Steven Pearlstein had a strange piece in the Post today arguing that Janet Yellen would be a better Fed chair than Larry Summers because Summers is too closely tied to the Democratic Party and we need a chair who is politically independent. While a politically independent Fed chair might be desirable, the Fed's biggest mistake over the last two decades has been its unwillingness to take steps to burst bubbles: the stock bubble in the 1990s and the housing bubble in the last decade. The country has paid an enormous price for this failure.

One possible explanation for this failure is simple incompetence. That would mean Alan Greenspan either didn't recognize the bubbles or didn't realize the impact that their collapse would have on the economy.

An alternative explanation is that Greenspan was aware of the risks posed by the bubbles, but knew that Wall Street was making vast amounts of money off both of them. (They were backing IPOs in the stock bubble and mortgage backed securities in the housing bubble.) Insofar as this is the case, then the real need for independence at the Fed is independence from Wall Street. We need a Fed chair who is prepared to take steps against a bubble even if means taking away a big money-maker from Wall Street.

On this score Yellen also would have a clear edge. Summers has received millions of dollars in consulting and speaking fees from Wall Street banks and hedge funds in the years when he was not in government. This raises questions about the extent to which he would be prepared to crack down on dangerous practices by the financial industry. While Yellen also did not advocate cracking down on the bubbles in her various public policy positions at the time, she does not have a history of receiving large payments from the financial industry.