What Difference Does It Make Who Runs the Fed?

It's a personality, not policy, contest

As this week's release of government numbers on unemployment and jobs highlight, the American economy is puttering along in the slow lane. And while few things in life are more frustrating than being stuck in the passenger seat of that car, it certainly beats crashing.

The second gear syndrome of our current economic life doesn't sit well in a culture that demands more. Our macroeconomic numbers may be stable, but they obscure vast differences in affluence and opportunity, depending on where you live, what you do, what ethnicity you identify with, and how educated you are. The official unemployment rate, now at 7.4 percent, has been ticking down, but it is simply a statistic. It says nothing about the quality of those jobs, hours worked, wages paid, and needs met. Those are the questions we need to attend to.

Instead, in Washington at least, the economic discussion is currently dominated by the debate over who will be the next chair of the Federal Reserve. The story has the perfect makings of a Washington horse race. The lead contender, Larry Summers, engenders passions both for and against, while the main challenger, longtime Fed governor Janet Yellen, has captured the anti-Summers vote. Meanwhile, former Fed governor and current head of TIAA-CREF Roger Ferguson, has emerged as a compromise candidate, though no one is quite clear how his name first surfaced, and the New York Times is reporting Obama is interviewing only three people -- Summers, Yellen and Donald Kohn, a former Fed vice chairman.

But does it really matter who the next chair of the Federal Reserve is? The answer, of course, is both yes and no. On the yes front, the Fed has assumed a central role in political life. The role of Fed chairman has become progressively more important since the 1970s when Arthur Burns was deemed to have failed to stem inflation and when his successor Paul Volcker was deemed to have tamed it. Then Alan Greenspan transformed the position into a latter-day Delphic oracle, while his successor and current chair Ben Bernanke assumed a pivotal role in managing the 2008-2009 financial crisis and in unleashing a new form of easy money known as "quantitative easing."

That said, who leads the institution may be less important than we think. Of course, focusing on the who rather than the what is an endemic issue to politics. Political reporting skews toward the personalities jockeying for position, and the coverage of the next Fed chairman bears much in common with campaign season reporting. Summers in particular is a delicious subject because of his outsized personality and history of out-of-the-box quips. Yellen, with her long career as a bank regulator, offers little of that, and so makes the perfect narrative foil.

But while they represent different personalities, it's not clear that they -- or any viable candidate -- would represent different policies. Yes, there are those who believe that the Fed has not only overreached in its policies of "quantitative easing" but have endangered the financial system and set the stage for dangerous inflation and instability down the road. If one of Ron Paul's acolytes managed to become chair of the Fed -- a scenario that is currently inconceivable -- he or she could well begin to dismantle the entire system that began in 1913. But anyone who stands a chance being nominated is likely to accept the basic parameters of the job and to support the dual mandate of the institution to maintain price stability and strive toward full employment.

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Zachary Karabell is Head of Global Strategy at Envestnet, a financial services firm, and author of The Leading Indicators: A Short History of the Numbers that Rule Our World. More

At River Twice Research, Karabell analyzes economic and political trends. He is also a senior advisor for Business for Social Responsibility. Previously, he was executive vice president, head of marketing and chief economist at Fred Alger Management, a New York-based investment firm, and president of Fred Alger and Company, as well as portfolio manager of the China-U.S. Growth Fund, which won a five-star designation from Morningstar. He was also executive vice president of Alger's Spectra Funds, which launched the $30 million Spectra Green Fund based on the idea that profit and sustainability are linked. Educated at Columbia, Oxford, and Harvard, where he received his Ph.D., he is the author of several books, including Superfusion: How China and America Became One Economy and Why the World's Prosperity Depends on It (2009), The Last Campaign: How Harry Truman Won the 1948 Election, which won the Chicago Tribune Heartland Award, and Peace Be Upon You: The Story of Muslim, Christian, and Jewish Coexistence (2007), which examined the forgotten legacy of peace among the three faiths. In 2003, the World Economic Forum designated Karabell a "Global Leader for Tomorrow." He sits on the board of the World Policy Institute and the New America Foundation and is a member of the Council on Foreign Relations. He is a regular commentator on national news programs, such as CNBC and CNN, and has written for The Wall Street Journal, Newsweek, Time, The Washington Post, The New Republic, The Los Angeles Times, The New York Times, and Foreign Affairs.

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