It is nearly impossible in this politically polarised moment to find a Treasury secretary that everyone can love. But kudos to Joe Biden, because the US president-elect has done just that by picking Janet Yellen, the former Federal Reserve chair, for the job.
An even-keeled, data-driven, low-ego leader, she enjoys the trust of progressives and many conservatives, too. She is lauded by economists of all stripes, from Joseph Stiglitz to Kenneth Rogoff. This will serve her well in Washington.
“The thing about Janet, and one of the reasons that the markets as well as labour have always liked her, is that she’s not an ideologue,” says Michael Greenberger, a University of Maryland law professor who worked in derivatives regulation during the Clinton administration, when Ms Yellen was head of the Council of Economic Advisers. “She takes her time, studies all the information and when she speaks, what she says is almost always unanswerable because it’s so factual.”
That said, Ms Yellen has her own deeply held beliefs that will influence the way she runs the Treasury department. First and foremost among these is her belief in the human impact of economics. As she told me in January 2014 after being named Fed chair, central bankers have “an important role in public policy and a moral responsibility to take part in it”.
The job, in her mind, wasn’t just about “fighting inflation or monitoring the financial system. It’s about trying to help ordinary households get back on their feet and about creating a labour market where people can feel secure and work and get ahead.”
As the daughter of a family doctor in the working-class neighbourhood of Bay Ridge, Brooklyn, who grew up seeing her dad treat dockworkers and factory labourers from his home office (they paid $2 to be seen, or not, depending on whether they had a job), she has a deep understanding about the larger societal effects of unemployment. According to her, “economics should be about caring for real people”. What could be more appropriate in the age of Covid-19?
Indeed, she is the perfect person to help shape and implement Mr Biden’s ideas about the “caring economy”, which seek to prioritise work in fields such as healthcare, teaching and childcare. While these jobs require the very skills that are unlikely to be replaced by technology — such as empathy, human touch and care — they tend to be undervalued and underpaid.
But not always, as any wealthy person hiring a nanny knows. After going through the experience of hiring a caregiver for their own son, Ms Yellen and her husband, the economist George Akerlof, wrote a much talked-about paper explaining why firms do not always cut wages, even if there is an excess of labour. “When you hire a nanny, the question you ask yourself is, ‘What’s the best for my precious child?’ And do you really want someone who feels that your motive in life is to minimise the amount you spend on your child?”
Answer: no. Their paper showed that salaries can be far higher than expected when human emotions are valued. Rational Mom and Dad, it turns out, may behave quite differently from Rational Man. This insight will become more and more relevant, given the shift to all things digital and the way in which it will dislocate knowledge workers higher up the food chain and possibly create more demand for “essential” workers of heart and hand.
Ms Yellen’s other deeply held belief is that economic policy must focus more on Main Street than on Wall Street. Steven Mnuchin, the outgoing Treasury secretary, has made her job more difficult by deciding to put $455bn in unspent Cares Act funding into an account that Ms Yellen will need authorisation from Congress to use.
But her new position will also make her the head of the Financial Stability Oversight Council. That will give her a tremendous amount of power to turn back the deregulation efforts of the Trump administration without having to ask Congress for anything.
The FSOC brings together nine of the major market and bank regulators, from the Securities and Exchange Commission and the Commodity Futures Trading Commission to the Federal Housing Finance Agency and the Office of Financial Research, an important systemic risk analysis agency which was gutted by President Donald Trump. As FSOC chair, Ms Yellen will be in a strong position to shape the nature of future regulation.
She can call meetings whenever she likes and start to put back into place some of the Dodd-Frank regulatory standards that have been undermined. Indeed, I’m betting that she will work very closely with Gary Gensler, a financial markets adviser to Mr Biden and a former tough cop at the CFTC, and with current Fed chair Jay Powell, with whom she has a good relationship, to do just that.
It will be a good move at a time when debt and systemic risk in the financial system, particularly from non-bank entities such as private equity, are disturbingly high. Reregulating financial markets may be even more important than the political push for more fiscal stimulus, because pouring money into a system that is going to funnel it to unproductive places won’t help Main Street. We need to move to an economy based more on job and income growth than on asset price bubbles. I can’t imagine anyone better than Ms Yellen to make that happen.