What Janet Yellen Can Do at Treasury

What Janet Yellen Can Do at Treasury

After the ravages of the pandemic, the American economy needs more than stabilizing—it needs to be rebuilt from the ground up. Will Yellen be up to the task?


In 2018, Donald Trump considered reappointing Janet Yellen, now the nation’s treasury secretary, as Federal Reserve chair. But according to The Wall Street Journal, he worried that the 5-foot-3 economist “might be too short to convey stature” at the Fed, though she’d been running it ably for four years.

Speaking of stature, Trump is the first twice-impeached former president, and Yellen is the first female treasury secretary.

Throughout her life, Yellen has been known as a collector—of rocks, stamps, and also firsts. She is the first person to hold the nation’s top three economic jobs (in addition to being treasury secretary and running the Fed, she chaired President Bill Clinton’s Council of Economic Advisers). In 1971, she was the only woman to graduate with a doctorate in economics from Yale University. A leader over the last quarter-century in economic policy-making, Yellen will need all that experience in a role that makes her the captain of efforts to right the Covid-19-battered economy while also addressing the underlying inequities the pandemic exposed.

Yellen did not speak to me for this profile. But we persevered, because she represents a new day at the Treasury—not just because of her gender, but also because of her career-long focus on how markets fail, especially the way they fail the unemployed and people on the lower rungs of the economic ladder. She will be central to keeping Biden’s promises about “building back better,” in his words, and pushing the country toward the kind of innovations “better” will require.

Yellen is also something of a throwback to an earlier age of bipartisan comity. At her Senate Finance Committee confirmation hearing in mid-January, she got repeated praise from Republicans. The Senate confirmed her appointment 84-15. Yet progressive economic and racial justice advocates also praise Yellen, in superlatives. I had the odd experience of having several people ask to talk to me off the record because they will have to work with the new Treasury head—not to criticize her but to praise her, without appearing to curry favor. “She is the most progressive treasury secretary in history,” says someone who expects to work closely with her.

“Janet sees the world in terms of people living paycheck to paycheck, and how economic policy influences their lives and their ability to build a secure future,” says Massachusetts Senator Elizabeth Warren, who some on the left preferred to see in Yellen’s job.

“Biden could not have made a better pick, given that we are operating within the realm of mainstream D.C. politics,” agrees Robert Pollin, a founding codirector of the Political Economy Research Institute at the University of Massachusetts, Amherst. Yellen, a career-long Keynesian economist, is “firmly left of center,” Pollin adds. “She actually cares about the well-being of working people and the poor.”

Her pop culture star is rising. Early in her term as Fed chair, the progressive activist group Fed Up, which agitates for the central bank to focus on problems of unemployment and racial and economic inequality, hailed Yellen’s tenure by depicting her in iconic Rosie the Riveter garb, symbolizing her focus on workers over Wall Street. Admirers say that, in her instantly recognizable sensible white bob and jewel-toned jackets, she could inspire the kind of feminist fandom that the late Supreme Court justice Ruth Bader Ginsburg did in her later years. When Biden nominated Yellen, he suggested that she deserved a tribute on the order of the musical Hamilton—and the Hamilton Twitter account morphed a portrait of Alexander Hamilton into Yellen. Then came “Who’s Yellen Now?” by Dessa, a member of the hip-hop collective Doomtree. Here’s the bridge, to the tune of Mary J. Blige’s “Family Affair”:

Don’t want no tax evasion
Forgers faking
In her Treasury
Trying for higher wages
For the nation
Less disparity.


But Yellen will need more than a stellar résumé, pop culture adulation, and even bipartisan admiration to do her job well. The treasury secretary’s role is crucial, if poorly understood. She (or he) is the top salesperson for the president’s overall approach to the economy. Under Republicans, over the last half century at least, that has meant liberating the so-called free market by pushing tax cuts and corporate deregulation. Under Democrats—but especially, it seems, under Biden, at least so far—it has meant a robust defense of government spending (or investment, as Yellen likes to call it) to heal an economy cratered by Covid and tilted even more toward the white and wealthy by Trump’s financial deregulation spree.

Trump’s treasury secretary, Steven Mnuchin, either ignored or helped dismantle many of the 2010 Dodd-Frank guardrails Congress enacted after the 2008 financial crash, most notably by lowering the capital requirements on banks intended to prevent taxpayers from having to bail them out again, deregulating nonbank lending institutions (such as the insurance giants AIG and Prudential), and gutting other consumer, investor, and taxpayer protections. When Yellen assumed her role in January, she immediately confronted the scandal over the wild inflation of the stock of GameStop, a declining retail chain, by Reddit users and uber-wealthy investment sharks, often via the controversial Robinhood trading app. But the problem went way beyond GameStop or Robinhood. The role of established casino-capitalist institutions like hedge funds highlighted the accelerating “gamification of Wall Street,” says Ohio Senator Sherrod Brown.

