A New Treasury Secretary - Who is Janet Yellen and what will she do?

I'm Malaya. Hi, I'm Janet Yellen, and I'm an economist
and the former chair of the Federal Reserve.
So justin you've just had some really exciting news in
the US.
Yes, the next president, President Biden, just announced his pick
to be the next Secretary of the Treasury, which is
one of the most important economic posts.
And I understand it's going to be Janet Yellen, the
former chairperson of the Federal Reserve, who I understand is
a friend of yours and Betsies.
Yes, we've known Janet and her husband George for many years.
They're one of the nicest pairs you'll ever meet in economics.
And more than that, they're deep and serious thinkers and
somehow they're ridiculously modest as well.
Wait, you mentioned her husband George.
Yes, that's George Akalov, who won the Nobel Prize in
Economics a few years ago.
Oh wow, that sounds like quite a power couple.
Yes, and they have a son together. And you'll never
guess what business he entered.
You're gonna tell me.
He became an economist, a very talented economist. In fact,
this is a special think like an economist mini episode.
And I'm Justin Wolfer's and I'm.
Nas Jen to Harber Curly far I'll use your co host.
Betsy Stephenson won't be with us today because she's hard
at work on the Biden transition team. She's working as
part of the team at the Treasury in fact, so
she's not really meant to be talking publicly about these things.
But we've got an even better guest this week, well
sort of. You see, Janet Yellen isn't just a terrific economist,
she's also a friend of this podcast, so much so
that as we were launching the part, I asked her
to record a few thoughts about what it means to
think like an economist. And so right now, as the
whole world is trying to figure out how Janet Yellen thinks,
I thought we could just ask.
Her, why should you think like an economist? If you
learn to think like an economist, you'll discover that you
have a tool to answer questions of immense importance, Questions
the concern not just your own individual well being, but
also the welfare of everybody in society. Let me give
you a few examples. Why are some people rich while
others are poor? And is there a way for society
to achieve more equitable outcomes without destroying the incentive to work.
How should we deal with global warming? And what can
we do to reduce the tidal wave of unemployment that's
resulted from the coronavirus pandemic. How can we counteract the
financial instability that it triggered.
So justin I like what I'm hearing here.
Yes, that's echoing a key theme at this podcast, which
is about the breadth of economics. We have the tools
to take on the big issues like inequality, which will
be the next episode of out podcast, or.
On employment and financial crime sees, which we're going to
come to in future episodes. So she even less global warming,
which people often don't really think of as being an
economic problem. But as our listeners know, economic ideas like
externalities and market oriented solutions like a carbon tax or
cap and trade are a huge contribution to the debate.
Yeah, and as I was listening to Janet just now,
I heard two big themes. The first is that we
economists really do get to focus on the big issues.
And second, there's a more subtle methodological note.
What do you mean?
Notice that Janet Yellen describes economics as a set of tools.
This is actually a feeling modern idea. Earlier generations of
economists thought about specific sets of problems, whether that's the
problem of scarcity or issues surrounding production and consumption, but
modern generations and our podcast understand economics as a set
of tools that you can apply to all sorts of problems.
In fact, Janet's probably the only FED chair to or
have written about the causes and consequences of single parenthood.
But her view, which I share, is that economic tools
can help you understand just about anything, from single parenthood
to financial crisis.
Economics has some simple tools to address questions like these
that start from the motivations of the many stakeholders involved
and show how the interactions among them determine all the outcomes.
What does it mean to think like an economist? Economists
commonly focused on markets and c outcomes is reflecting both
demand and supply, So.
That sounds like what we've been talking about so far
on this podcast. But Yellen is a macroeconomist. I think
while we've mostly been talking about microeconomics so far.
It's true we've mainly been talking about microeconomics, but modern
economists tend to believe that macroeconomics, that's the behavior of
the economy as a whole, tends to reflect the choices
that we as individuals make.
So you mean macro is really just the same microeconomic ideas,
but it's applied to bigger questions.
We economists might say it differently, but as Yes, the
way modern economists say it is that macroeconomics is built
upon microeconomic foundations.
Okay, so this is really exciting for me because it
means that what I've learned so far is going to
be really useful over the coming episodes as we turn
to macroeconomics and the big picture.
That's true, nas, and actually Janet's thoughts give our listeners
a bit of a preview of what's coming in future
episodes of Think like an economist as we start to
turn to that bigger picture.
Or for long periods, an economy's performance depends mainly on supply,
the number of people who want to work in the
stocks of land, capital, and technology that affect how much
they can produce, but demand sometimes matters more than supply.
A case in point was in two thousand and eight,
when our economy experienced a financial crisis and in its aftermath,
millions of workers lost their jobs and the unemployment rate
grows to ten percent, a level I'd not seen in
my lifetime.
And justin what does all of this mean?
