There is a long and interesting profile of Janet Yellen, the head of the Federal Reserve, in the latest issue of the New Yorker. As you might expect from this longstanding voice of the liberal New York elite, it paints her in a sympathetic light, and usefully draws attention to how and where her views about the role of economics and the central bank were formed. Here is a short extract, in which the author picks up on the fact that her first official public appearance after succeeding Ben Bernanke in the job was carefully chosen to send a message about her priorities:
She had gone to Chicago a few weeks earlier to speak at a conference for neighbourhood revitalisation organisations – not the venue a new Fed chair wouuld ordinarily choose for a maiden speech. Yellen was sending a signal. As she put it that day “Although we work through financial markets, our goal is to help Main Street, not Wall Street”. More than five years after the financial crisis, historically high numbers of Americans are still out of the labor force, working part time when they’d rather be full time, or unemployed for more than six months. Yellen spoke mainly about unemployment, and told the stories of three blue-collar Chiacagoans, two black, one white, who had lost their jobs in the recession. Her staff had found these people for her, and she had spoken to them on the phone before her speech. Two of the three – from Chicago’s desperately poor West Side – had criminal records.
The point, she explained to the New Yorker’s correspondent, was to “emphasise that unemployment is part of our mission……I was trying to explain that we’re doing this to help American families who are struggling in the aftermath of the Great Recession”. The article goes on to describe at length how “economic misfortune for ordinary people has been on Yellen’s mind for most of her life”. It traces her career as an economist, and how she came to believe in the power of governments to do good. In her words: “I come from an intellectual tradition where public policy is important, it can make a positive contribution, it’s our social obligation to do this. We can halp to make the world a better place”.
Later still she talks about the headwinds still facing the reviving American economy and has this unequivocal conclusion: “Even when the headwinds have diminished to the point where the economy is finally back on track and it’s where we want it to be, it’s still going to require an unusually accommodative monetary policy”. There really could not be any clearer statement that if Yellen has her way, the Fed is going to stick to its low interest rate policy for as long as possible, with reducing unemployment further having the highest priority. Of course she has to carry other, much more hawkish members of the Federal Reserve’s Open Market Committee with her, but her personal priorities could not be clearer.
The issue of course, with the Federal Reserve, as with policymakers and governments in general, is that success and failure are ultimately determined not by the quality of your intentions, but by the outcomes that your policies produce. Six years on from the collapse of Lehman Brothers, the Fed’s unprecedented programme of monetary stimulus has done more to create wealth for the already wealthy than it has to generate a return to higher levels of economic growth. The country’s debt burden continues to rise, while the biggest banks remain “too big to fail”, making a repeat of 2008 all too possible.
Is all this really working to the advantage of Main Street rather than Wall Street? While it is refreshing to have the conscience of a liberal wielding so much influence in the most important institution in Washington, the dangers of letting go of the traditional tools of monetary policy in favour of a sincere but highly personal set of social imperatives are also high and mounting. We can’t say we haven’t been given fair warning of what may now lie ahead if the policy turns out to be too weak for the common good.
Jonathan Davis 