“This is not a game for people who have money in pension funds, for people trying to save for their kids’ college, for people trying to get a mortgage,” says Brown, the chair of the Senate banking committee and a longtime Yellen admirer. He thinks she and other Biden appointees will be able to rein in the financial industry.

Yellen can also reshape the Internal Revenue Service, which the Treasury runs, to do the same, Brown believes. Depleted over several administrations and thoroughly debased by Trump appointees, the IRS is now an accelerant of income inequality and racial disparities more than an engine of equity, far more likely to audit low-income Americans—especially those of color—than the rich, while creating a booming tax avoidance industry for individuals and corporations.

“We’ve heard a lot of talk about ‘I just want things to go back to normal, before Covid,’” notes Representative Katie Porter. But “normal” wasn’t good for everyone, maybe even most Americans, the whiteboard-wielding California progressive observes. “We have to acknowledge there were problems in our economy before Covid—the gender pay gap, the racial wealth gap,” among others. “We have to ask: What fundamentals of our economy do we need to reorder as we rebuild?” As Yellen presides over Covid relief, financial reregulation, and IRS reform, Porter sees her as “the perfect person to raise those issues.”

In her first two months in office, Yellen has largely met her progressive admirers’ expectations. She fought aggressively for Biden’s $1.9 trillion Covid-relief package, which passed Congress with zero GOP support. It marked a dramatic expansion of the social infrastructure that Yellen and the new president—perhaps nudged by the Democratic Party’s rising left—have pledged to enact.

“A key job for a Treasury Secretary is to make sure the country is on a sound fiscal course,” Yellen told The New York Times’ DealBook conference in late February. “If you don’t spend what is necessary to get the economy back on track, that has a fiscal cost as well.” She actually has a better version of that pitch: “I think the price of doing too little is much higher than the price of doing something big,” she told CNBC the same month. But she’s not really given to sloganeering. She tends to speak in paragraphs, not sound bites.

Yellen has committed to appointing a top Treasury official to oversee climate change efforts, which might include everything from imposing a tax on carbon pollution and regulating investors’ climate risk to directing Treasury bonds, tax incentives, and other funding to green energy priorities.

And in an early demonstration of her commitment to racial equity, in March Yellen directed $9 billion in Treasury-controlled funds to lending institutions in low-income communities, especially those of color. One of Yellen’s very first meetings after she was nominated included civil rights advocates, observes attendee Dorian Warren, president of Community Change, a progressive organizing group for low-income people. “It was really good—she listened and took copious notes,” he recalls. Ultimately, though, Warren cautions, progress will require “continuing outside pressure and movement work.”

The pride of middle-class, mid-20th-century Brooklyn, Yellen paid tribute to her roots at her confirmation hearing. The economist praised her father, a doctor who had an office in the family’s Bay Ridge home, where patients from the nearby factories and docks came to wait for appointments on their stoop. “Those remain some of the clearest moments in my childhood,” she told the committee.

“He was the kind of doctor who treated the whole patient. He knew about their lives, about when they had been fired or couldn’t pay,” Yellen said. “Economics is sometimes considered a dry subject, but I’ve always tried to approach my science the same way my father approached his: as a means to help people.”

A friend and classmate at Fort Hamilton High School in the 1950s wrote a piece about her headlined “Janet Yellen: Brainy, Brave and Brooklyn Strong.” Writing in The Fiscal Times when Yellen was appointed Fed chair, Jacqueline Leo reminisced about the high expectations at their public school, where many teachers were World War II refugees, and about a culture remarkably free of sexist stereotyping. “The editors of all three high school publications—the newspaper, the literary magazine and the yearbook—were all girls.” So was the valedictorian: Janet Yellen, who also edited the school newspaper, The Pilot, in her senior year. (She interviewed herself for it and gave herself a tough time.)

“We were expected to take charge, just as our mothers and grandmothers did when men went off to war,” Leo wrote. Yellen’s mother had been a public school teacher during the war years; in the post–World War II recovery period, she stayed home to raise her children.

