By Carl Tannenbaum

The cartoonist Bob Rich has a neat illustration of monetary policy since 1979.  It superimposes the height of Federal Reserve leaders on the history of interest rates over that interval.  The correspondence is striking: Paul Volcker (6’7”, over 2m) presided over the peak, and Janet Yellen (5’0” / 1.5m) led through the trough.

While she is the shortest of the group, Janet Yellen has been a giant in the world of economics for more than fifty years.  Her considerable achievements are detailed in “Yellen,” a biography by the Wall Street Journal reporter Jon Hilsenrath.  I enjoyed the book during a recent summer sojourn.

Few have accomplished as much as Janet Yellen during the course of their careers.  She broke two significant glass ceilings, becoming the first woman to serve as the Chairman of the Federal Reserve and as U.S. Treasury secretary.  She led the Council of Economic Advisors in the late 1990s, a critical period for policymaking.  Her research and teaching have received wide acclaim.

Yellen’s work began during the primacy of “fresh water” economists, whose free-market theories were championed by scholars at the University of Chicago.  Fresh water adherents believe that government that governs best, governs least.  Interventions can be thwarted by rational expectations, under which populations look past short-term stimulus to see tax increases in the longer term.

Yellen is a product of the “salt water” schools of economics, learning and instructing at leading universities in the Northeast and California.  Salt water economists raised difficult questions about the efficiency of markets; their skepticism has been illustrated by work in the field of behavioral economics.  Yellen’s husband, George Akerlof, won a Nobel prize for using the market for used cars to illustrate economic imperfections.

On a macro level, Yellen has long believed that the labor market can experience dislocations borne of inefficiency.  Wages almost never adjust downward, and so slow economic periods result in reduced payrolls.  Joblessness can do lasting damage to a person’s skills, network, finances and health.  In light of this, Janet Yellen has been a consistent advocate for policies that avoid or ameliorate unemployment. 

While salt water thinking informed her views on government’s role in the economy, Yellen has been more aligned with the fresh water school when it comes to trade.  She supported the first North American Free Trade Agreement, and advocated normalizing trade relations with China.

Janet Yellen had a front row seat to a series of crises. She was on point in the White House during the Asian Financial Crisis of 1997, and was in the service of the Federal Reserve in 2008.  The book does a very good job of recapping those episodes, and others.

Yellen’s career was not without uncomfortable moments, which Hilsenrath covers fairly.  Yellen was the President of the San Francisco Fed from 2004 to 2010, which had regulatory authority over Countrywide Financial.  Countrywide was a leading subprime lender (“Frankenstein Finance” in Hilsenrath’s words), which ultimately failed at a cost of billions in government support.

As Treasury Secretary, Yellen promoted the American Rescue Plan (ARP) of 2021, a comprehensive post-pandemic stimulus package. Speed and size were stressed in the composition of the ARP, but flaws in the design allowed disbursements which may not have been the most effective.  The ARP contributed to excesses of inflation.

On balance, though, Janet Yellen’s contributions to economic policy and performance have been overwhelmingly positive.

I once worked with someone who was barely five feet tall.  She was formidable, but was periodically underestimated by taller colleagues.  On those occasions, she would say, “Don’t confuse height with stature.” Janet Yellen’s life and career are great illustrations of this rule.