The word around Washington is that President Obama’s reported preference for Lawrence Summers as the next chairman of the Federal Reserve over Fed Vice Chairman Janet Yellen (who until recently was considered the likely choice) smacks of sexism. Nothing could be further from the truth.
Webster’s defines sexism as “prejudice or discrimination based on sex.” A sexist unfairly attributes to an individual the perceived characteristics of the larger gender pool whence he or she comes. But female government officials, recent history has shown, have been right about economic policymaking more often than men. Ergo, when we generalize from past group performance to judge Yellen’s capabilities versus Summers’, sexism dictates that Yellen become the next Fed chairman. Girls just do this better than boys.
Granted, this methodology rests on a couple of unorthodox assumptions.
The first is that actual experience informs prevailing stereotypes about the capabilities of female economic policymakers, as opposed to retrograde macho hooey.
The second unorthodox assumption is that Yellen’s and Summers’ past performances don’t reflect those of female and male economic policymakers generally. This stipulation overlooks Yellen’s and Summers’ active past participation within these two very small wonky cohorts. Let’s call them Team Girl and Team Boy.
Recent economic history is largely the story of Team Girl being right but getting ignored by Team Boy, which is wrong–but which has more power, and is therefore able to impose its bad choices on an ever-more-regretful nation.
Let’s get down to cases.
Brooksley Born. Now celebrated for recognizing back in the late 1990s that unregulated trading in derivatives–a major cause of the 2008 crash–threatened financial stability, Born was isolated and overruled when, as chairman of the Commodity Futures Trading Commission, she wanted to actually do something about that. After Born proposed having the CFTC regulate derivatives, she got steamrolled by Team Boy (in this instance, Fed Chairman Alan Greenspan, Treasury Secretary Robert Rubin, Securities and Exchange Commission chairman Arthur Levitt, Jr., and Summers himself, Rubin’s deputy and successor). Team Boy got Congress to pass a law making it illegal for the CFTC or SEC to regulate derivatives. The 2010 Dodd-Frank law reversed this catastrophically poor decision and put derivatives under SEC and CFTC oversight. Rubin later said he viewed Born’s proposed policy as “strident.”
Sheila Bair. Bair’s experience demonstrates that ignoring wise economic advice from women is one of Washington’s last surviving bipartisan traditions. After being appointed a CFTC commissioner by President George H.W. Bush back in the 1990s, Bair voted against exempting a certain corporation’s futures contracts from CFTC oversight (an exemption sought on the grounds that the financial dealings in question were too “sophisticated” to warrant regulation). She was outvoted 2-1. A decade later, the corporation in question, Enron, went belly-up and became a poster child for corporate fraud. By then, Bair was an assistant Treasury secretary for financial institutions. In that position, Bair sounded the alarm about subprime mortgages—another principal cause of the 2008 crash—but was overruled by Team Boy in the person of Fed chairman Alan Greenspan.
In 2006 Bair assumed her most important policymaking role as chairman of the Federal Deposit Insurance Commission. There she continued sounding the alarm on subprime mortgages, and pressed, unsuccessfully, for tighter regulations. She also dragged her feet in approving a recommendation by the international Basel Committee on Banking Supervision to lower capital requirements—a move strongly favored by both the banks and the Fed. Thanks to her resistance, The New York Times’ Joe Nocera later concluded, U.S. banks suffered far less from the crash than their European counterparts, which had adopted the recommendation and were consequently more highly leveraged when the bottom fell out.
After the subprime market collapsed in 2007 Bair pressed hard (and unsuccessfully) for a much more ambitious program of mortgage modification than either Bush’s or Obama’s Team Boy was ultimately willing to embrace. As a consequence, the economic recovery that began in 2009 was (and remains) severely slowed by a sluggish housing market.
Christina Romer. As chairman of President Obama’s Council of Economic Advisers, Romer encountered much the same male condescension experienced by Born and Bair. Romer was convinced the economy needed $1.8 trillion of stimulus to recover from the 2008 crash. Summers, then director of the National Economic Council, told her to lower that estimate, which she did to $1.2 trillion. Then Summers refused to include that figure in a memo he sent to the president—not because he disagreed with the economics, but because he couldn’t bear the humiliation of having Congress knock that figure lower. According to one colleague quoted in Noam Scheiber’s 2011 book The Escape Artists, “He had a view that you don’t ever want to be seen as losing.” In the end, the stimulus ended up totaling about $1 trillion, which, most economists agree, was insufficient.