If her upbringing in post–Great Depression Brooklyn was formative, so was Yellen’s decision to seek a doctorate in economics from Yale, which she received in 1971. Her key advisers were the late James Tobin and Nobel laureate Joseph Stiglitz, two legendary left-liberal economists. A half century later, Stiglitz, now at Columbia, recalls Yellen as “engaged, amiable, organized, and self-composed.” That last quality was particularly important, he says, because Yale College didn’t admit female undergraduates until 1969, and there were few women in its graduate schools when Yellen arrived in 1967.

Academics aside, Yellen’s Yale experience was formative in two ways. As she had in Brooklyn, she absorbed the post-Depression, post–World War II values of the economics department of the time. “Many people there, including Jim Tobin, had been very affected by the Great Depression,” Stiglitz recalls. “They were much more concerned about equality” than economics departments tend to be now.

And they were having those discussions situated adjacent to the struggling, majority-Black neighborhoods of New Haven, just as the so-called War on Poverty’s programs were winding down, leaving poverty victorious despite the millions spent to combat it. “Yale was located right at the boundary where the wealth gap was very clear,” Stiglitz notes. “And we were sensitive to all of those issues.”

Yellen confirmed that the first time I met her, at the 2006 National Community Reinvestment Conference, which she convened as president of the San Francisco Federal Reserve Bank. “I was drawn to economics, not, as you might think, as a result of an early fascination with interest rates,” she said wryly in her opening welcome, “but because I wanted to understand the underlying causes of the Great Depression.” In the same speech, she discussed what she’d learned on the ground in New Haven about the Great Society initiatives that left the city blighted by urban renewal projects in the 1960s, with its African American population more isolated and practically as poor as before.

I’d been invited to that convention to share lessons from the community development initiatives I’d written about over the previous decade. Yellen had already studied them. The conclusions she’d drawn from her time in late-1960s New Haven meshed with what many anti-poverty activists found in their research almost four decades later: that revival efforts had to go beyond “bricks and mortar” to weave together the health care, education, employment support, and access to credit that low-income communities need. Another neglected element, she added: “Resident participation is vital to the success of any redevelopment effort.” The community revitalizers in her audience rarely heard such words from central bankers. The same could be said of the bankers who were there.

Yellen became one of the most powerful advocates of the Community Reinvestment Act, passed in 1977 to direct more credit into poor and minority communities neglected or redlined by mainstream banking. As Stiglitz recalls, “She and I supported the CRA when we were in the Clinton administration, but the rest of the financial community was very hesitant about it.” Yellen stood up to the analysts and pundits, especially on the right, who blamed CRA-supported loans to low-income home buyers for the banking and mortgage crash in 2008.

“Most of the loans made by depository institutions examined under the CRA have not been higher-priced loans, and studies have shown that the CRA has increased the volume of responsible lending to low- and moderate-income households,” Yellen told the 2008 Community Reinvestment Conference. She warned against using foreclosure trends “as justification to abandon the goal of expanding access to credit among low-income households.”

These and other positions won her overwhelming progressive support to succeed Ben Bernanke as Federal Reserve chair in 2014 over former treasury secretary Larry Summers, widely considered to have been President Barack Obama’s top choice. One of the advocates’ best arguments for Yellen was empirical, not ideological: She had been remarkably prescient about future economic troubles as both San Francisco Fed president and Fed vice chair. In 2006, she warned about the housing bubble; by 2007, she predicted that troubled housing and mortgage markets would shake the overall economy; and in late 2008, she became the first Fed official to declare that the economy was in recession.

That streak continued. Examining nearly 700 predictions by the 14 top Fed officials between 2009 and 2012, The Wall Street Journal ranked Yellen number one in terms of accuracy. Other Fed low-interest-rate doves also deserved high marks, the business broadsheet found; inflation-obsessed hawks were the least accurate.

Meanwhile, Obama’s oddly vocal support for Summers also helped Yellen. Ezra Klein wrote about a “subtle, sexist whispering campaign” against Yellen by Obama allies and financial analysts, who told him on background that the Fed vice chair lacked “toughness” or “gravitas.” (As I wrote at the time, gravitas “is a well known Beltway code word for ‘penis.’”) One-third of Senate Democrats signed a letter sponsored by Brown backing her nomination. They ranged from progressives like Brown, Warren, and Oregon’s Jeff Merkley to centrists like Maine’s Angus King and California’s Dianne Feinstein.

