Janet Yellen was born on August 13, 1946 in Brooklyn, New York. After earning a bachelor’s degree in economics from Brown University in 1967 and a Ph.D. (also in economics) 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, where she later became a professor emeritus of economics.
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. 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 1999-2006 Yellen was the Eugene E. and Catherine M. Trefethen Professor of Business and Professor of Economics at UC Berkeley. In 2004-05 she was a vice president of the American Economic Association, where she would later serve as a distinguished fellow (2012) and as president-elect (2019).
From 2004-10, Yellen served as president and CEO 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.
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 2010-14 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 confirmed in October 2013 that Yellen and Bernanke had “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, Senator Bernie Sanders of Vermont—a self-identified socialist— asked Yellen: “Are we still a capitalist democracy or have we gone over into an oligarchic form of society in which incredible economic and political power now rests with the billionaire class?” Acknowledging her concern about that matter as well as income inequality, Yelen replied: “[A]ll of the statistics on inequality that you’ve cited are ones that greatly concern me, and I think for the same reason that you’re concerned about them. They can shape the — determine the ability of different groups to participate equally in the democracy and have grave effects on social stability over time. And so I don’t know what to call our system or how to — I prefer not to give labels; but there’s no question that we’ve had a trend toward growing inequality and I personally find it very worrisome trend that deserves the attention of policy-makers.”
Yellen revisited this theme in October 2014, when she told a conference on economic opportunity and inequality sponsored by the Federal Reserve Bank of Boston: “The extent and continuing increase in inequality in the United States greatly concern me. I think it is appropriate to ask whether this trend is compatible with values rooted in our nation’s history, among them the high value Americans have traditionally placed on equality of opportunity…. The past few decades of widening inequality can be summed up as significant income and wealth gains for those at the very top and stagnant living standards for the majority.”
Yellen stepped down from her post as chair of the Federal Reserve Board when her term expired on February 3, 2018. The previous day, the Brookings Institution had announced that Yellen would soon be joining the think tank as a distinguished fellow in residence.
In 2018 as well, Yellen was a signatory to an amici curiae brief that expressed support for Harvard University in the Students for Fair Admissions v. Harvard lawsuit, where the plaintiffs alleged that Harvard’s affirmative-action admissions policies discriminated against Asian-American applicants whose grades and standardized-test scores were significantly better than those of their non-Asian counterparts.
Between October 2019 and October 2020, Yellen was paid $813,000 in speaking fees by the Chicago-based hedge fund Citadel. That total included $292,500 for a speech on October 17, 2019, $180,000 for another speech on December 3, 2019, and $337,500 to speak at a series of webinars that were held from October 9 to 27 the following year.
In the aftermath of the May 25, 2020 death of George Floyd — a black man who had died after being abused by a white police officer in Minneapolis — a number of U.S. cities were overrun by violent riots led by Black Lives Matter (BLM). Out of that chaos, there arose a movement calling for the defunding of police departments nationwide. Yellen, for her part, backed an effort to have Harald Uhlig fired as editor of the prestigious Journal of Political Economy because — even though Uhlig supported the BLM movement — he used his Twitter account to criticize the organization for promoting looting and riots, and for calling to “defund the police.” Specifically, Uhlig tweeted on June 8, 2020: “Time for sensible adults to enter back into the room and have serious, earnest, respectful conversations about it all: e.g. policy reform proposals by @TheDemocrat and national healing. We need more police, we need to pay them more, we need to train them better. Look: I understand, that some out there still wish to go and protest and say #defundpolice and all kinds of stuff, while you are still young and responsibility does not matter. Enjoy! Express yourself! Just don’t break anything, ok? And be back by 8 pm.” Yellen said in a June 10 email that “the tweets and blog posts by Harald Uhlig are extremely troubling” and that “it would be appropriate for the University of Chicago, which is the publisher of the Journal of Political Economy, to review Uhlig’s performance and suitability to continue as editor.”
On November 30, 2020, President-elect Joe Biden announced that he would nominate Yellen to serve as Secretary of the Treasury. The Senate Finance Committee unanimously approved Yellen’s confirmation on January 22, 2021, and the full Senate confirmed her nomination with a vote of 84–15 (with one abstention).
