Treasury Secretary Dr Janet Yellen has always been a first-rate economist, and as US Treasury Secretary, she has become a cabinet level politician, too. During a recent Senate hearing, she discovered how good economics can be bad politics, especially when your bosses are economically illiterate.
As an economics undergraduate, I studied Dr Yellen’s path-breaking research on wages and unemployment. I continued to dig deeper in her work as a postgraduate student, which formed the foundation of some of the most significant research that I did during my PhD. Today, I continue to cite her work in both my academic and policy research, and American citizens can be proud to have someone as capable as Treasury Secretary.
Unfortunately, when it comes to economics, Dr Yellen’s knowledge is yet to rub off on her senior colleagues as they struggle to manage the current bout of inflation. Consumer prices are rising at a level unseen since the 1970s. That means that anyone under the age of 50 is – for the first time – worrying about inflation eroding their purchasing power.
Unsurprisingly, polls indicate that inflation is the electorate’s chief concern as the mid-term elections draw closer. The good news for the incumbent Democrats is that economists know exactly how to deal with inflation. To prove it, they have almost half a century of low inflation in countries that have taken economists’ advice, including the US.
However, the bad news for the incumbent Democrats is that they don’t like what economists have to say, because it likely involves the economy growing at a slower rate at a politically sensitive time. The Federal Reserve should have increased interest rates long ago, but it dithered. The once beacon of technocratic independence has descended into a politicized farce of an institution that wants to keep Donald Trump and his Republican colleagues out of office, even if it means irresponsible economic policies.
Instead of taking the inflation bull by the horns, the Democrat administration has decided to take a page straight out of the Donald Trump playbook: fabricate populist nonsense about the causes of the current problem; demonize an innocent party in an attempt to deflect attention away from your own flaws, and wait for the problem to magically resolve itself.
It started with Senator Elizabeth Warren wringing her hands about inflation being caused by corporate greed, a fantasy stemming from either her ignorance or malevolence.
This was tolerable because Senator Warren has a limited capacity to affect policy. However, serial political opportunist House Speaker Nancy Pelosi didn’t take long to join the anti-corporate mudslinging, and she does wield considerable policy influence.
President Joe Biden has thus far avoided the corporate greed conspiracy, but he has dovetailed with his Democrat colleagues by fabricating a Saudi oil conspiracy instead. Like all experienced politicians, Biden, Pelosi, and their colleagues have made sure to blame everyone but themselves for the problems that they are facing.
Dr Yellen is well aware of the absurdities peddled by the Democrat elites. If she was a regular economist, she might have written an op-ed helping to inform policy. However, as a veritable insider, she has had to bite her tongue lest she undermine the administration’s messaging.
That worked when Dr Yellen herself was in control of the microphone. However during last week’s Senate financial committee hearing, she was on the receiving end of a grilling by Republican senators. Iowa Republican Charles Grassley asked her directly if she agreed that corporate greed explains the surge in prices.
Dr Yellen the academic would surely have answered: “No, that’s nonsense. Corporations may be greedy, but their greed is consistent, and it makes no sense to attribute a time-varying phenomenon such as inflation to a stable phenomenon such as corporate greed. Instead, we have to look to recent factors, such as the massive monetary injections by the Federal Reserve; the fiscal stimulus; labor market tightness; supply-chain disruptions, and rising global commodity prices.”
But with academia in her rearview window, Dr Yellen was forced to deliver a much more judiciously worded version of the same sentiment: the bulk of inflation reflected supply and demand factors, which she then elaborated upon. Crucially, she avoided the political embarrassment of flatly disagreeing with senior Democrats.
While I don’t know her personally, my sense is that her evasiveness wasn’t a self-serving attempt at avoiding getting fired. In light of her glittering track record as a public servant, she was more likely trying to avoid a political backlash for the Democrats. Dr Yellen realizes that no matter how economically illiterate her colleagues are, they do at least respect the basic political institutions of Washington DC. The January 6 investigation reveals quite plainly that plenty of Congress people from across the aisle have developed radical views regarding elections and the peaceful transfer of power.
The Federal Reserve will most likely get inflation back under control within the coming months because it isn’t rocket science or brain surgery. In the meantime, when Dr Yellen ponders her next public statement regarding a view expressed by one of the country’s legislators, she would do well to recall Mark Twain’s famous utterance: “Suppose you were an idiot. And suppose you were a member of Congress. But I repeat myself.”