Opinion
In Praise of Janet Yellen the Economist
She never forgot that economics is about people.
Paul
Krugman
By Paul
Krugman
Opinion
Columnist
Nov. 26,
2020
It’s hard
to overstate the enthusiasm among economists over Joe Biden’s selection of
Janet Yellen as the next secretary of the Treasury. Some of this enthusiasm
reflects the groundbreaking nature of her appointment. She won’t just be the
first woman to hold the job, she’ll be the first person to have held all three
of the traditional top U.S. policy positions in economics — chair of the
Council of Economic Advisers, chair of the Federal Reserve and now Treasury
secretary.
And yes,
there’s a bit of payback for Donald Trump, who denied her a well-earned second
term as Fed chair, reportedly in part because he thought she was too short.
But the
good news about Yellen goes beyond her ridiculously distinguished career in
public service. Before she held office, she was a serious researcher. And she
was, in particular, one of the leading figures in an intellectual movement that
helped save macroeconomics as a useful discipline when that usefulness was
under both external and internal assault.
Before I
get there, a word about Yellen’s time at the Federal Reserve, especially her
time on the Fed’s board in the early 2010s, before she became chair.
At the
time, the U.S. economy was slowly clawing its way back from the Great Recession
— a recovery impeded, not incidentally, by Republicans in Congress who
pretended to care about national debt and imposed spending cuts that
significantly hurt economic growth. But spending wasn’t the only issue of
debate; there were also fierce arguments about monetary policy.
Specifically,
there were many people on the right condemning the Fed’s efforts to rescue the
economy from the effects of the 2008 financial crisis. Among them, by the way,
was Judy Shelton, the totally unqualified hack Trump is still trying to install
on the Fed board, who warned in 2009 that the Fed’s actions would produce
“ruinous inflation.” (Hint: They didn’t.)
Even within
the Fed, there was a division between “hawks” worried about inflation and
“doves” who insisted that inflation wasn’t a threat in a depressed economy, and
that fighting the depression should take priority. Yellen was one of the
leading doves — and a 2013 analysis by The Wall Street Journal found that she
had been the most accurate forecaster among Fed policymakers.
Why did she
get it right? Part of the answer, I’d argue, goes back to academic work she did
in the 1980s.
At the
time, as I’ve suggested, useful macroeconomics was under attack. What I mean by
“useful macroeconomics” was the understanding, shared by economists from John
Maynard Keynes to Milton Friedman, that monetary and fiscal policy could be
used to fight recessions and reduce their economic and human toll.
This
understanding didn’t fail the test of reality — on the contrary, the experience
of the early 1980s strongly confirmed the predictions of basic macroeconomics.
But useful
economics was under threat.
On one side,
right-wing politicians turned away from reality-based economics in favor of
crank doctrines, especially the claim that governments can conjure up
miraculous growth by cutting taxes on the rich. On the other side, a
significant number of economists themselves rejected any role for policy in
fighting recessions, claiming that there would be no need for such a role if
people were acting rationally in their own interests, and that economic
analysis should always assume that people are rational.
Which is where
Yellen came in; she was a prominent figure in the rise of “new Keynesian”
economics, which rested on one key insight: People aren’t stupid, but they
aren’t perfectly rational and self-interested. And even a bit of realism about
human behavior restores the case for aggressive policies to fight recessions.
In later work Yellen would show that labor market outcomes depend a lot not
just on pure dollars-and-cents calculations, but also on perceptions of
fairness.
All this
may sound abstruse, but I can vouch from my own experience that this work had a
huge impact on many young economists — basically giving them a license to be
sensible.
And it
seems to me that there’s a direct line from the disciplined realism of Yellen’s
academic research to her success as a policymaker. She was always someone who
understood the value of data and models. Indeed, rigorous thinking becomes
more, not less important in crazy times like these, when past experience offers
little guidance about what we should be doing. But she also never forgot that
economics is about people, who aren’t the emotionless, hyperrational
calculating machines economists sometimes wish they were.
Now, none
of this means that things will necessarily go well. The race is not to the
swift, neither yet bread to the wise, nor yet success to policymakers of
understanding, but time and chance happen to them all. Trump’s cabinet was a
clown show — possibly the worst cabinet in America’s history — but it wasn’t
until 2020 that the consequences of the administration’s incompetence became
fully apparent.
Still, it’s
immensely reassuring to know that economic policy will be made by someone who
knows what she is doing.
The Times
is committed to publishing a diversity of letters to the editor. We’d like to
hear what you think about this or any of our articles. Here are some tips. And
here’s our email: letters@nytimes.com.
Follow The
New York Times Opinion section on Facebook, Twitter (@NYTopinion) and
Instagram.
Paul
Krugman has been an Opinion columnist since 2000 and is also a Distinguished
Professor at the City University of New York Graduate Center. He won the 2008
Nobel Memorial Prize in Economic Sciences for his work on international trade
and economic geography. @PaulKrugman
Sem comentários:
Enviar um comentário