During her Senate confirmation hearing, Yellen discussed her views regarding climate change, a phenomenon which she described as an “existential threat” to the economy. “Both the impact of climate change itself and policies to address it could have major impacts, creating stranded assets, generating large changes in asset prices, credit risks and so forth that could affect the financial system,” she said. “These are very real risks.” In mid-February 2021, it was reported that Yellen — in accordance with an executive order by President Biden requiring all federal agencies to assess the potential environmental impact of their operations — was planning to create a new senior position of “climate czar” to coordinate the Department’s climate-related initiatives. To fill that post, Yellen was considering Sarah Bloom Raskin — wife of Democratic Rep. Jamie Raskin of Maryland. Mrs. Raskin had previously served as Deputy Treasury Secretary under former President Barack Obama and had worked withe Yellen at the Federal Reserve.
On October 24, 2021, Yellen, in response to a question by CNN’s Jake Tapper asking whether congressional Democrats might seek to enact a wealth tax in order to pay for President Biden’s proposed ten-year, $3.5 trillion social spending, replied that they were indeed contemplating the possibility of taxing the unrealized capital gains of the wealthiest Americans. “Well, I think what’s under consideration is a proposal that [Democrat] Senator [Ron] Wyden and the Senate Finance Committee have been looking at that would impose a tax on unrealized capital gains, on liquid assets held by extremely wealthy individuals, billionaires,” she explained. “I wouldn’t call that a wealth tax. But it would help get at capital gains, which are an extraordinarily large part of the incomes of the wealthiest individuals, and right now escape taxation, until they’re realized, and often they’re unrealized in the death benefit from a so- called step up of basis. So, it’s not a wealth tax, but a tax on unrealized capital gains of exceptionally wealthy individuals.”
The Associated Press explained how a wealth tax would work:
“Essentially, billionaires earn the bulk of their money off their wealth. This might be from the stock market. It could include, once sold, beachfront mansions or the ownership of rare art and antiquities…. This new tax would apply solely to people with at least $1 billion in assets or $100 million in income for three straight years. These standards mean that just 700 taxpayers would face the additional tax on increases to their wealth [each and every year], according to … the chairman of the Senate Finance Committee, Sen. Ron Wyden, D-Ore. On tradeable items such as stocks, billionaires would still pay a tax even if they held on to the asset. They would be taxed on any increases in value and take deductions on losses. Under current law, those assets get taxed only when they are sold.
“Billionaires would also face an additional tax on nontradeable assets such as real estate and business interests once those assets are sold. During the first year of the proposed tax, the billionaires would also owe taxes on any built-in gains that predate the tax.
“House Speaker Nancy Pelosi … estimated on CNN … that the tax would raise $200 billion to $250 billion. This is a meaningful sum, but it’s well shy of the nearly $2 trillion in proposed additional spending over 10 years being negotiated right now. This means that additional levies such as the global minimum tax and increased enforcement dollars for the IRS would still be needed to help close the gap. […]
“If a wealth tax were to become law, it probably would be challenged in court. The likely case comes from Article 1, Section 2 of the Constitution. It states that ‘direct Taxes shall be apportioned among the several States which may be included within this Union, according to their respective Numbers.’ What does that mean? It means that revenues from ‘direct’ taxes must reflect the population of the states, which is a problem because billionaires tend to cluster in places such as California and New York.”
The Tax Foundation explains that a seemingly low-percentage wealth tax is actually massive, when we examine exactly how it affects a person’s after-tax return-on-investment:
“Compared to income taxes, wealth tax rates seem much lower, but this rate can be deceptive. The best way to interpret wealth tax rates is to translate them into an equivalent income tax rate. For example, consider an investor who owns a long-term bond with a fixed rate of return at 5 percent each year. A 3 percent annual wealth tax would imply that 60 percent of the capital income from owning the long-term bond would be remitted as tax—the 3 percent wealth tax translates to a 60 percent income tax rate in this example. A 5 percent annual wealth tax would equal a 100 percent income tax rate, because the wealth tax would take all this taxpayer’s capital income. A 10 percent wealth tax, calculated in the same manner, implies that all capital income earned in this year plus part of the stock would have to be turned over as taxes, which means a 200 percent income tax.
“The after-tax rates of return for these scenarios are presented in Table 1. Under the assumption of a fixed pretax return of 5 percent, an annual wealth tax of 10 percent results in a negative rate of return at -5 percent.