Elizabeth Warren. In 2007, observing that the federal government regulated toasters more rigorously than home mortgages, Harvard Law Professor Warren proposed a Consumer Financial Protection Agency. Congress created that agency as part of Dodd-Frank in 2010, but President Obama, believing Warren too liberal to win Senate confirmation, appointed Richard Cordray director of the new agency instead. The “economic” issue here was the marketability of Warren herself.
Obama’s political calculus proved wrong. Cordray was no better able than Warren to win Senate confirmation, not because of any animus against Cordray (who was highly qualified) but because Cordray’s Republican Senate opponents were out to gut the agency itself. So Obama gave Cordray a recess appointment whose constitutionality came into question after a federal court challenged two other recess appointments that Obama made at the same time to the National Labor Relations Board. Eventually the whole mess got sorted out when Senate Majority Leader Harry Reid threatened to eliminate filibusters for executive appointments (excepting judgeships) unless Cordray and some other nominees were approved. In the meantime, Warren had put aside all doubt about her marketability by getting herself elected to the Senate. Score one for Team Girl.
Warren has long argued for breaking up the big banks in order to avoid future bailouts and promote greater financial stability. The Obama administration (particularly Treasury Secretary Tim Geithner ) opposed this option when the Dodd-Frank bill was being drafted. Since then, the banks have gotten bigger and evidence of continuing financial mismanagement has surfaced in J.P. Morgan’s “London Whale” episode and insider-trading scandals at the Galleon Group and SAC Capital. As a result, even many conservatives are now on board with limiting bank size.
Warren recently cosponsored, with Sen. John McCain, a bill to effectively re-impose Glass-Steagall, which separated commercial banking from investment banking until its repeal during the Clinton administration (at the urging of Summers, among others). You can argue whether restoring Glass-Steagall is the best way to tackle “too big to fail,” but not about whether Warren bested a male CNBC host in a recent televised interview about her bill. It wasn’t even close.
Janet Yellen. The Fed is the only policymaking body in Washington actively working to reduce joblessness. Much of the credit belongs to the current chairman, Ben Bernanke. But Yellen was on the case long before. A recent Bloomberg analysis concluded that the Fed’s decision to put unemployment on equal footing with inflation as a concern driving monetary policy basically amounted to Bernanke, who initially was focused entirely on price stability, coming around to Yellen’s point of view.
What is it about female policymakers that makes them shrewder about economic policy than men? The gender gap is not limited to this small group. A 2012 study found that the difference in opinion between men and women within the economics profession was bigger than that within the broader population. Female economists are less likely than male ones to oppose government regulation or to favor school vouchers. Unsurprisingly, they are particularly divided on the question of whether the male-female wage gap reflects discrimination. In general, the women are more liberal.
But liberalism isn’t necessarily the universal font of greater wisdom. Ron Suskind, who examines this divide in his 2011 book Confidence Men, says the difference lies in men’s and women’s different orientations. “The women,” he told me, “tend to have a more longitudinal view that is more inclusive of more strata of American life. The men tend to be much more transactional and much more committed to what history has proven to be something of a false God of willed and forced confidence.” Translation: “The women tend to be much better at standing up to the strong men of Wall Street.”
Suskind elaborates this point in Confidence Men:
Few could, at this point, challenge the idea that the country’s male-dominated financial industries had powerfully self-destructive impulses. But Geithner was just the latest in a succession of regulatory men, many with a past (or a bright future) in managing money and risk, who felt the town’s few female regulators often didn’t understand them or the way Wall Street’s male Mecca really worked—knowledge that is crucial to being an effective regulator who can alter ruinous behavior. The women’s response, of course, was that they understood the men better than the men understood themselves. History’s judgments, of late, seemed to be bending toward the ladies.
That doesn’t mean a man couldn’t be as good a Fed chairman as a woman. Indeed, it would be unfair to assume so. But if sexism must be indulged in pondering this question, a better-informed variety would say: Pick the woman.
Correction: An earlier version of this column stated, erroneously, that at the start of the Obama administration Christina Romer felt the economy needed $1.8 billion in stimulus and was persuaded to lower that figure to $1.2 billion. The correct amounts are $1.8 trillion and $1.2 trillion.