Posts Tagged ‘Janet Yellen’


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The other day, I reported that Fed chair Janet Yellen said a great deal about existing levels of economic inequality at the Conference on Economic Opportunity and Inequality in Boston.

Neil Irwin [ht: ra] reminds us there’s a great deal Yellen didn’t say. She didn’t, for example, say anything about the aspects of the inequality puzzle that have a close tie-in to the policies of the Federal Reserve.

there is a growing body of evidence — far from proven, but certainly gaining traction — that income inequality could be a significant force behind disappointing overall economic growth over the last 15 years.

The story goes like this: The wealthy tend to save a large proportion of their income, whereas middle and lower-income people spend almost all of what they earn. Because a rising share of income is going to the wealthy, spending — and hence aggregate demand — is rising more slowly than it would if there were more even distribution of income. Skyrocketing debt levels papered over this disconnect in the mid-2000s, but now we could be feeling its effect.

If true, this would help account for why the economy has notched mediocre growth since the turn of the century, with the exception being a brief period of the housing bubble.

Yellen also didn’t have anything to say about the economic opportunities that have allowed the gains of a tiny minority at the top to be captured in the first place. Top 1 percent incomes and corporate profits have to come from somewhere. They’re created during the course of producing goods and services—in the United States and around the world. But the workers who did all that producing only get to keep part of the value they create, in the form of wages and salaries; the rest—call it the surplus—is appropriated by their employers, who keep some in the form of corporate profits and then distribute the rest to their owners and top managers. Those employers, owners, and managers spend some of that income and plow the rest into the ownership of various forms of wealth. It’s no wonder, then, that—given the economic opportunities they’ve been provided within current economic arrangements—the distribution of both income and wealth has been getting more and more unequal.

That’s what Janet Yellen didn’t say.


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No, I have no idea who the next head of the Fed will be. But it’s clear the gloves have come off.

In one corner of mainstream economics is Brad DeLong (and previously here) for Summers. In the other corner is Joe Stiglitz, representing Yellen. (Stiglitz wins, in the second round, by a knockout.)

But why limit the choice to Summers and Yellen? My choice, for what it’s worth, is Federal Reserve Governor Sarah Raskin (now awaiting confirmation as deputy Treasury secretary), who was recently interviewed in American Banker:

Q:What about critics who say the Fed is overstepping its bounds even just discussing income inequality, that this is not part of the mandate?

Well, I think we want to make sure that we are honestly approaching very difficult economic problems.

Our mandate is to maximize employment in the context of price stability and financial stability, and this is a very, very challenging mandate and it’s important to consider many features of the economy, including income inequality.

The impact of income inequality on the economy isn’t clear cut, so I welcome anybody whose research and analysis can help think through these linkages. I want their voices as part of the debate. We don’t want to be a close-minded institution intellectually. And I think our mandate is important enough and difficult enough that we want to make sure we’re creating an environment for people to put forth their best ideas.

Q:Do you have the support of your fellow board members on that?

I can’t speak for everybody, but certainly everyone is on board with moving us toward our mandate and being able to create maximum employment in the context of price stability. To do this, we have to stay open to the idea that there could be structural changes in the economy. And income inequality, wealth inequality, is a structural change that is undoubtedly in place. It’s an empirical reality.


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