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JANET YELLEN Printer Friendly Page

A Return to Keynes?
By Thomas Sowell
October 15, 2013

 


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  • Keynesian economist
  • Appointed by President Bill Clinton to the Federal Reserve Board and the Council of Economic Advisers
  • Appointed by President Barack Obama to chair the Federal Reserve Board
  • Professor emeritus of economics at the Haas School of Business



See also:  Bill Clinton   Barack Obama



Janet Yellen was born on August 13, 1946 in Brooklyn, New York, where she had a middle-class upbringing. After earning a bachelor's degree from Brown University in 1967 and a PhD from Yale in 1971, Yellen taught economics at Harvard from 1971-76. She then spent two years counseling the Federal Reserve System's Board of Governors on issues such as international trade and finance, and from 1980-94 she held a faculty position at UC Berkeley’s Haas School of Business.

According to Business Insider, one of Yellen's old high-school classmates describes her as “a classic ’60s liberal.” Throughout her career as an economist, Yellen, a Democrat, has been an adherent of Keynesian economic theory. As developed by the late British economist John Maynard Keynes, Keynesianism postulates that: (a) the federal government is best equipped to reverse or minimize economic downturns, either by increasing the overall money supply or bankrolling public-sector programs in order to stimulate money exchange; and (b) the Federal Reserve should keep interest rates as low as possible in order to provide low-cost funding for the government, even as the latter engages in deficit-spending and accumulates debt.

During her 14-year tenure at UC Berkeley, Yellen published numerous articles that openly endorsed Keynesian principles, which she has continued to espouse ever since. In 1999 she said: “Will capitalist economies operate at full employment in the absence of routine intervention? Certainly not. Do policy makers have the knowledge and ability to improve macroeconomic outcomes rather than make matters worse? Yes.” In a similar vein, Yellen told Berkeley’s business-school magazine in 2012: “While admirers of capitalism, we also to a certain extent believe it has limitations that require government intervention in markets to make them work.” According to Allen Sinai, a longtime Keynesian and currently the president of Decision Economics, Inc., “The philosophy of Janet Yellen is activism of government policy to achieve [Federal] objectives.”

In February 1994 President Bill Clinton appointed Yellen to sit on the Federal Reserve Board. Three years later, Clinton made Yellen the chair of his Council of Economic Advisers, a post she held until 1999. Yellen also served on the Congressional Budget Office’s Panel of Economic Advisers, and was a senior adviser to an economic-activity panel at the Brookings Institution.

From 2004-10, Yellen served as president of the Federal Reserve Bank of San Francisco, where (in 2005) she was the first official to describe the rise in housing prices as a “bubble” that might ultimately harm the U.S. economy. Her warnings about a possible housing crisis, however, were “tentative and inconsistent,” according to The New York Times.[1]

During her years in San Francisco, Yellen did not advocate for any change in the policies of the Federal Reserve, which, under her watch, did little to rein in the excesses and abuses of the banks under its supervision. Among those questionable practices was the widespread issuance of subprime loans. Yellen did eventually try to warn lawmakers in Washington of the dangers that were brewing in the housing market, but never attempted to constrain lenders unilaterally. “I honestly don’t know if we could have done that,” she later told the Financial Crisis Inquiry Commission in 2010. “I don’t think we felt empowered to do it.”

From 2010-13 Yellen was vice chair of the U.S. Federal Reserve, where she helped chairman Ben Bernanke implement the policy of quantitative easing, whereby the Fed sought to promote increased lending and liquidity by flooding financial institutions with capital—a practice that historically has tended to result in steep inflation. According to The Economist magazine, not only was Yellen “a strong backer of Mr. Bernanke’s expansionary policies” (i.e., quantitative easing), but she also “made the case for a more sustained attack on unemployment with prolonged zero interest rates, even at the cost of temporarily higher inflation.” The New York Times confirms that Yellen and Bernanke “forged a consensus in the fall of 2012 for the Fed to expand both of its principal campaigns to spur job creation: more asset purchases, and an extended commitment to low interest rates.”

On October 9, 2013, President Barack Obama nominated Yellen to replace Bernanke as Federal Reserve Board chair beginning in February 2014, when the incumbent's term was slated to expire. Said Forbes magazine: “Yellen, like Bernanke before her, believes that the creation of money for the sake of doing so is the path to growth.”

At a Capitol Hill hearing on May 6, 2014, Yellen told Democratic U.S. Senator Bernie Sanders of Vermont—a self-identified socialist—that recently published statistics on income inequality "greatly concern me ... [because] they can ... determine the ability of different groups to participate equally in the democracy and have grave effects on social stability over time." "There's no question that we've had a trend toward growing inequality," added Yellen, "and I personally find it [a] very worrisome trend that deserves the attention of policy-makers."

In addition to her political activities, Yellen is also a professor emeritus of economics at the Haas School of Business.


NOTE

[1] “I never said for sure there was a bubble, but that it was a possibility,” Yellen said in September 2006. “I guess I was inclined to think maybe there was. But I have seen what has happened in the last year or so, and now I’m more dubious.”

 

 

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