Friday, March 14, 2014

Janet Yellen at the Fed – So Far, So Good

When Janet L. Yellen’s name first reached the general public, it was because she was a novelty.  It’s sad that 2014 someone’s sex is more important than his or her qualifications, but it’s hardly rare.  She was frequently described as a woman who was a major candidate to replace Ben S. Bernanke as Chair of Board of Governors of the Federal Reserve System, or, as otherwise known, chair of the Fed. 

That is an extremely responsible position.  In my mind, it would contend only with the Supreme Court’s Chief Justice for not only the effect it has on others but in its need for prudence and sobriety.  The Fed’s monetary policies affect the prosperity of the majority of Americans, and the decisions are the most complex imaginable.  A fellow graduate student, in physics instead of sociology, told me he didn’t want to study the social sciences because they had “too many variables” – we can all agree that economics is in that category.  Many of its factors are worse than that – they are simply unknown, lost in the murk of human behavior.  So in many ways it is a wonder that none of the past few decades’ Fed leaders, from Paul Volcker through Alan Greenspan and Bernanke, have made a clearly catastrophic error. 

Yellen, a Harvard economics professor at age 25, had been president and CEO of San Francisco’s Federal Reserve Bank for six years when she became the Fed’s vice chair in 2010.  After President Obama went through a remarkable amount of time deciding that Yellen was the right choice for the top job, he officially nominated her in October and she started the job last month. 

Beyond the prime credentials, what is she like?  She is a Keynesian, believing in the ability of circulating money to boost economic activity.  She is known as being more concerned with jobs than with inflation.  That is now a very good thing.  Earlier this year, she went out of her way to point out that long-term joblessness had not improved as much as the unemployment rate, and touched on the damage it did to long-out-of-work people’s careers.  That is also good.  She maintained in 2012 that the economy needed more stimulation, and, back in 1995, called moderately high inflation “a wise and humane policy.”  Accordingly, she has received some criticism from the right, such as being called “entirely too easy money” by investor Julian Robertson. 

That is understandable, but not to the point.  American inflation is dormant, and has been for a long time – in fact, it has been over 23 years, since November 1990, that it has exceeded an annual 6% even for a month.  On the other hand, even if you don’t think the job shortage is permanent, you must admit that employment is recovering very slowly, well over an official 6% almost five years after the last recession’s end, with measures such as the share of adults working having not improved at all. 

Since taking office, Yellen has said that any end to the federal bond-buying program will be based on a variety of economic indicators.  That is favorable also, as is continuing another of Bernanke’s well-judged policies of keeping short-term interest rates close to zero.  She acknowledged that raising the minimum wage could cost as many as one million jobs, a fine response from the first Democrat to hold the office in thirty years.  She said that bad February weather had made a significant dent in the economy, and on that we will see, probably in three weeks with March’s jobs data. 

In all, early indications on how Yellen will be for American jobs are clearly positive.  Not only does she have the right emphases, but her words on the minimum wage show that she may not be bound by party doctrine.  We can continue to expect, and probably receive, more solid performance from the Fed chair’s office.  As for inflation, we should not worry – even if the fundamentals hinted at all that it might return, she will not get carried away.  After all, her predecessor and de facto mentor Bernanke, though once known as Helicopter Ben for his statements about increasing the money supply by throwing it out from the air, saw inflation go nowhere during his eight-year tenure.  From here, Janet Yellen looks like a winner.

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