Table 1. Wealth Tax Rates vs. Equivalent Income Tax Rates Pretax return Annual wealth tax rate Implied income tax rate After-tax return Scenario A 5% 2% 40% 3% Scenario B 5% 3% 60% 2% Scenario C 5% 5% 100% 0% Scenario D 5% 10% 200% -5%
“Seemingly low 2 percent and 3 percent wealth tax rates imply much higher income tax rates; in this example, 40 percent and 60 percent, respectively. For safe investments like bonds or bank deposits, a wealth tax of 2 or 3 percent may confiscate all interest earnings, leaving no increase in savings over time.”
On October 25, 2021, Yellen announced the appointment of Janis Bowdler, former president of the JPMorgan Chase & Co. Foundation, as the Treasury Department’s first “Counselor for Racial Equity.” A Treasury Department press release stated thatBowdler “will be charged with coordinating Treasury’s efforts to advance racial equity including engaging with diverse communities throughout the country and to identify and mitigate barriers to accessing benefits and opportunities with the Department.” Said Yellen: “The American economy has historically not worked fairly for communities of color. The pandemic threw a spotlight on this inequity; people of color were often the first to lose their jobs and businesses. Treasury must play a central role in ensuring that as our economy recovers from the pandemic, it recovers in a way that addresses the inequalities that existed long before anyone was infected with COVID-19. I’m excited that Janis will join us and devote her efforts to that mission.” Bowdler, for her part, said the following upon her appointment: “I could not be more humbled by the historic opportunity to serve as the U.S. Department of the Treasury’s first Counselor for Racial Equity. I have spent my entire career working in solidarity with Black, Latinx, AAPI, Native communities, and other communities of color to dismantle the structural and institutional racism that perpetuates the racial wealth divide.. Addressing racial and gender disparities and giving underserved communities greater access to opportunities creates more broadly shared prosperity for all.”
Further Reading: “Janet Yellen: What You Should Know about the Next Fed Head” (The Objective Standard, 10-10-2013); “Janet Yellen” (Brookings.edu); “What They’re Saying About Janet Yellen” (Forbes, 10-9-2013); “Yellen’s Path From Liberal Theorist to Fed Voice for Jobs” (NY Times, 10-9-2013); “Yellen’s Focus on Unemployment Adopted by Fed After Crisis” (Bloomberg.com, 4-25-2013).
The “income inequality” claim depends on ignoring numerous data that contradict it. For one thing, it glosses over the mobility among the 5 income cohorts over time … A few years ago the Department of Treasury … [found] that between 1996 and 2005 over half of taxpayers moved to a different income quintile. Half of taxpayers in the bottom quintile in 1996 moved to a higher income group in 2005. Meanwhile, only 25% of the richest 1/100 of 1% in 1996 were still that rich in 2005. This mobility has indeed stalled, but not for “several decades,” as Yellen claimed, and not because of the sinister machinations of the wealthy. Its cause rather is the sluggish economic growth after the recession ended 5 years ago, and the blame for that in large part falls on Obama and the Democrats’ regulatory overreach, trillion-dollar deficits, … anti-business rhetoric, and redistributionist economic policies….
The “income inequality” meme ignores other facts as well. It focuses only on “money income,” neglecting the value of government transfers like Medicaid, Electronic Benefit Transfer cards (formerly known as food stamps and welfare checks), emergency-room health care, Section 8 housing subsidies, and the Earned Income Tax Credit, all of which boost the buying power of the statistical poor and lower middle class. For the middle class, “money income” ignores the value of employer-provided fringe benefits such as health care. As for the rich, “money income” ignores the highly progressive taxes they pay to fund those government programs. As Gary Burtless of the Brookings Institution writes, “To disregard the impact of transfers and progressive taxation on the distribution of income and family well-being is to ignore America’s most expensive efforts to lessen the gap between the nation’s rich, middle class, and poor.”
Finally, consumption—how much people spend—is more revealing than “money income” as a measurement of economic well-being. In fact, consumption rates of the lowest income quintile have increased over the years, reaching nearly twice of income in 2005. As a result, Kip Hagopian and Lee Ohanian write, “A family claiming $22,300 in income in 2005 would have reported about $44,000 in expenditures in that year…. [T]he gap between reported income and consumption is filled by various categories of government transfer payments (including Medicaid, food stamps, subsidized housing, the Earned Income Tax Credit, Temporary Assistance for Needy Families, etc.), family savings, imputed income from owner-occupied housing, barter, support from family and friends, and income from the underground economy.” Indeed, if one takes into account consumption, the statistical poor enjoy living standards higher than the average European. The obsession on “money income” ignores how well all Americans live.
A Return to Keynes?
By Thomas Sowell
October 15, 2013