When most Berkeley students think about Evans Hall — the dull, rectangular building with the windowless classrooms that obscure any view of the Campanile — the term visual blight is likely the first thought that comes to mind. For Economics Professor Raymond Hawkins, however, Evans brings to mind a different memory: it was the location of a spontaneous meeting with Treasury Secretary Janet Yellen. His office, located on the sixth floor, was close to George Akerlof’s — Yellen’s husband and a renowned economist in his own right. The two of them were cleaning out his workspace, preparing for a cross-country move. “I look down the hall, and there’s George and Janet!” Professor Hawkins excitedly tells me, a childlike sense of wonder clear in his voice.
The excitement was for good reason: Yellen’s resume outshines nearly everyone’s in the field of economics. She served on the Council of Economic Advisors during the Clinton administration, led the San Francisco Federal Reserve during the Financial Crisis, and chaired the central bank for five years. Now, the lifelong public servant has been called back into the arena, tasked by the president with leading the Treasury Department during an unprecedented pandemic, rising inequality, and constant threats to the global economic order. For someone who has seen so much upheaval, this job may be her most difficult. But barriers have never stopped her before.
Born in Brooklyn and a graduate of Brown, Yellen received her Ph.D. from Yale in 1971, guided by James Tobin and Joseph Stiglitz, the latter of whom remains one of the most prominent liberal economists of this era. After stints at Harvard and the London School of Economics, she joined the Haas School of Business at UC Berkeley, where she left an indelible mark on her colleagues and the institution. It was a man’s world; when Yellen received her Ph.D., banks could still refuse women a credit card. Forty years later, she would become the world’s most powerful banker. “I would put her right there with Ruth Bader Ginsburg and Sandra Day O’Connor,” Professor Hawkins said.
While at Berkeley, Yellen’s academic work focused on unemployment, labor markets, and international trade. She often collaborated with her husband; in particular, her papers on efficiency wage theory — the notion that compensating workers above market rate boosts their productivity — are still widely cited. In 1994, public service came calling, and she sat on the Fed’s Board of Governors before becoming chair of the Council of Economic Advisors three years later. It was a time where economics was in flux. The technology revolution brought about economic growth, but larger phenomena were developing in tandem: financialization, globalization, and climate change. Yellen’s — and most mainstream economists’ — initial responses to these trends came under much scrutiny.
During this first foray into public service, Yellen supported the North American Free Trade Agreement (NAFTA), as well as the repeal of Glass-Steagall, the New Deal-era law that separated commercial and investment banking. These policies, which once enjoyed near-universal support in economic academia, have begun to be criticized more heavily. A recent paper published in the National Bureau for Economic Research argues that counties whose “employment depended on industries vulnerable to NAFTA suffered large and persistent employment losses,” which brought with it a political shift away from the Democratic Party.
While Yellen has generally held to her pro-trade views — speaking in favor of its benefits at World Bank conferences and bank gatherings, the kind of events that make leftists squirm — she has recently expressed skepticism of globalization. In an interview with The New York Times in 2021, she said the “trend toward globalization has resulted in losses for workers… the impact has been simply so negative on such a large share of the population.” In this way, Yellen serves an interesting role as an avatar for the Democratic Party, which has seen its own leftward shift from the consensus-building moderation of Bill Clinton to the populist rhetoric of Elizabeth Warren, Bernie Sanders, and, at times, Joe Biden.
Yellen’s statements also demonstrate her commitment to a kind of labor liberalism. In that same New York Times interview, she says, “the focus needs to be on inequality and low-wage workers and improving their lot,” a manifestation of her upbringing in the Tobin-Stiglitz school. James Tobin was known for his unyielding commitment to full employment, while Joseph Stiglitz has been one of a handful of economists to question the merits of globalization. This influence is perhaps a reason why left-wing groups such as the Revolving Door Project, often critical of President Biden’s appointments, came out in support of her nomination to be Secretary of the Treasury.
The Financial Crisis
September 15th, 2008, marked the end of an era. The day Lehman Brothers collapsed showed the world that the subprime mortgage crisis would have profound consequences for the rest of the economy. The events of that day also meant that policymakers would have to construct a new paradigm out of the old, failed order. Watching the chaos of that Monday unfold from her perch at the San Francisco Fed, Janet Yellen was about to become one of the most important people of the 21st Century.
This chapter of her story begins in 2004 when Yellen took her post as head of the regional bank in San Francisco. A report from the Times illustrates that while Yellen was “one of the first officials to describe the rise in housing prices as a bubble” and “spoke with growing concern” about the economic situation, little was done in terms of policy. The San Francisco branch of the Fed oversaw Countrywide Financial — the largest mortgage lender in the country — but the institution “did not move to check its increasingly indiscriminate lending.”
Here, Yellen’s failings may actually have been a microcosm of macroeconomics as a whole. In his book, The Banks Did It, Berkeley Sociology Professor Neil Fligstein argues that top macroeconomists adopted a siloed view of the economy in the period before the Great Recession. I spoke at length with Fligstein recently, who explained, “in macroeconomic theory, finance is generally viewed as… plumbing. If you go to look at macroeconomic models, they don’t include an equation about the financial sector.” Yellen herself questioned if the “creative financing” later proven to be major causes of the Financial Crisis were driving the housing bubble in the first place.
