Moneybox

Janet Yellen Is Back

That’s good news for the economy.

Janet Yellen speaks into a pair of microphones while standing in front of a U.S. flag.
Janet Yellen speaks during an event at the Queen Theater in Wilmington, Delaware, on Tuesday. Alex Wong/Getty Images

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On Monday, President-elect Joe Biden announced he would nominate Janet Yellen as his treasury secretary. This news was greeted favorably all across the political spectrum, by progressives and even Senate Republicans. As former chair of the White House Council of Economic Advisers and chair of the Federal Reserve, Yellen would bring a lot of experience helping the country recover from financial pitfalls—and reshaping the role of government money in public life. But in the face of an unprecedented economic, public health, and political crisis, will she able to accomplish what needs to be done? On Tuesday’s episode of What Next, I spoke with Jordan Weissmann, Slate’s senior business and economics correspondent, about why we should be paying attention to Yellen’s appointment and what makes the Treasury Department so uniquely powerful. Our conversation has been edited and condensed for clarity.

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Mary Harris: People talk about Biden’s incoming administration as a third Obama term. But I wonder if, looking at his team of economic advisers, you see a bit of a difference there—something more progressive.

Jordan Weissmann: Some of his people are Obama veterans and from the mainstream of the party. But in a lot of ways, the party itself—and the mainstream center-left economics world—has become more progressive. I think that’s embodied in many ways in Janet Yellen herself: Her instinct and main concern have always been about making sure people can get to work. She’s always been a very pro–full employment economist.

Why should we be paying special attention to the Treasury Department?

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The Treasury Department is fairly powerful. It contains the IRS, so it has a lot to do with tax policy. It contains the Office of the Comptroller of the Currency, which is essentially a major banking regulator, although it’s sort of independent of the rest of treasury. And Yellen’s going to be leading the Financial Stability Oversight Committee, which makes sure financial markets don’t fall apart.

Yellen studied economics at Brown and earned a Ph.D. in economics from Yale. This was back in 1971—she was the only woman in her class, and she was legendary. Her notes from Yale were reportedly used for years by other students because they were so thorough. She taught at Harvard for several years, initially as the only female economics professor, a period she has described as “very lonely and discouraging.” When Harvard did not offer her a path to tenure, she ultimately became a full professor at the University of California–Berkeley before venturing into government. Can you explain Yellen’s political ascendancy?

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After Berkeley, Yellen was nominated to join the Federal Reserve Board under Bill Clinton. From there, she got her first really big job in Washington, as chair of the Council of Economic Advisers. The CEA is the outpost for academic economists in the White House, the group of tweedy people who do a lot of data crunching and produce reports about the direction of the economy and offer advice. It’s an important role. She eventually became president of the Federal Reserve Bank of San Francisco. From there, she went to another big Federal Reserve job: vice chair of the of the Federal Reserve. Then Barack Obama nominated her to be the first female chair of the Fed. This was a history-making appointment. And at the time, a lot of people said it looked like she was going to be the most dovish Fed chair in postwar American history.

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What do you mean by that?

When we talk about monetary policy, we talk about central bankers as hawks and doves. Doves are people who like to keep interest rates low so employment can go high. And they’re not very worried about inflation. Hawks are people who are very worried about inflation and tend to want to raise interest rates quicker. The idea a lot of people had about Yellen was that she was going to be the most dovish person to lead the Fed since Marriner Eccles, the Fed chair under FDR back in the 1930s. Reality was a little bit more complicated, but part of Yellen’s legacy was that she did keep interest rates very low for a long time. And she resisted a lot of calls and pressure to raise them faster than she did.

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She rode this balance board, right? In 2014, when she first became the chair of the Federal Reserve, she had this press conference where she talked about raising interest rates, and that sent the stock market into a tailspin.

Yellen had a very difficult task. You have to mentally transport yourself back to 2014: The Fed was in uncharted territory, trying to nurse the economy back to life after the financial crisis and the onset of the Great Recession. It tried all these unconventional approaches like quantitative easing that really freaked some conservatives out at first. And you had all this political pressure coming from Capitol Hill, from Republicans who were raising the specter of hyperinflation.

And that never happened.

