Janet Yellen: Who is Biden's choice for Treasury and what could it mean for the economy?
By Ayanda Tambo, PPE Student at King's College London
US President-elect Joe Biden announced in November 2020 that he had chosen Janet Yellen as his nomination for Treasury Secretary.
Yellen grew up in New York City, graduated from Brown University with a degree in economics, and went on to obtain a PhD in Economics from Yale. After completing her education in 1971, Yellen went on to teach at Harvard, and then worked with the Federal Reserve Board of Governors as an economist. Since then she has taught at the University of California, Berkeley, and served as an economic advisor on President Bill Clinton’s Council of Economic Advisers, as the President and CEO of the Federal Reserve Bank of San Francisco, and most notably as the Vice-Chair and Chair of the Federal Reserve. She is married to George Akerlof, the recipient of the 2001 Nobel Memorial Prize in Economic Sciences, and together the couple are the first husband-and-wife pair to hold honorary doctorates from the London School of Economics and Political Science. She is currently a Distinguished Fellow in Residence at the Brookings Institution, a public policy think-tank in Washington D.C.
Biden is designing a cabinet to be representative of the American diversity. Yellen made history as the first female Fed Chair in 2014; and if approved, she will make history again as the first female Treasury Secretary in 2021. The President-elect is also in the middle of an extremely precarious balancing act. Biden has heavily emphasised that he wants to represent and implement a return to the pre-Trump norms of the United States — especially to its place as a leader in the neo-liberal world order, to strong economic growth, and to increased non-partisan national unity. But he also recognises that there is a need for change in America, and a push from the left to tackle social and economic inequality and hold Wall Street to greater accountability.
Before revealing Yellen as his choice, Biden stated that his Treasury pick would be “someone who I think will be accepted by all elements of the Democratic Party ... progressive to the moderate coalitions.” His shortlist is said to have included Fed Governor Lael Brainard, former Fed Governor Sarah Bloom Raskin, and Federal Reserve Bank of Atlanta President Raphael Bostic. However, if approved by the Senate, it will be 74-year-old Yellen who will take the position. One of Biden’s biggest aims in making his cabinet selections, including picking Janet Yellen for Treasury, has been to equip his administration to serve all Americans, and to deal with the massive challenges the economy and the nation as a whole is facing: Covid-19, unemployment, racial injustice, and climate change — to name just a few.
For decades, the American public has become more and more frustrated by the unequal distribution of the benefits of economic growth. The Gini coefficient is a measure of inequality across the population: the higher it is, the more unequal the income distribution is. The United States has the 7th highest Gini coefficient among 37 OECD countries, topped only by Chile, South Africa, Mexico, Turkey, Bulgaria, and Costa Rica. There is a delicate balance to strike between reducing this inequality and avoiding the complete alienation of fiscal conservatives and moderates, because failing to do either could result in dire political consequences for the Biden administration.
Janet Yellen’s background, attitude, and experience make her an excellent pick for this challenge. Donald Trump deserted a long-standing political precedent by declining to reappoint Yellen to a second four-year term at the Federal Reserve, replacing her with current Fed Chair Jerome Powell. Powell did not enter Yellen’s former role with strong monetary views, and has instead been seen as a problem-solver who adapts the use of monetary tools based on economic conditions such as corporate bond purchases and quantitative easing during the coronavirus pandemic. Powell also has had a slightly unconventional career path for a Fed Chair: a Bachelor’s degree in Politics, law school, and then a career in investment banking. Steve Mnuchin, Yellen’s predecessor as Treasury Secretary, is also a former investment banker who spent much of his career at Goldman Sachs.
Janet Yellen, on the other hand, is a well-known Keynesian economist and macroeconomic expert who has worked in both academia and public administration with a special focus on monetary and fiscal policy. She is also a woman who is well suited to serve during this period of crisis. She wrote her PhD on employment, focussed on reducing unemployment during her time as Fed Chair (and did so with more success than anyone in the position since World War II), and was one of the first macroeconomic policymakers to predict the 2008 financial crisis.
Of course, Biden was never going to be able to pick someone that would be truly universally celebrated. Many on the right have criticised Yellen for supporting what they see as overregulation. Many on the left have criticised her for raising interest rates and therefore allegedly hurting communities of colour that had not yet achieved the economic strength of the broader market that she used to justify the decision in 2015.
However, it is likely that Biden sees her as the pick to please all Democrats, and even those outside of the Democratic party, because she is admired across the political spectrum, albeit to different degrees and for different reasons. She is a defender of capitalism, but a believer in strong regulation and carbon taxation. She is committed to protecting the Dodd-Frank Act and has been praised by economists for being tough on Wall Street, but not considered to be as radical as someone like Senator Elizabeth Warren, whom many on the left wanted to get this job. Warren, however, holding a crucial seat in Massachusetts that the Democrats cannot afford to lose, would be unlikely to be approved by a Republican majority Senate. She has also publicly praised Yellen as the right choice for the position.
Biden has probably made the choice that is closest to perfect in terms of his best-of-both-worlds political approach: by choosing someone who is experienced, intelligent and in no way a conservative, but can join him in attempting to reach across the aisle and work with Republicans for the benefit of American people.
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