Janet Yellen’s Nomination

The nomination of Janet Yellen to lead the Federal Reserve has generated much recent commentary.

While I may comment at length upon her nomination at a later time, for now I would like to highlight, for reference purposes, a few excerpts in the October 10, 2013 New York Times article titled “Yellen’s Path From Liberal Theorist to Fed Voice for Jobs.”

Please note that I do not necessarily agree or disagree with the following excerpts; I just find them notable:

The excerpts, in the order they appear in the article:

For Ms. Yellen, who was drawn to study economics as a path into public service and aspired as a college student to work at the Fed, the top job at the central bank would be a logical if – until only recently – unexpected culmination. Her confirmation also would reinforce the Fed’s evolution from an institution run by market-wise bureaucrats focused on controlling inflation to an institution run by academics committed to a broader mission of steady growth and minimal unemployment.

Ms. Yellen’s intellectual roots and leadership style both suggest that she would push somewhat more forcefully than Mr. Bernanke to extend the Fed’s stimulus campaign, according to a careful review of her career and interviews with more than two dozen colleagues and acquaintances.


Ms. Yellen, like many economists of her generation, was drawn to the field by an interest in the Great Depression. Economics allowed her to combine a love for the rigor of mathematics with a desire to work on issues affecting people’s lives.


Ms. Yellen decided to pursue a doctorate at Yale University after hearing a speech by James Tobin, the economist whom she still regards as her intellectual hero. Mr. Tobin was a staunch defender of the view that government policy could lift an economy from recession. She also admired the way he mixed academic work with public service.


They were both Keynesians, believers in the view that people act irrationally, markets function imperfectly and the resulting problems are not self-correcting; the government must help.

“While admirers of capitalism, we also to a certain extent believe it has limitations that require government intervention in markets to make them work,” Ms. Yellen said in a 2012 interview with Berkeley’s business school magazine.


President Clinton nominated her alongside another liberal academic, the Princeton economist Alan S. Blinder, to temper the market-oriented conservatism of the Fed’s chairman, Alan Greenspan. Appointing academics was an unusual step at the time. When Ms. Yellen met Treasury Secretary Lloyd Bentsen at his home outside San Diego – while Mr. Akerlof waited outside in a rental car – she came armed with examples of the research insights she could bring to policy making.


“I think she’s just entirely too easy money,” Julian Robertson, the noted investor, said Monday on CNBC, arguing that her tolerance of inflation could lead to excesses like the run-up in house prices that led to the financial crisis. “I think we’ve got to remember that we’re not very far from the last bubble bursting.”


Ms. Yellen demonstrated considerable economic insight over the next several years. She was the first Fed official, in 2005, to describe the rise in housing prices as a bubble that might damage the economy. She was also the first, in 2008, to say that the economy had fallen into recession. And in early 2009, she warned of an “extended period of stagnation,” dismissing concerns about imminent inflation.

Her warnings before the crisis, however, were tentative and inconsistent. “I never said for sure there was a bubble, but that it was a possibility,” Ms. 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.” Moreover, she did not advocate for a change in Fed policy.


In April 2012, Ms. Yellen told a New York audience that the Fed had not done enough to stimulate the economy in the aftermath of the great recession. Ms. Yellen, like most of Fed officials, had underestimated the depth of the recession and overestimated the strength of the recovery. The speech was part of a campaign of many months, most of it waged behind the scenes, to convince her colleagues that the Fed could and should do more.


But her views have held remarkably steady over the last three decades: When unemployment is high, the Fed has an obligation to try.

Returning to Yale in 1999, Ms. Yellen summarized the lesson she had learned from Professor Tobin and carried with her into public service.

“Will capitalist economies operate at full employment in the absence of routine intervention? Certainly not,” she said. “Do policy makers have the knowledge and ability to improve macroeconomic outcomes rather than make matters worse? Yes.”


The Special Note summarizes my overall thoughts about our economic situation

SPX at 1703.20 as this post is written