Janet Yellen (Image: AP Photo/Andrew Harnik, File)
Janet Yellen’s expected nomination as Treasury secretary will place the former Federal Reserve chair into a critical role overseeing President-elect Joe Biden’s economic and national security agenda at an agency that has increasingly become a center of power.
While Yellen’s views on monetary policy are well known from her time leading the central bank, her perspective on a range of issues that are part of the Treasury Department’s portfolio are less known.
As Treasury secretary, Yellen will be the Biden administration’s chief economic diplomat and will face the challenge of reengaging with U.S. allies that have been put off by President Donald Trump’s “America first” economic policies, including his use of tariffs. She will most likely be the point person in negotiations with China and will have substantial input on trade policy, along with the use of U.S. sanctions on countries such as Iran and North Korea.
Domestically, Yellen will be the driving force behind the Biden administration’s tax policy — a significant role given that Biden made raising taxes on wealthy Americans and corporations a central part of his campaign. Yellen will also have the chance to tweak regulations stemming from Trump’s 2017 tax cuts, which left a great deal up to the Treasury in terms of putting a new taxing regime in place for multinational corporations. Under a Biden administration, the department could revise those regulations to raise taxes on some companies that operate abroad.
And she will also be at the center of the government’s borrowing spree, which is financed by issuing Treasury securities and has pushed the U.S. budget deficit to levels not seen since World War II.
Here is what we know, so far, about Yellen’s views in several areas where she will have a role to play.
A monetary ‘dove’ but a (somewhat) fiscal ‘hawk’
While Yellen is known for being dovish on monetary policy — meaning she supports lower interest rates — she has on many occasions expressed concern about the fiscal path of the United States and the amount of money it is borrowing.
Yellen’s fiscal worries came before the coronavirus pandemic and the current downturn, a moment when most economists have encouraged the United States to not worry about the deficit and to spend as much as necessary to help households and businesses weather the slump.
Still, Yellen’s previous comments suggest that she could be reluctant to push for big spending programs without raising taxes to offset the budgetary hit. The federal budget deficit soared to a record $3.1 trillion in the 2020 fiscal year and Republicans, who are expected to control the Senate, have once again started expressing concerns about how much the country is borrowing.
In a 2018 interview at the Charles Schwab Impact conference in Washington, Yellen said the United States’ debt path was “unsustainable” and offered a remedy: “If I had a magic wand, I would raise taxes and cut retirement spending.”
Last year, Yellen touched on the third rail of Democratic politics when she suggested more directly that cuts to Medicare, Medicaid and Social Security could be in order.
“I think it will not be solved without some additional revenues on the table, but I also find it hard to believe that it won’t be solved without some changes to those programs,” Yellen said at the National Investment Center for Seniors Housing & Care Fall Conference.
Yellen added that political candidates and Congress did not like to deal with overhauling U.S. social safety net programs which — according to McKnight’s Senior Living, a trade publication — she described as “root canal economics.”
Yellen is also a board member of the Committee for a Responsible Federal Budget, a nonpartisan organization that preaches fiscal restraint.
A free trader at heart
As Treasury secretary, Yellen would inherit a battered global trading system destabilized by Trump’s aggressive approach to U.S. trade policy. She will have to confront a variety of decisions, including whether to continue Trump’s escalating sanctions on Chinese firms and officials, or his restrictions on the presence of Chinese companies on U.S. stock markets and in retirement portfolios.
Yellen is known for her strong support of open trade and the international trading system, though she has not hesitated to criticize China’s trade practices.
Like many on Biden’s team, Yellen appears to agree that many of the problems often ascribed to trade policy actually stem from the reluctance of U.S. officials to use domestic policies to support workers experiencing the worst effects of globalization.
Yellen has credited globalization and trade liberalization with raising growth and lowering poverty around the world, but she has also said that these trends fueled inequality and the rise of populism, leading to a backlash against American trade practices. She has expressed concern about the country’s retreat from a role of international leadership under Trump, and support for the World Trade Organization.
Yellen was the president of the American Economic Association leading into its annual meeting in January, which drew thousands of economists to San Diego. She organized the schedule of the conference, she said in an interview, to focus heavily on sessions outlining the benefits of free trade and immigration to national economies and the world — a position very much at odds with the Trump administration. “I organized the program, and I think it’s not an accident you’re seeing it,” she said. “I think it’s very important.”
Like many economists, Yellen criticized Trump’s focus on bilateral trade deficits, described his tariffs on China as a tax on American consumers and warned that his trade wars posed a recession risk for the U.S. economy.
She also expressed skepticism about Trump’s eventual trade deal with China, saying it left hefty tariffs in place that did little to help American manufacturers and did not resolve a “troublesome” clash with China over technologies like 5G and artificial intelligence.
“We have very difficult issues that lie ahead,” Yellen said in a speech in Hong Kong in January, in which she urged countries to remain open to the “synergies” from sharing and exchanging technology around the world.
But Yellen has also acknowledged that the United States has “real issues” and “many valid concerns” in its trade relations with China, in particular China’s infringement of American intellectual property, its subsidization of state-owned enterprises and its walling off of crucial technology markets to foreign competition.
As with many moderates in Biden’s administration, any policy recommendations Yellen makes on China are likely to be constrained by Beijing’s increasingly aggressive and authoritarian behavior, as well as harsh China sentiments among both Democrats and Republicans in Washington.
Swinging the pendulum toward more, not less, financial regulation
From her perch at the Brookings Institution, Yellen has voiced concern over the Trump administration’s regulatory rollbacks, including those being done at the Fed.
Yellen said this spring that the 2008 crisis showed that the Fed should be proactive in suspending bank payouts.
“We learned that we let way too much money out the door in that crisis,” she said in an April interview. “We don’t know where this is going. This is really a tail event and a great threat to the country.”
In the months since, Fed officials have stopped banks from buying back their own shares but only curbed dividends.
But it is not just the banks she has worried about. She has also singled out money market mutual funds as a source of financial system instability. And, speaking on a Brookings panel in June, Yellen said the coronavirus exposed lingering vulnerabilities in the financial system, which choked up in March before the Fed stepped in to soothe it.
“The pandemic showed that the risks were very real and serious” when it came to a popular financial position that hedge funds had amassed and then tried to unwind when trading got tough in March, exacerbating market volatility. She also flagged money market funds, where investors park savings to earn more return than bank accounts offer, and the practice of lending to already-indebted borrowers — called leveraged lending — as recognized but unfixed weak spots.
“These were things that were known; they weren’t addressed,” she said.
As Treasury secretary, Yellen would lead the Financial Stability Oversight Council, a group set up after the 2008 crisis to monitor and respond to financial stability risks. That would give her significant leeway to train regulatory focus on the areas of concern she has been flagging.
Putting a price on carbon
In her post-Fed years, Yellen has also focused on climate change risks. She served as a chair of the Group of 30 Working Group on Climate Change and Finance, which released a report this year urging governments, regulators and financial companies to make moves that would sharply curb carbon emissions.
“Carbon prices should gradually increase over time to incentivize firms and speed the shift to net zero,” Yellen said when the report was released.
Her place at the head of the oversight council will give her an important podium from which to talk about green finance. A report sponsored by the Commodity Futures Trading Commission this year urged the council to begin focusing on climate risk more concretely.
By Alan Rappeport, Ana Swanson, Jim Tankersley and Jeanna Smialek
c.2020 The New York Times Company