But, despite the early mistakes, Yellen understood the magnitude of the Financial Crisis and acted in kind. President Obama nominated her to be Vice Chair of the Fed in 2010, and working with then-president Ben Bernanke, Yellen undertook an unprecedented response to the Great Recession. The pair adopted a policy of zero interest rates and quantitative easing, buying assets from financial companies to increase spending in the economy. An unconventional form of monetary policy, the moves worked, and the recession would likely have been even more painful without their actions. “They forced companies to borrow money and made sure they weren’t going to go out of business, and that saved the financial system,” Professor Fligstein said. “I think we were really lucky Bernanke and Yellen were sitting there when it happened.”
The experience engendered in Yellen a deep appreciation for regulation. “I did not see and did not appreciate what the risks were with securitization,” but “this experience has strongly inclined me toward tougher standards and built-in rules,” she later recounted. This was not hollow lip service, either: shortly after President Trump was elected in 2016, Yellen strongly defended Dodd-Frank, the sweeping financial reform bill passed in 2010 to prevent a 2008-like crisis from happening again.
The aftermath of the crisis displays Yellen’s ability to admit and learn from the mistakes of the past. This may seem trivial, but it contrasts with the hubris of many (male) economists; in recent years, there’s been a reckoning of the exclusionary nature of the profession, especially for women and people of color. In that environment, Yellen stands out, not only because of her gender identity but because of her honesty, adaptability, and willingness to abandon dogma when the facts change. Perhaps it should be no surprise then that, in 2014, when the nomination for chair of the Federal Reserve was between two people — Yellen and the outspoken former Treasury Secretary Larry Summers — there was no question who grassroots activists, women’s groups, and Democratic senators supported: Janet Yellen.
After the Fall
Her confirmation by the Senate made history: Yellen had become the first woman to lead the Federal Reserve. She assumed the title at an important time for the nation: the economy was growing, but the recovery was not as robust as expected; wage growth, in particular, was sluggish. She stuck to a generally pro-worker monetary policy, though she did begin a series of interest rate hikes, which, in hindsight, seem premature.
The defining point in Yellen’s time as chair may have come at the end, however: the Wells Fargo scandal. The bank infamously created fraudulent accounts for its customers, a story that broke in 2016. Yellen’s Fed responded with unprecedented sanctions on the bank, most notably with a cap on its assets, likely remembering the events of 2008. Professor Hawkins, who has worked in financial services, applauded the strength of the move: “I was impressed when they did that,” he said, “it hit them where it hurts.” When I asked him about Yellen’s term overall, Neil Fligstein took a positive view: “I think she did a good job. I think she was more open to thinking about the way the economy worked… These are really smart people and they really care.”
In 2018, President Trump decided to nominate Jerome Powell to assume Yellen’s role (per Professor Fligstein: “she was a Democrat and he was an asshole”). The respite from the government was brief, however; after his victory in 2020, President Biden tapped her to be Treasury Secretary, where the most important moment of her tenure may already have happened: the passage of the $1.9 trillion American Rescue Plan in March of 2021. In a reversal from 2009, the dominant question in economics was if the package was too large — if the benefits were so generous that they spurred inflation. Some of that concern seems to be well-founded: the Consumer Price Index rose 7.5% in 2021, the highest in decades. Regardless, the fact that the law was so expansive (unlike the relatively small 2009 stimulus package) shows the economic establishment — led by Yellen — internalized the lessons of the response to the Financial Crisis.
So what to make of these decades of public service? Anyone with this much time in office would have their fair share of mistakes, and Yellen is no exception. Those errors are magnified in the public eye because they have such large consequences. But a larger look at Yellen’s career should yield a positive takeaway: she helped save the American economy, authored an extremely progressive COVID relief bill, and did it all while often being the only woman in the room. Critiques of her are, in some ways, really critiques of economics: a profession that may not always be agile enough to catch up to the crises of the day. To hold Yellen responsible for an entire academic field would be unfair. Macroeconomics is not perfect, but it is in a far better place because of Janet Yellen.
Janet Yellen has always been a misfit — her gender identity has guaranteed that much. But she’s also an outlier in a more political sense. To paraphrase Adam Tooze in Foreign Policy, the post-2016 landscape seemed to be the age of populism, with figures like Donald Trump and Marine Le Pen on the rise. Instead, 2020 brought with it the revenge of the old order, and Janet Yellen, the most accomplished technocrat in the nation — perhaps the world — stands atop it. Somehow, she has managed to find a balance between the two tides, bringing an empirical focus without staying in an ivory tower. As Dr. Hawkins remarks, “she’s an inspiration to economists across the world — more importantly to women in economics.” Though her resume is not a clean sheet, most would likely share his view: “I sleep better at night knowing she’s at Treasury.”
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