Word that President-elect Joe Biden will nominate Janet Yellen to be his secretary of the treasury should be taken as good news, both here and around the world. Having served as chairwoman, vice-chairwoman, and as a governor with the Federal Reserve Board, the head of the Council of Economic Advisers, and the president of the Federal Reserve Bank of San Francisco, and having taught economics at top universities over several decades, Janet Yellen is a known quantity — and a highly regarded one at that.
By her actions, she has shown that she has a hard-headed appreciation of facts, data, economic realities, and their logical and consistent application. She knows how to build and maintain critical relationships when seeking to achieve important goals. And she understands that behind abstract numbers such as the GDP, the unemployment rate, and the interest rate fetched by 30-year mortgages lie the fortunes and lives of real people, families, and communities.
In short, Yellen’s knowledge of how the world works, the forceful-yet-gentle approach she applies to her work, and her deep experience in dealing with tough economic problems should have her positioned to provide strong leadership as the nation’s next treasury secretary.
There have been 12 individuals to hold this critically important position since Ronald Reagan’s presidency began in 1981. Of these, most have come from Wall Street and industry. Just two (Larry Summers, the secretary in the Clinton administration, and John W. Snow, who held the position during the George W. Bush administration) were professional economists. Yellen may have the most merit badges for years continuously spent filling critical, high-level government policy positions that involve interacting with elected and appointed Washington officeholders, their world counterparts, and countless leaders in banking, finance, and industry.
When it comes to economic policy, Yellen has shown that she believes strongly (some might feel too strongly) in the ability of the federal government, by way of fiscal, monetary, and regulatory policy, to spur economic activity. She also believes that while there are always special cases that need to be considered, the nation is best served when trade is open rather than closed. She believes that long periods of deficit spending may be tolerated when unemployment is high and interest rates are low, but that in the long run, a nation cannot sustain itself by just going deeper into debt.
Coming into the Treasury Department, Yellen will immediately face a challenge: Should she reverse the recent decision by Secretary Steven Mnuchin to curtail Fed emergency lending established by the Coronavirus Aid, Relief, and Economic Security Act, which put in place billions the central bank could lend to cities, counties, industries, and businesses? Or will she move away from Fed participation as a lender in credit markets and reestablish Fed independence?
The central bank’s longstanding independence was openly compromised during the 2008-2009 credit market meltdown when Treasury and Fed officials sought and gained powers to accommodate each other’s actions. History teaches us that central bank independence is necessary if the value of a nation’s currency is to be maintained. Yellen knows this, but she also knows that she will be operating in a political economy where the “political” part of that phrase should be written in bold-faced type.
Known for wearing a smile even when dealing with difficult policy matters, Yellen will need her optimistic spirit when she takes on the deeply disturbed 2021 coronavirus economy, the need to reknit tattered relationships with world leaders, and the necessity of nurturing productive relationships with Washington leaders of all stripes, both within her own party and otherwise.
Still, Biden should get high marks for his nomination. We now look forward to hearing more about the incoming administration’s key players.
Bruce Yandle is a contributor to the Washington Examiner’s Beltway Confidential blog. He is a distinguished adjunct fellow with the Mercatus Center at George Mason University and dean emeritus of the Clemson University College of Business & Behavioral Science. He developed the “Bootleggers and Baptists” political model.