Treasury secretary of the United States of America, the most powerful job in finance. And the next person to do it will be Janet Yellen. In this new role, she will be responsible for U.S. economic policy, tax policy, fiscal policy, as well as managing government debt. Obviously, this is a key position for those of you living in the United States. But, it’s also key for those outside of it because of the massive role the Dollar and U.S. economy play in the global economy. After all, stimulus in the U.S. often leads to higher exports in the rest of the world.
So, with Janet Yellen being confirmed by congress today, it makes sense that you wonder who is Janet Yellen? What are her qualifications? And, most importantly, what can we expect from her tenure as Treasury secretary?
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Who is Janet Yellen
Janet Yellen was born just after the second world war in New York city. Her parents were Jews of Polish decent. Her mom was an elementary school teacher and her father a physician. Very humble beginnings indeed.
But, after that, things quickly started to become less humble. She finished her bachelor cum-laude at Brown university and went on to do a PhD in economics at Yale, where she specialised in labour economics and macroeconomics. She had some extremely impressive mentors during this time. For example, her doctoral advisor was Nobel winner James Tobin and her academic advisor was Nobel winner Joseph Stiglitz.
After her PhD, she first started teaching at Harvard and then got a job at the Federal Reserve as an economist. There, she met her husband George Akerlof, who would also later win a Nobel prize in economics. Together, they moved to London, where she would teach at the London School of Economics, and after that she started teaching at the University of California, Berkeley, where she is still an emeritus professor.
Now, I had a little peek at her publication record and I have to say. It is extremely impressive.
With an intellectual track record like that, I’m not at all surprised she was asked to join the Federal Reserve Board of Governors by President Bill Clinton.
After landing that impressive job, things only got better for Yellen. First, she was the chairwoman of the U.S. governments Council of Economic Advisers and later for the Economic Policy council of the OECD. After that, she became president and chief executive officer of the Federal Reserve Bank of San Francisco. The next step for her was to become Vice-Chair of the Federal Reserve board, and then after that finally, she got the top position of Federal Reserve Chairwoman in 2014, until she was replaced by the current Fed chairman Jerome Powell in 2018.
Then, after that, Yellen did what many top central bankers do in the U.S. and that is join the Brookings institute, which is one of the most prestigious economic think tanks in the world.
Also, and this landed her in a bit of hot water recently. She started doing paid speeches for Wall Street banks. For this, she reportedly got paid well over 7 million dollars. Giving speeches after you leave a job is perfectly legal, so it is not corruption. So, why was this controversial? Well for two reasons.
First, these were the institutions she was supposed to regulate in her old job. But here, I think that doing a speech for a company is not the same as working for them. For example, her predecessor Ben Bernanke started working for a big hedge fund right after his Fed job. I think this is much sketchier.
The second reason is that this plays into the narrative that people go into government, just to make big money in the private sector later. But, while I think that this should be addressed in general, it’s hard to make this case for Yellen since she has served the public all her life, and is now choosing a way lower salary again by becoming Treasury secretary. But, all in all, reading up of Yellen, I have to say I was extremely impressed. Her CV is incredible! She is probably the most qualified Treasury secretary ever.
Okay, but now onto the most important bit, what is Yellen likely to do as Treasury secretary?
What will she do?
To answer this question, we need to know a little bit about how Yellen thinks.
First, it is well known that Yellen is a Keynesian economist. This means that she believes in government stimulus during a recession. However, so far, she has mainly come out in support of central bank support rather than increased government spending. But, Yellen is very much part of the economic elite. And, in these circles, there has been a general shift towards the view that monetary policy alone is not enough and that more government stimulus is needed. Unlike her predecessor though, her stimulus is less likely to be in the form of tax cuts, and more likely to be in the form of additional spending.
At the Federal Reserve, Yellen was also known as a monetary policy dove. This means that she was often in favour of plenty of monetary policy support in the form of low interest rates and quantitative easing. Also, during this period, she seemed very willing to tolerate inflation if that would lead to lower unemployment.
So, I would guess that after the massive pandemic, she will be a dovish Treasury secretary as well, being willing to spend more.
The other thing we know about Yellen is that she doesn’t have full faith in financial markets. In the past, she has argued against repealing the tough rules for Wall Street Banks that had been put in place after the 2008 financial crisis. Also, when there was a massive housing bubble in 2006, and most economists were in denial, she was warning against it. This tells us that she is probably going to be tough on Wall Street and big business. Especially when compared to her Trump era predecessor Steve Mnuchin.
So, that was the story of Janet Yellen. She definitely has the qualifications for the job and I expect that she will be a dovish Treasurer. So, I’m expecting plenty of stimulus. Is that indeed what we need right now, both in and outside the U.S. Let me know in the comments or if you found this post interesting consider subscribing to our YouTube channel using the button below: