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Volcker Chafes at Obama Panel Delay, Strains With Summers Rise By Robert Schmidt and Julianna Goldman
Feb. 5 (Bloomberg) -- Paul Volcker has grown increasingly frustrated over delays in setting up the economic advisory group President Barack Obama picked the former Federal Reserve chairman to lead, people familiar with the matter said.
Volcker, 81, blames Obama’s National Economic Council Director Lawrence Summers for slowing down the effort to organize the panel of outside advisers, the people said. Summers isn’t regularly inviting Volcker to White House meetings and hasn’t shown interest in collaborating on policy or sharing potential solutions to the economic crisis, they said.
While Summers, a former Treasury secretary, oversees the official White House economic policy apparatus, Obama tapped Volcker for a new Economic Recovery Advisory Board charged with injecting fresh, outside ideas into policy debates.
“When you have two strong, highly accomplished, driven people, it’s not unusual that there is going to be a battle over turf,” said James Cox, a professor at Duke University Law School in Durham, North Carolina. “I would hope that Obama doesn’t lose Volcker’s counsel. They need someone to help them think outside the box.”
The contretemps shows the difficulties Volcker, perhaps the world’s most respected economist, may encounter as an outside adviser charged with providing policy alternatives to the president, said William Silber, a finance professor at New York University’s business school.
Outsider’s Disadvantage
Volcker “is not in the White House and he doesn’t have a bureaucracy to command,” Silber said. “It puts him at a disadvantage.”
After testifying at a congressional hearing yesterday, Volcker declined to respond to questions. His office said he doesn’t grant interviews.
Summers, in an interview, played down any conflict.
“Paul’s got a kind of experience that no one else has, and the president enormously values his advice,” said Summers, 54. “I think this board is going to be very useful, because it’s very easy sitting here to kind of lose sight of what’s happening on the front lines of the economy.”
Obama named Volcker on Nov. 26 to head the new panel, saying he wanted an outside voice to keep administration policy planning from becoming “too insular.”
Tensions between the two could hamper Obama’s efforts to get consensus on how to combat the financial crisis at home and reshape the international banking system. While Summers has a West Wing office, Volcker’s group is supposed to scrutinize economic and regulatory policies and their impact on average Americans.
Getting Organized
An administration official who asked not to be named said he knows about Volcker’s frustration, which he said has waned since Obama’s inauguration. The process of setting up the panel has been slowed by bureaucratic hurdles, advisers said.
People outside Washington who have talked with Volcker said the former Fed chairman still expresses dissatisfaction. Summers’s resistance has made Volcker more determined to get the panel up and running, they said.
With an economic advisory team that includes a former Treasury secretary and a former Fed chairman, turf battles and conflict were recognized as a possibility.
“You’ve got a lot of horses in the corral,” Leon Panetta, Obama’s pick to head the Central Intelligence Agency, said in a December interview before his nomination.
Panetta, a former head of the Office of Management and Budget and President Bill Clinton’s chief of staff, said the National Economic Council director has typically played the ringmaster, coordinating different points of view. At the time, Panetta said Summers’s strong opinions may make that job a challenge.
“Thinking of the personality of Larry Summers, he’s going to have to work at it,” Panetta said.
Assault on Inflation
The 6-foot, 7-inch Volcker, who ran the Fed from 1979 to 1987, was vilified for raising interest rates to fight inflation at the risk of pushing the U.S. into a recession.
Since then, Volcker’s assault on runaway prices has been credited with sparking years of economic growth. Meanwhile, the standing of his successor, Alan Greenspan, has been undermined by questions about whether his policies set the stage for the current credit crunch and economic slowdown.
During last year’s campaign, Volcker was an early backer of Obama and provided economic credibility for the first-term Illinois senator at a time when his primary rival, New York Senator Hillary Clinton, boasted a team of economic advisers that included Greenspan and former Treasury Secretary Robert Rubin. Volcker advised Obama on a March speech in New York that outlined proposals to overhaul U.S. financial regulatory structures.
Economic Policy Planning
Volcker was considered for Treasury secretary, a post that ultimately went to Timothy Geithner.
In mid-December, Volcker was in Chicago to meet with Obama’s economic advisers for early discussions of alternatives for the $700 billion Troubled Asset Relief Program.
Summers and other White House officials said Volcker has continued to play an important role consulting on revamping financial regulations and briefed Obama on the issue last week at a White House meeting with Summers and Geithner.
That has been the only time Volcker has visited the White House since the inauguration, including yesterday when the ex- Fed chief was in Washington to testify before Congress on the need for stepped up government oversight of the financial system. In addition, Volcker hasn’t been publicly mentioned as taking an active role in economic recovery plans.
‘Echo Chamber’
When Obama announced Volcker’s appointment after the election, he billed the new board as a vehicle for new ideas about solving the worst financial crisis since the Great Depression.
“The walls of the echo chamber can sometimes keep out fresh voices and new ways of thinking, and those who serve in Washington don’t always have a ground-level sense of which programs and policies are working,” Obama said.
The Obama adviser said that, once the 16-member commission is up and running, it will meet every few weeks and provide information to the president, giving Volcker a larger role.
Volcker has stood behind Obama’s team, agreeing to testify in Congress on behalf of Geithner’s nomination, which was jeopardized by errors on his taxes. An economic policy maker of Volcker’s stature deserves more respect and a more visible role, Silber said.
“That’s a real concern if his name falls by the wayside,” said Silber, author of “When Washington Shut Down Wall Street: The Great Financial Crisis of 1914.”
“That’s something that worries me at least as much as the fundamental problem.”