Millions of Americans – the vast, vast majority of them, in fact – have never heard the name Janet Yellen. Some know vaguely that she was the non-Larry Summers candidate to run the Federal Reserve. And after President Obama does, in fact, nominate her for the Fed chairmanship (as he’s expected to do later today), she’ll make headlines for all kinds of reasons – first female Fed chair-apparent, first Fed vice-chair nominated to the top spot, and arguably, in the running for the most powerful woman in the world.
She deserves these accolades, and assuming she’s confirmed, she will go down in history. Still, because monetary policy barely registers in mass culture, Yellen may never be a household name. Which is a shame, because a Yellen-led Federal Reserve could be truly world-changing for precisely those Americans who will know the least about her.
Let me explain what I mean. For years, the Federal Reserve has been led by men who had a scientistic view of monetary policy. These men – including Paul Volcker, Alan Greenspan, and Ben Bernanke, though the trend extends much farther back – viewed the job of running the country’s economy as if they were dealing with chemical reactions or physics experiments. Economic theory – whether it was the neoclassicism of Greenspan or the Keynesian wonkishness of Bernanke – ran the show. Each desired outcome had a specific catalyst. Each economic problem could be addressed using a pre-defined kit of policy tools.
For most of the last century, the big debate among economists has been over which of these tools to use. One team, the hawks, favored using high interest rates to keep inflation in check. Another team, the doves, wanted to use low interest rates to spur growth and lower unemployment. Both teams looked at the economy as a series of data points and trend lines, which could be bent in their preferred direction by choosing one set of solutions over another.
As Justin Wolfers points out, Janet Yellen is really neither a hawk nor a dove (though she has been much more dove than hawk recently). Instead, she’s a new kind of Federal Reserve governor – a humanist. She looks at the economy not just as a series of charts and figures, but as a moving, breathing organism, a collection of millions of people who are struggling to make their lives better today than they were yesterday.
I jumped on the Yellen train early this year, after reading a speech she gave at a conference sponsored by the AFL-CIO. Even allowing for some audience-specific pandering, it’s still a remarkable look at the empathy she brings to policy-making, and the attitude she’s likely to bring to the Fed if she’s confirmed as chairwoman. It’s a speech I can’t imagine any previous Fed chair giving, and it makes me think that she’s probably the only Fed governor who understands the actual economic challenges many Americans still face.
Here’s the relevant passage, with the part that had me silently fist-pumping in bold:
Another gauge of the effect that this slow recovery has had on workers is how long it is taking to find a job. At its worst point in the 1980s, the median length of unemployment for those looking for a job was 12 weeks, but the median since the Great Recession has averaged 20 weeks and now stands at 16 weeks. Three million Americans have been looking for work for one year or more; that’s one-fourth of all unemployed workers, which is down from 2011’s peak but far larger than was seen before the Great Recession.
These are not just statistics to me. We know that long-term unemployment is devastating to workers and their families. Longer spells of unemployment raise the risk of homelessness and have been a factor contributing to the foreclosure crisis. When you’re unemployed for six months or a year, it is hard to qualify for a lease, so even the option of relocating to find a job is often off the table. The toll is simply terrible on the mental and physical health of workers, on their marriages, and on their children.
Long-term unemployment is also a great concern because it has the potential to itself become a headwind restraining the economy. Individuals out of work for an extended period can become less employable as they lose the specific skills acquired in their previous jobs and also lose the habits needed to hold down any job. Those out of work for a long time also tend to lose touch with former co-workers in their previous industry or occupation–contacts that can often help an unemployed worker find a job. Long-term unemployment can make any worker progressively less employable, even after the economy strengthens.
In those three paragraphs, Yellen does three praiseworthy things. She signals that headline unemployment numbers aren’t good enough at capturing the real state of the labor market; she speaks about unemployment not just as an economic problem, but as a humanitarian crisis, one whose second and third-order consequences are devastating to the unemployed; and she categorizes unemployment as a driver of, and not just an unpleasant externality of, a weak economy.
These are radical sentiments in Fed-land, where data trumps narrative and on-the-ground, human consequences are often considered less important than benchmark figures like inflation and productivity. But Janet Yellen is a narrative economist. Her intellectual diet includes not only FRED data and papers from the Brookings Institution, but real-life stories of hardship from people outside the Amtrak corridor. In recent years, she’s used those inputs to dictate her support for an easy-money policy course. She knows that if legislators aren’t going to help the middle-class recover from the recession (and they aren’t, at least anytime soon), the Fed can and should do everything it can to fill the gaps.
As I’ve written before, Yellen has already spread her humanistic view of monetary policy to other Fed governors. And if she’s confirmed to lead the Fed, her views will be even more dominant. No matter what else it does, we know a Yellen-led Fed would use the tools of monetary policy to help millions of struggling Americans get back on their feet. And it’s just one of the reasons I’m thrilled with the Yellen nomination.