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How will Yellen’s interest in the ‘human face’ of economics influence policy?

January 7, 2014 at 12:00 AM EDT
The economic impact of unemployment in the United States is among the chief concerns of the next chair of the Federal Reserve, Janet Yellen. Judy Woodruff talks to Michael Hirsh of National Journal and Gillian Tett of Financial Times about how that and other challenges may shape her approach.

JUDY WOODRUFF: The high rate of unemployment is one of many challenges that the new chair of the Federal Reserve will face when she takes over next month.

Janet Yellen, the first woman to head the Central Bank, was confirmed by the Senate last night. She has already made it clear that joblessness is one of her main concerns.

We take a closer look at how she may change things as she tries to navigate some tricky terrain.

Michael Hirsh has written about the Yellen agenda for National Journal, and Gillian Tett writes on these matters for The Financial Times.

And welcome to you both.

So, Michael Hirsh, to you first. As we just said, Janet Yellen has made it clear she worries a lot about unemployment. What more do you expect — do we expect her to do as chairman of the Fed about that?

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MICHAEL HIRSH, National Journal: Well, I think that the main thing is this has been the grand passion of her life and her career as an economist, if you look at what she has written.

She comes out of a very activist tradition, the Keynesian tradition of economic thinking that is quite distinctive, I think, from the previous two Fed chairmen, Alan Greenspan and Ben Bernanke, both of whom were conservative economists.

And I think that, based on her writings and some of the things she said in her speeches going back more than a decade, we can expect to see her focus on the employment issue in a way that I don’t think we have seen a Federal Reserve chairman do for a while.

JUDY WOODRUFF: And she’s in a position to make a difference?

MICHAEL HIRSH: The important thing about Federal Reserve chairpeople — I guess we have to use that term now — is they have an influence that goes way beyond the specific mandate of the Fed monetary policy.

Their economic thinking is enormously influential, not just in Washington, but around the world. This is the most important economic job in the world and it’s said to be the second most important job in Washington, after the president. So I think her four-year term, during that time, we’re going to see a lot of testimony, a lot of discussions with Congress that are going to shape perhaps some new thinking on unemployment.

JUDY WOODRUFF: So, Gillian Tett, at the same time she has expressed a lot of worry about joblessness, she is also under pressure to wind down the stimulus program that the Federal Reserve has been engaged in, the bond asset buying, so-called quantitative easing.

How much tension is there between those two goals?

GILLIAN TETT, The Financial Times: Well, the reality is, there’s rising tension right now.

And you can see that in terms of the people sitting around the table with her on the Federal Reserve Committee, because opinions are increasingly divided about just how quickly the Fed should change course or not.

But the key thing to understand about Janet Yellen, as Michael said, is that she’s not just the first woman to hold this post, which is remarkable, but she’s one of the first Keynesians to actually hold that post. She is someone who really cares a lot about the human face of economics. And as she herself has said many times, for her, unemployment is not just had a bunch of statistics. It’s also very much about human lives.

So, for that reason alone, we certainly can expect her to see — to take a much softer policy line than some of her predecessors.

JUDY WOODRUFF: So, Gillian Tett, staying with you, what does that mean we could look for her to do?

GILLIAN TETT: Well, I think the important thing is what she is not going to do. And I think what she is not going to do is withdraw the stimulus the Fed has put into the economy in the last couple of years in a very rapid manner.

She is someone who is really looking for a gentle exit strategy that ensures that, although the Fed doesn’t fuel the bubble anymore that we have seen in bond prices, that at least it tries to maintain the stimulus and keep the economic machine going.

JUDY WOODRUFF: And, Michael Hirsh, in connection with all of this, you wrote recently — and this picks up what you — what you said — on what you said a few minutes ago — that she, for a long time, has advocated a higher minimum wage. Is she in a position to do something about that?

MICHAEL HIRSH: Not specifically.

In other words, she — again, the Fed’s mandate doesn’t allow her to shape legislation specifically, and she’s going to be a little bit wary of getting into Congress’ business, because there’s been some backlash against some of these Fed policies, one of the reasons that her confirmation vote was as close as it was.

But I do think that she will have a lot of influence in terms of the kinds of things she says in her biannual — or semi-annual, rather, congressional testimony, in the kinds of things that she says in speeches, in the same way that Alan Greenspan, over his 18 years at the Fed, and Ben Bernanke, during his two terms, really influenced economic thinking about the response to the crisis and the period before the crisis.

JUDY WOODRUFF: And, Gillian Tett, this is something I know you have written about, about how the — about how important the communication skills of the Federal Reserve chair can be. How do you see that in connection with Janet Yellen?