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That never happened. But you even had some former Fed presidents and board members who also were a bit hawkish, who wanted to see interest rates go higher because they were concerned that all this unconventional monetary policy—these efforts to keep rates low in order to kind of get the economy back to health—was going to cause inflation. There were a lot of reasons that turned out to be wrong. But these fears were there, and Yellen’s job, in a lot of ways, was to deal with the hawks and the doves and deflect all this political pressure coming at her from elected officials. It was a difficult job. And at the same time, some economists at that time were arguing that by 2014, we were getting close to full employment because the long-term unemployed were probably never going to go back into the labor force. Their idea was that we were facing permanent scarring and the job market of 2014 or early 2015 was as good as things were going to get.

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It sounds like Yellen saw that and said, no, we can do better.

Her approach was to try to find a middle path that would allow the economy to continue healing while assuaging concerns from the more hawkish members of the Fed.

With Yellen at the helm, the Fed did two related things. It raised interest rates—very slowly—as a kind of compromise between the hawks and the doves. This “low and slow” approach remains controversial: Some argue it may have caused a recession in manufacturing in 2015, setting the stage for President Donald Trump’s election. But while her approach was controversial, Yellen got results: Unemployment dropped lower than many economists thought possible without inflation spiking. And by doing that, Yellen managed to reposition the Fed as a whole.

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Her years running the Fed were an important transition point. The Fed had traditionally been thought of as an institution that was almost monomaniacally focused on stamping out inflation—at least since the ’80s, under Paul Volcker. Yellen started turning the ship around and saying, no, we have to focus more on the full employment part of our mandate.

Yellen also argued that income inequality was inconsistent with American values. Her argument was rather abstract, but it made her a target.

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She was the leader who began bringing these kinds of concerns that initially you were hearing in Occupy Wall Street from left-wing protesters. She was bringing those same concerns into the power structure of the most important economic institution in the U.S. government.

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She got pushback for that. Republicans on the Hill said she was speaking out of turn.

And now you’ve got Jerome Powell, who talks very openly about the need for Congress to spend more for stimulus or relief in order to get the economy through COVID. He had the Fed undergo this entire rethink of its monetary policy framework. The end result was a framework that put even more emphasis on full employment and less emphasis on inflation. So we can think of that as him taking what started with Yellen and extending it further. That’s part of her legacy too.

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So when you talk about what she’s going to bring to the treasury, the things that get progressives animated, like inequality and full employment, also animate her. She does not always agree 100 percent with the activist class or with writers and economic commentators about what the exact right course of action is. But in terms of values, she aligns with the progressive wing of the party.

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You’re also laying out that she changes the institutions that she leads. What kind of tools will she have at her disposal at treasury that could address inequality?

She could press for more aggressive banking regulations or financial market regulations, both through some of her formal powers and through the bully-pulpit aspect of the job. But when it comes to policy, that’s what’s really going to affect inequality and people’s ability to get jobs. A lot of that is going to come down to the advice she gives Biden, and the legislation she works with other members of the administration to craft. I don’t know if Yellen alone can use her superpowers to fix American inequality as treasury secretary. But she’s another important voice who’s going to be pushing the administration in the right direction. Her set of values is a mainstream version of progressivism—she is very concerned about the plight of ordinary Americans. Even when she’s trying to look for a middle ground or take a small-C conservative approach to stuff, it always does seem to be with the idea of making ordinary Americans’ lives better.

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I wonder how much Trump can tie Yellen’s hands in this interstitial period we’re in now. We’ve already seen a little bit of this because it looks like the current treasury secretary, Steven Mnuchin, has moved about $454 billion in aid money that was sitting around out of Yellen’s reach. Can you explain what happened there?

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This has been one of the wonkier and slightly sinister plot lines that’s been unfolding since the election. When Congress created the CARES Act, it helped the Federal Reserve set up these emergency lending programs from which it could lend money or buy corporate bonds. That was supposed to help make sure that large companies could keep borrowing money easily. It also helps set up programs for state and local governments and for small and midsize businesses. It was called the Main Street Lending Program. It acted like a security blanket for the financial markets: The fact it was there calmed a lot of people down and helped the market go back to functioning like normal. But the programs for state and local governments and small businesses didn’t get used much, probably because the terms just weren’t very good. They weren’t very appealing, but they were around. Technically, Yellen could restart all of these programs when she’s confirmed. She would have the power to say, “Let’s get going with these emergency lending programs again.” But Mnuchin is trying to take this money and stow it away in the treasury’s general fund where she can’t touch it. There was some talk about how you could make these programs more appealing and change their terms a bit so they could be used to give the economy a boost rather than just being the security blanket they had been before. He’s sort of attempting to foreclose that possibility.

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