Whether because of the empirical, ideological, or feminist arguments, Summers took himself out of contention, and Yellen got the job. Immediately, she began advancing policies to lower unemployment and spread resources in low-income communities of color by keeping interest rates low, using Fed funds to promote employment, and nudging private bankers toward public responsibility. “She was the very first Fed chair to really take on inequality,” says Stiglitz. Early in her tenure, Yellen visited a manufacturing program at a South Side Chicago community college; soon after, Brown recalls, she toured an Alcoa aluminum plant in Cleveland. “These aren’t places Fed chairs usually go,” says UMass Amherst’s Pollin, adding that she also came to his own public university “and spent hours talking to our grad students.”

Angela Glover Blackwell, the founder and former CEO of PolicyLink, a group promoting racially equitable growth policies (disclosure: I’m on its board), found herself invited to join Yellen’s 15-member Community Advisory Committee, one of only two such bodies connected to the Fed. After their first meeting, Blackwell says, “I was so impressed with how she immediately took to the data we presented [on] poverty and unemployment.” Yellen asked them, “What are the jobs in the future going to be? How many people of color? And how were they doing?” Blackwell remembers that Yellen wove the data and analysis into future speeches.

Activist Ady Barkan, best known for his advocacy in defense of the Affordable Care Act in the Trump years, was back then a leader of Fed Up. “She has long demonstrated a willingness to listen to the voices and experiences of people left behind, which is the first step towards fixing the problems,” Barkan tells me via e-mail. “She understands the racial and economic inequities that are plaguing us. She also seems ready to invest huge sums of Federal dollars into the economy.”

Yellen also made the right enemies. At a 2015 congressional hearing, then-Representative Mick Mulvaney, the South Carolina Tea Partier who would become one of Trump’s many hapless chiefs of staff, blasted the popular Fed chair for her focus on inequality. “You’re sticking your nose in places that you have no business to be,” he fulminated.

Given her unparalleled experience, a track record of correctly reading economic trends, a commitment to racial and economic equity, and admiration from progressives and even some centrist Republicans, does anyone apart from has-been wing nuts like Mulvaney have worries about Yellen’s coming tenure?

Progressives have raised some concerns, including her public support for deficit cutting in 2018 and her acceptance of millions of dollars in speaking fees from corporate giants and Wall Street titans after leaving the Fed the same year. Yellen also disappointed many left-leaning activists when she began to raise interest rates, albeit slightly, starting in 2016, when unemployment was still comparatively high. “The economy was still kind of soft,” recalls the economist Robert Kuttner, a Yellen admirer, and progressive economists especially saw a need for the Fed to keep its focus on unemployment and its lending rates low. Yellen’s move drove Fed Up leaders to criticize their former Rosie the Riveter. (Stiglitz attended a Fed Up demonstration outside a 2016 Fed symposium in Jackson Hole, Wyo., according to The Washington Post.) Kuttner terms her interest-rate hawkishness “an asterisk” in an otherwise progressive career, while adding that her position was widely shared at the time by the central bank’s board of governors.

A bigger asterisk, to some, is her relatively recent embrace of cutting the federal deficit and “reforming” entitlements. At Charles Schwab’s 2018 Impact conference, Yellen called the federal debt “unsustainable,” adding, with a memorable flourish,”If I had a magic wand, I would raise taxes and cut retirement spending.” The next year, she suggested Social Security and Medicare might need cuts.

Elizabeth Warren, for one, says that doesn’t worry her. “Janet gets that we’re in a completely different world now,” she tells me. “While we may have differed in years past about the effect of the deficit, today her focus is entirely on an economy that has left millions of families behind and threatens to destroy economic opportunity and widen the racial wealth gap.” Kuttner agrees, noting that Yellen’s 2018 comments “came in the context of Trump’s tax-cutting spree” and that, at the same time, she recommended tax hikes—which will ultimately be necessary to pay for Biden’s priorities, including the American Rescue Plan Act and his massive infrastructure investment.

“Caring a little about the deficit is not necessarily a bad thing, especially when it comes to reining in rich people on taxes,” adds Jeff Hauser of the Revolving Door Project. The Economic Policy Institute’s Josh Bivens adds, “I think her deficit concerns actually help her in building support for the [American Rescue Plan] proposal,” he says. “Nobody thinks she’s always soft on deficits.”

Still, after winning admiration from progressives for avoiding the revolving door between top government jobs and Wall Street for her entire career—Yellen left the Fed for a perch at the Brookings Institution in 2018—she nonetheless disappointed some when her financial disclosure forms, filed after her nomination in late 2020, revealed she’d received over $7 million from corporate behemoths, among them big banks, investment firms, and hedge funds. Barkan, who says he remains optimistic that Yellen will “be an excellent Treasury Secretary,” was disappointed by that news. “We need her to be a really tough regulator,” he says in an e-mail. “I hope that in the coming years, she proves that she is on the side of poor and working class Americans, not the financiers.”

