Janet Yellen: How Well Do You Know Her?

Prof. Cesare Merlini, Brookings Institute, and Dr. Janet Yellen, Vice Chair Board of Governors, Federal Reserve

Prof. Cesare Merlini, Brookings Institute, and Dr. Janet Yellen, Vice Chair Board of Governors, Federal Reserve

With Larry Summers’ withdrawal from consideration for Fed chairman, Janet Yellen could wind up leading the board. How well do you know Janet Yellen? Here are some quotes that will give you an idea of her take on monetary policy. The first is from the John Hussman in his Weekly Market Comment, and the second is from Young Research at Global Investment Strategy.

Hussman on Janet Yellen:

We now face the prospect of Janet Yellen, who in October 2005, at the height of the housing bubble, delivered a speech effectively proposing that monetary policy could mitigate any negative economic consequences of a housing collapse, and arguing that the Fed had no role in preventing further housing distortions:

“First, if the bubble were to deflate on its own, would the effect on the economy be exceedingly large? Second, is it unlikely that the Fed could mitigate the consequences? Third, is monetary policy the best tool to use to deflate a house-price bubble? My answers to these questions in the shortest possible form are, ‘no,’ ‘no,’ and ‘no.’”

Young Research on Janet Yellen:

Mrs. Yellen is a dyed-in-the-wool Keynesian. She received her Ph.D. from Yale while studying under James Tobin, a pioneer in Keynesian economics. Mrs. Yellen taught economics at Berkley and served on the Fed board in the 1990s and as chair of the Council of Economic Advisors during President Clinton’s second term.

Mrs. Yellen has a worldview that mirrors the most liberal economists. A recent Bloomberg article highlighted some of her economic viewpoints. To a free-market economist it reads like the communist manifesto. To wit:

In an April 1999 speech at Yale, Yellen argued for activist policies.  “Will capitalist economies operate at full employment in the absence of routine intervention? Certainly not,” she said. “Are deviations from full employment a social problem? Obviously.” …

As early as 1995, when she was a Fed governor, Yellen was discounting [the] notion of the primacy of the inflation goal, saying both objectives—maximum employment and low and stable inflation—needed to be pursued in a balanced way.

“When the goals conflict and it comes to calling for tough trade-offs, to me, a wise and humane policy is occasionally to let inflation rise even when inflation is running above target,” she said during a debate on inflation targeting in 1995.

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