The short version is that Summers was considered more likely to pull back prematurely on anti-recession policies, and the market didn't like that.
http://krugman.blogs.nytimes.com/2013/09/03/summers-the-shiftless/?_r=0
A few months ago Christy Romer gave an excellent talk on the prospects for monetary policy in a liquidity trap, titled It Takes A Regime Shift (pdf). As many of us have noted, the central bank has very little direct traction when safe short-term rates are at the zero lower bound; maybe it can achieve something by buying lots of unconventional assets (“quantitative easing”), but its main hope of achieving anything is through “expectations management” — convincing both financial markets and players in the real economy that it will hold off much longer on tightening once the economy improves than they currently expect, which will lead to higher expected inflation and demand, and hence higher spending now.
However, engineering such a change in expectations — what I long ago dubbed a credible promise to be irresponsible — is hard. How do you convince people that the central bank won’t just revert to type, always eager to snatch away the punchbowl, at the first signs of economic improvement?
Romer’s answer is that it takes a “regime shift” — a set of actions that reflect a clear break with the past. FDR achieved such a regime shift in the 1930s by going off the gold standard, and in general by bringing in a, well, New Deal. Shinzo Abe may (the returns aren’t in yet) be achieving something similar simply by talking and acting in such a seemingly un-Japanese way; I suspect that Abenomics is working better than one might have expected precisely because Abe seemed to be such an ordinary Japanese machine politician, until he started moving on economic policy.
This, I think, is the way to read today’s report by Binyamin Applebaum on how the rising odds of a Summers appointment to the Fed is already having a chilling effect on the economy. A Yellen appointment would clearly have represented something new at the Fed — not just because she is, as Garrison Keillor used to say, a person of gender, but also because she has been a strong and consistent monetary dove, and took that position before it was fashionable.
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