Sherrod Brown, when asked if the news of Yellen’s financial disclosure forms worries him, answers immediately: “It really doesn’t. She told me about that when I first talked to her [about her nomination]. I know her integrity and record and character well enough to know she’ll do a good job.”

So what, exactly, do Yellen’s left-liberal admirers believe, or at least hope, she can accomplish?

The advocates and economists fighting to reverse the huge advantages that the federal government has bestowed on the financial industry over the last 30 years—a bipartisan problem going back to Clinton—say she must revitalize the Financial Security Oversight Council, a Dodd-Frank reform that pulled together agencies like the Securities and Exchange Commission and the Federal Deposit Insurance Corporation to protect Americans from known abuses and look out for new threats. Just holding regular meetings would be a start, says one Senate source, who adds that the Trump administration left the FSOC “decrepit and abandoned.” The point isn’t meetings for the sake of meetings; Yellen needs to reinvigorate the entire roster of federal regulators charged with policing the field.

Meanwhile, there’s the fight, even after passage of the American Rescue Plan Act, over continued government spending to achieve greater racial and economic equity. Porter thinks Yellen is the right person to make the case that underspending, which typifies the GOP’s approach, “is fiscally irresponsible. Spending is the fiscally responsible path.” Brown wants to see the act’s expanded child tax credit—which he says would lower child poverty by 40 percent and the poverty rate of children of color by an astonishing 50 percent—made payable monthly, instead of once a year. (An expanded earned-income tax credit could be delivered that way too.) Yellen probably can’t make all of that happen by herself; other congressional or White House regulatory tweaks may be necessary. But her support, especially in her role as IRS boss, will be crucial.

Brown, Warren, and other progressives also hope that, as the government directs more money into American homes via those reforms, Yellen and others in the administration will get behind establishing forms of no-fee banking so that low-income people without bank accounts can use those funds without paying sky-high fees. The initiative has been characterized as “postal banking,” Brown says, but “it can also include community banks, credit unions,” and other institutions.

Perhaps most radical, Yellen is committed to tackling climate change as the economic threat that it is. Part of what she’s pledged to do involves regulation: Big banks and investment firms fund the carbon-producing industries that cause climate change, and they don’t accurately account for the coming risks, like financing mortgages in areas threatened by floods or wildfires. New financial rules could require lenders and investors to price in those risks, Yellen says. She also favors a tax on carbon emissions—weak tea to a lot of progressives, but a proposal that could make a difference as part of a broader agenda. Pollin, an expert on the Green New Deal, supports some of the same reforms and adds that Yellen could be instrumental in setting up a $50 billion green-bond-funding program, in which the Treasury issues bonds that are then purchased by the Fed and invested in clean energy development.

Porter, the deputy chair of the Congressional Progressive Caucus, and Representative Pramila Jayapal, the caucus chair, are equally hopeful that Yellen’s leadership could prove transformative. She’s been close to the economic traumas of the past 70 years, from the lingering aftermath of the Great Depression in Brooklyn through the unfinished business of the Great Society in New Haven to the Democrats’ inadequate approach to the 2008 financial crash. All of that, they believe, will help her chart a future that requires a multiracial 21st-century New Deal and an even greater Great Society.

Stiglitz agrees. “Her whole life has been about understanding this moment, where government can play a big, important role,” he says.

Porter says Yellen (and Biden) will have to deal with the fact that government moratoriums on rent and mortgage payments don’t permanently waive those bills for people who still can’t afford to pay them. Like Porter, Jayapal believes Yellen sees those people. Last year, Yellen helped Jayapal develop her Paycheck Guarantee Act, which would provide grants to employers of all sizes to enable them to keep paying and offering benefits to employees during the crisis (though the measure is not part of the Biden administration’s rescue plan).

“She was so thoughtful about the proposal, about where we were in the economy, the challenges to minority communities,” Jayapal recalls. “She made it stronger.”

“That’s not to say we’ll have no disagreements—I’m sure we will,” Jayapal adds. Indeed, not long after we spoke, Yellen expressed reservations about Jayapal’s and Warren’s proposed “ultra-millionaires’ tax,” a wealth tax that the new treasury secretary warned “has very difficult implementation problems.” Nevertheless, Jayapal says, “I have a tremendous amount of hope.”

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