Janet's describing the framework that we use to describe the
economy as a whole. It's a way of simplifying so
that we can separate out the long term trends in
the economy. For instance, most advanced economies tend to grow
a bit each year, and over time that adds up,
so the size of an economy will double roughly every
generation or two. We want to distinguish that from the
short run ups and downs. We tend to say that
the economy's long run economic potential is determined by the
resources we have available resources like workers, machines, and land,
as well as the nohower technology with which we combine them,
and the short run ups and downs that make up
the booms and busts tend to be driven more by
changes in demand.
In twenty twenty, COVID has really dominated everything, including the economy,
which has been hit so hot.
Yes, and in fact, the COVID economic crisis is really
quite unusual in that it was caused both by changes
in demand because no one wanted to go to the
store to buy stuff, and also by changes in supply
because lots of businesses can't open when it's unsafe.
And of course this all matters because it affects the
unemployment rate.
Right, And that big idea that Janet speaks to is
that unemployment really matters. It's been a massive theme of
her entire career. It motivated her early academic work and
much of what she's done as a policymaker.
I mentioned that I served as chair of the Federal Reserve.
Our question was what could we and other policy makers do.
We saw there was a shortage of demand in the economy,
leaving millions of people with our jobs because there just
weren't enough buyers for the goods they were capable of producing.
Recognizing the demand shortfall led to immediate policy approaches. The
Federal Reserve cut interest rates to zero, disperse spending on
cars and capital goods, and the government boosted spending and
cut taxes. Over the next decade, unemployment declined to three
and a half percent, its lowest level in fifty years.
And that's where the US economy was when the coronavirus
pandemic struck.
And so that's where the economy was a few months
ago when Janet recorded this for us.
Yes, and now having helped guide the economy through what
was the greatest crisis since the Great Depression, and having
previously been chair of the Council of Economic Advisors during
the Financial crisis, now she gets to do it all
again as the economy is once more in the greatest
crisis since the Great Depression.
So it sounds like you think we're in really good
hands right now.
Yes, Janet's not just a first rate economist and a
wonderful human being, but she's also been there. She's been
a firefighter, and she knows what to do when it
feels like the world's falling apart.
So, justin you just mentioned all these important things she's done,
especially during crisis points, can you tell us a little
bit more about her and how she tends to use
her economic tools.
So I used to work part time at the San
Francisco Federal Reserve when she was the president there, and
one of the things that was quite striking was how
much she was able to inspire the staff. Folks all
of a sudden felt like the work that they were
doing mattered and it mattered because they knew that the
Federal Bank president was going to be reading it, taking
account of it, and taking that cutting edge research and
bringing it to the policy debates of the day.
And Justin, so she's going to be Treasury secretary, what
will she do that hasn't been done yet?
This so much to do. I think the US response
to the current pandemic and the recession is only halfway through,
if that so, there's a real question. I think the
first thing that will be on her desk is going
to be how to create a fiscal stimulus that is,
get the government spending more money in an attempt to
kickstart the economy. How to provide more social insurance that
has helped people when they're down, which a lot of
people are right now. And then there's the full array
of financial sector things as well. She obviously has great
experience from the Federal Reserve, but a lot of what's
going on is regulated by Treasury as well, and there's
a lot of concern about the state of financial markets
right now.
And Justin I think she's going to be the first
female Treasury secretary.
She's not only the first female Treasury secretary, she's the
first person ever to hold the trifecta of jobs of
Chair of the Council of Economic Advisors and then later
Federal Reserve Chair and now Treasury Secretary, the three biggest
jobs in economics in the United States. And you know,
one of the things I admire so much about Janet
is it's not just that she's broken the glass ceiling herself.
She has put a lot of time and effort herself
into trying to raise up other groups to make economics
more welcoming, to make sure that there's a bigger role
for women and other underrepresented minorities in economics. She wants
to hear all voices at the table because if we
don't hear from all different types of people, then maybe
we'll be missing some important pieces of the macroeconomic jigsaw puzzle.
You know, last episode, when we were doing Presidential econ
one oh one, you talked of the short run, medium run,
and long run. So I feel like we're kind of
seeing this with Janet in terms of what you think
she'll be doing during her time.
Very much. She will have to hit the ground running
in the very very short run because the economy is
not in a good state, and as the virus spins
out of control, it could get even worse. But she
can't forget about those longer run things that we need
to inoculate the economy now against future shocks, because if
we have another recession on top of the existing recession,
that's going to cause all sorts of trouble. And so
she'll be thinking ahead. That's something a FED chair used
to do and something she'll do, always be thinking a
year or two ahead about not only what's likely to happen,
but what could happen and how can we take protective
actions against the worst outcomes.
It sounds like we're going to be in good hands
with Janet.
I think this is a first rate pick. I think
one of the things that's exciting about it is it's
not going to be seen as a political pick. Janet
was an excellent Federal Reserve chair. She had the lowest
combination of unemployment and low inflation of any FED chair
I think in history. If she brings that expertise to
this job, I feel like the economy is going to
be in good hands.
Justin I'm really excited to see what she does in
her first few months especially, and so we're going to
be back next week and Betsy will be joining us.
Yes, And I think now I get to repeat the
advice to listeners that I think Janet would give them,
which is make sure to think like an economist.
Awesome, thanks so much, justin thank you.
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