President-elect Joseph Biden has announced that Janet Yellen will be his cabinet choice for Treasury Secretary. After a long string of Treasury secretaries with connections to Wall Street, Yellen’s appointment heralds a change in focus, one that will prioritize main-street over Wall Street.
As Secretary of the Treasury, Yellen will be responsible keeping the government running, including paying the government’s bills, collecting taxes, and managing federal finances. More important, the Secretary of the Treasury acts as a principal advisor to the President and the Cabinet on economic issues, and it’s in this capacity where she can be most effective.
Yellen earned a PhD in economics from Yale University in 1971, where she was the only female in her class, and later taught economics at Harvard University, where again she was the only female member of the department. She was the chairman of President Clinton’s Council of Economic Advisors, President of the San Francisco Fed, and most recently Chairman of the Federal Reserve Board of Governors. It’s this vast array of experience as an economist (and a woman) which give her an insight into issues not usually considered by past Treasury secretaries.
It was during her time on the Council of Economic Advisors that she oversaw a study focusing on women in the labor force. Their conclusion was that while the Equal Pay Act of 1963 was a successful step forward in advancing equal pay for women, there were no economic arguments that could explain why women with equal education and experience earned only 75 percent of what white males earned. Thus their conclusion that considerable sex discrimination still existed, and continues to this day.
As President of the San Francisco Fed, she was one of the few who foresaw the approaching financial bubble and the possibility of a recession. Although she admits that she misread the severity of the recession, she was correct in seeing that the financial markets were behaving in a way that would eventually be damaging to the economy. She also argued that the nation’s unemployment rates could be pushed lower than previously thought possible without causing inflation to rise. As a result of her efforts, we’ve seen efforts that pushed various unemployment rates to historic lows.
During her tenure as Chairman of the Federal Reserve she was vocal in her criticisms of income inequality, explaining that economic progress and growth cannot continue if society increasingly becomes split between the haves and the have nots. It was for this reason that she supported past Fed efforts to stimulate the economy and current fiscal policy efforts by Congress to offset the economic consequences of the COVID virus restrictions. In August Yellen told the Washington Post that she was concerned that without a continued fiscal stimulus that quite a few low-income workers stand to suffer permanent job losses.
What recommendations she’ll make to President Biden (if she’s confirmed as Treasury Secretary) are anybody’s guesses. But if past is a prologue, her statements at various times give us a window into what she will recommend to the incoming President. After the election of President Donald Trump in November 2016, Yellen vowed to protect Dodd-Frank. Yellen is a Keynesian economist and advocates the use of monetary policy in stabilizing economic activity over the business cycle. To combat climate change, Yellen led a bipartisan group of economists to sign a letter endorsing a carbon tax. And while she believes in capitalism, she strongly believes in government regulation.
On the more speculative side, given her concern with women’s issued in the labor market issues and her commitment to continued economic growth, one wonders if she’ll push President Biden to revamp the 2017 Trump tax cuts. The 2017 tax changes suspended all personal and dependent exemptions for tax years 2018-2025, which empirically has been shown to have had a negative impact on the fertility rate of younger women which in turn have serious policy implications, especially at a time when the US fertility rate has reached an all-time low, and in that absence of significant increases in immigration, poses a threat to continued economic growth.
Will her concern with economic growth push her to advocate student loan forgiveness as a way of stimulating product demand and thus economic growth? Will she suggest ways to smooth the transition from fossil fuels to renewable energy sources? Will her concerns about income inequality lead her to be an advocate for raising the minimum wage to $15 per hour and indexing it so some economic measure such as inflation or productivity? For now no one knows, but it is exciting to imagine a Treasury secretary committed to practical economic policies that focus on family welfare and not abstract macro economic measures.