Federal Reserve chair nominee Janet Yellen Wednesday suggested that she will put a renewed emphasis on “jobs” in her role as Chairwoman of the U.S. Federal Reserve Bank.
President Obama nominated Yellen, a vice chairwoman of the Board of Governors of the Federal Reserve System and former president and CEO of the Federal Reserve Bank of San Francisco, to run the U.S. central bank Wednesday. If confirmed by the Senate, Yellen will become the first woman to run the Fed in its hundred-year history.
Yellen is expected to accelerate the devaluation of the dollar by continuing or even expanding the Fed’s open-ended bond-buying program. She has been consistently favored by job-creation hawks, who hope that she will follow a looser inflation policy than they expected from her chief rival for the Fed job, former Treasury Secretary and Harvard University President Larry Summers. (Related: What’s the difference between Yellen and Summers?)
“I think it’s a really good pick,” economist Mark Vaughn, a fellow at the Murray Weidenbaum Center on the Economy, Government and Public Policy at Washington University of St. Louis, told The Daily Caller. “She’s eminently qualified. She’s got the best résumé of any designate. She’s been president of a bank, and she’s been on the board. She’s got an esteemed academic career. She’s a good manager and a good leader.”
Yellen’s brief comments Wednesday suggested she may fulfill some of the hopes of job-creation zealots. Preposterously asserting that “the economy is stronger and the financial system is more stable,” Yellen added that despite “progress” under current Chairman Ben Bernanke, U.S. monetary policy has far to go.
“The Fed’s mandate is to serve all Americans,” Yellen said. “Too many Americans still can’t find jobs and worry how they’re going to pay their bills and provide for their families.”
Yellen was alluding to the Fed’s “dual mandate” of managing inflation and maximizing employment. This mandate is based on an antique economic theory called the “Phillips Curve,” which posited an inverse relationship between inflation and unemployment.
The Phillips Curve, a relic of Keynesian mythology, has been abandoned by economists after repeatedly failing to bear out in reality — most notably during the stagflation of the 1970s, and arguably during the unprecedented economic stagnation of the past six years. Since 2007, Bernanke has quadrupled the monetary base, and inflation — which is widely described as being under control or even too low — has in fact robbed the dollar of 13 percent of its value, according to the Bureau of Labor Statistics’ inflation calculator. Yet the economy has moved sideways, unemployment remains above 7 percent, and household net worth is about where it was prior to the recession — amounting to a massive disappearance of buying power with no discernible positive effects on the economy.
Yellen’s supporters hope that she will double down on the “jobs” portion of the Fed’s mandate. Vaughn cautioned that her willingness to maximize inflation may be overstated.
“A lot of people who spend time studying her speeches concluded she’s not soft on inflation,” he told TheDC. “It’s fair to say she’s more dovish than some other potential nominees, but not a dove. She’s about where Bernanke is.”
Vaughn added that Bernanke’s rampant money creation has added to the complexity of Yellen’s job.
“Her biggest challenge is going to be as much political as monetary policy,” he told TheDC. “The Fed has this unprecedented balance sheet and she’s going to have to unwind it. It has a lot of mortgage-backed securities in its portfolio, and the housing industry is very strong in Washington.
This is not a country that’s in love with central banking, going back to the foundation of the republic. In some ways, the Fed was lucky in its enemies, because Ron Paul is kind of goofy. But he was making some legitimate points. Her big challenge is going to be maintaining the Fed’s independence and fighting down political attacks.”
Another challenge for any Fed chief is keeping Americans convinced that “controlled” inflation is a naturally occurring or positive phenomenon — a notion that flies in the face of all lived experience for people outside the fantasy realm of monetary policy, who see only boarded-up businesses, high unemployment, soaring costs and endless economic stagnation.
Although monetarists maintain that inflation is a key component of modern economics, it has in fact been understood for centuries. In “The Wealth of Nations,” economist Adam Smith discusses inflation at length — always describing it as debauchment of the currency that enriches the king at the expense of his subjects.
Rather than refuting this obvious point, monetarists rely on hectoring propaganda, such as this short film from the Depression era:
The Fed celebrates its 100th birthday later this year. The dollar has lost more than 95 percent of its value during that time. In the hundred years prior to the Fed’s creation, the United States expanded from a handful of states on the eastern seaboard to a continent-spanning nation, acquired both Alaska and Hawaii, abolished slavery, built the transcontinental railroad, became an unprecedented world power, and experienced levels of economic growth and social mobility that it has never again matched — all of those achievements having been accompanied by steady deflation that left the dollar worth more in 1913 than it had been in 1813.