the race for the Fed chairmanship as an election, rather than an anointment.
By putting Stiglitz and Reich in the running, Sanders invites organized labor and economic justice and urban policy groups to join the debate. By highlighting the progressive economic approaches advanced by Stiglitz and Reich, as an alternative to those advanced by Larry Summers, they expand the understanding of what the Fed can and should do—for Detroit, for cities across the country and for neglected rural communities.
The debate is essential.
A quarter century ago, my colleague William Greider wrote the groundbreaking book: Secrets of the Temple: How the Federal Reserve Runs the Country (Simon & Schuster). The Fed still operates behind veils of secrecy. Most Americans do not know what it does and, more critically, what it can do.
Treating the race for Fed head as a race, as a real campaign, invites citizens into the process.
Urging the selection of Stiglitz or Reich might not lead to the actual choice of a progressive-populist as Fed chair. But it could turn the tide against Summers. It might help Yellen. And it would almost certainly create pressure on whoever takes charge of the Fed to recognize and embrace the full potential of the Federal Reserve.
John Nichols is the author, with Robert W. McChesney, of Dollarocracy: How the Money and Media Election Complex is Destroying America (Nation Books). Lisa Graves, executive director of the Center for Media and Democracy says: “The billionaires are buying our media and our elections. They’re spinning our democracy into a dollarocracy. John Nichols and Bob McChesney expose the culprits who steered America into the quagmire of big money and provide us with the tools to free ourselves and our republic from the corporate kleptocrats.”
Does Larry Summers deserve a second chance?