The Fed nominee is an old-school progressive economist. Just wait until she starts sharing her passions.
Every Federal Reserve Board chairman comes into office with a secret agenda, a hidden passion. It's the sort of thing you don't hear about at the confirmation hearings, and yet it is often this grand passion—suddenly given voice in the world's bulliest economic pulpit—that shapes the nation's future in unexpected ways. Alan Greenspan, the erstwhile "maestro" of the Fed, wanted to turn finance into the kind of laissez-faire market that his mentor Ayn Rand, the uber-libertarian author, had always envisioned. The result was the across-the-board deregulation of banking. When Ben Bernanke took over Greenspan's job, he appeared to be just another conservative economist in the mold of his predecessor (who had endorsed him). But his great passion was applying his life's work as a scholar of the Great Depression to stop another one. Only people who really knew Bernanke were aware of how the balding, mild-mannered man with the slightly quavery voice was committed, body and soul, to ensuring that the 2010s did not turn out like the 1930s. Thus, the startling spectacle of a Republican-appointed activist chief exploding the Fed's balance sheet by trillions of dollars to keep the economy going.
What is Janet Yellen's secret passion? By the accounts of her friends and colleagues, the 67-year-old Yale-trained economist doesn't have many secrets. She's served nearly 10 years in the Federal Reserve system, first as a governor, then as head of the San Francisco Fed, and now as vice chairwoman. Before that she ran the Council of Economic Advisers under Bill Clinton. "If you were dreaming up a training school for Fed chairmen, it would be her life story," jokes Princeton economist Alan Blinder, her former colleague at the Fed. "I don't think anybody in the Fed's history has come in with such a full résumé of Federal Reserve experience." As a result, she's probably as open a book as any nominee for chief in history. Yellen is considered a nonideologue who will relentlessly follow the facts, whether they lead her toward solutions on the left or the right. "She is truly a scientist, in that she is an observer," says Jim Adams, a University of Michigan economist who has known Yellen since the 1970s. In her actions on the Federal Reserve Board and in her agonizingly deliberate, Brooklyn-accented testimony before Congress, Yellen has resolutely toed the traditionalist middle line on the Fed's "twin" mandates to manage inflation and unemployment. And with her ready smile, pixie haircut, and diminutive size (5 feet), she doesn't look like much of a bomb-thrower.But that is the public Janet Yellen. Disciplined, determined, and brilliant, Yellen is also the product of an old progressive tradition of activist, pro-government economics. Above all, according to colleagues, she takes the nation's worst problems, especially unemployment, as a deeply personal challenge. Yellen, who is all but certain to be confirmed, represents a strain of interventionist thinking that has not found expression at such a high level in Washington in decades—at least since Ronald Reagan and his Milton Friedman-inspired attempt to shrink the size of government. That philosophy still dictates the agenda; even the last two Democratic presidents, Clinton and Barack Obama, have advanced (or bowed to) get-government-out-of-the-way policies, and the GOP's no-new-tax religion prevents any concessions for a broader budget deal.Yellen, unlike Greenspan or a pre-2008 Bernanke, is probably the last person you'd hear repeating one of Reagan's favorite jokes: "The nine scariest words in the English language are: 'I'm from the government, and I'm here to help.' " According to more than a half-dozen longtime friends and colleagues, she has two grand passions that will require government to help in a very big way: reducing chronically high unemployment—which is the focus of her life's work and is probably the single biggest economic problem in America today—and reining in Wall Street's excesses. Yellen already appears to be settling the Fed's eternal debate about the relative threats of unemployment and inflation; she declared bluntly in her testimony that joblessness is the issue of the moment. Based on her past positions, she is also likely to try to alter the discussion in Washington on issues ranging from the size and power of the big banks to the need for a higher minimum wage and extended jobless benefits. And at a time when Obama has declared that income inequality is "the defining challenge of our time," and polls show that a majority of Americans no longer believe their country offers equal opportunity to all, Yellen brings a raft of well-thought-out—and decidedly activist—views to these issues....MUCH MORE