GILLIAN TETT: Well, Janet Yellen is somebody who even two years ago was pointing out that the Fed has already engaged in such extreme monetary policy measures that, frankly, there’s not a lot more they can do in terms of actually putting money into the economy.

Instead, they’re increasingly trying to shape how the economy works and how we all expect the economy to work by talking about the future and by trying to persuade people that they’re going to take a very easy start for a long time.

Now, that’s incredibly controversial. Some people think this policy, which is called forward guidance, really is just a bunch of voodoo. But, certainly, it means that people are going to be watching what Janet Yellen says very, very carefully indeed, because she is not just describing what is happening. She is also describing how she hopes to see the economy going forward in the future.

JUDY WOODRUFF: Is that something that you expect her to do? What do you see?

MICHAEL HIRSH: Very much so.

I think the most distinctive thing about Janet Yellen, other than the fact that she is the first woman to lead the Fed, is the breadth of her economic thinking. Bernanke’s focus as a scholar was on the Great Depression. Alan Greenspan was very famously a financial economist.

She is someone who has studied the whole economy and again in a very Keynesian way. She comes out of this activist school at Yale. She studied under James Tobin, who was renowned for his belief in government intervention.

So, I think you are going to see that reflected in every policy decision she makes. And, as Gillian says, first things first. She is going to have to decide on when to sort of taper back the Fed intervention, which is she is going to inclined to do that less than more.


JUDY WOODRUFF: And I was going to say, I think you have also written you expect her to be tougher in terms of regulating — regulating Wall Street.

MICHAEL HIRSH: Yes, that’s another — already, she has gotten into turf battles with Dan Tarullo, the Fed governor there, who Bernanke sort of left it to do this.

She sees that as her agenda, something that she wants to take on personally as Fed chairwoman. So, I think you are going to see her taking a much more prominent role, perhaps even getting into a fight or two with the Treasury Department.

JUDY WOODRUFF: How do you see that, Gillian?

And I do want to ask about the fact that she is the first woman and how that could affect, if in any way, what she does.

GILLIAN TETT: Well, before I get on the women issue, I just want to point one thing out, which is that she has broad experience.

The one bit of experience she has not got is direct market experience, and her focus is rather different from her predecessors. She’s actually not that focused on the way that market behaves. She cares far more about the real economy, the human face of the economy. And that could bring quite a different tone to the kind of policy debate from what we have seen before.

Does that have any tie-in with the fact she is a woman? Well, it’s very hard to say. I think, however, she does take a much more holistic view about how economic processes work. And perhaps one of the most interesting things of all is that being the first woman to hold this position, suddenly an entire generation of young female economists can look up and think, wow, maybe that’s possible.

And that helps to reshape expectations in many ways. It helps, if you like, carve a whole new face, a new stamp on what economics is about. And actually it may help to encourage more women into the field as well going forward.

JUDY WOODRUFF: Why have there been so few women, do you think?

I’m asking Michael this, but I want to get Gillian’s…


JUDY WOODRUFF: Just quickly, because do you think this can make a difference?


MICHAEL HIRSH: Oh, absolutely.

I also would note, and I don’t think it’s just a coincidence, that going back to Brooksley Born, who was the head of the Commodity Futures Trading Commission in the late 1990s, tried to take on the issue of over-the-counter derivatives way before the crisis happened, and was slapped down by the men in charge, we have seen women — Sheila Bair of the FDIC — come along and really take on Wall Street in a way that frankly not that many men have.

Gary Gensler is one of the few exceptions. So, it’s interesting to see her at the tail end of this. And she represents also what someone described to me as someone who is truly not captured by Wall Street. She has not worked in there. And in some ways, that’s a strength.

And in that way, like Brooksley Born, like some of these other women who have not been part of the Wall Street mind-set, she can stand back and look at it in a very different way than we have seen by some of those inside the power structure in Washington who have previously worked for Wall Street.

JUDY WOODRUFF: So, Gillian, in just a few seconds, what do you look for?

GILLIAN TETT: Well, I’m looking for her to certainly provide a new face of economics.

And there’s a great study by Stanford University which shows that when you have a female economic professor in the department, you get a lot more women doing Ph.D.s in economics. So, the fact she is there could certainly help to change the course of economics in the next generation.

JUDY WOODRUFF: And those women can go on to become policy-makers.

GILLIAN TETT: Well, let’s see. At the moment, there’s only 10 percent of the world central bank governors are women, so there’s a lot of ground to catch up. But, certainly, it’s a very interesting appointment.

JUDY WOODRUFF: Gillian Tett, Michael Hirsh, we thank you both.

GILLIAN TETT: Thank you.