The Daily - Biden’s Cabinet Picks, Part 1: Janet Yellen

Episode Date: December 1, 2020

Janet Yellen, who is poised to become secretary of the Treasury, will immediately have her work cut out for her. The U.S. economy is in a precarious state and Congress is consumed by partisan politics.Ms. Yellen, however, is no stranger to crisis. She has already held the government’s other top economic jobs — including chairwoman of the Federal Reserve from 2014 to 2018, helping the country through the last major financial emergency.Now, facing another steep challenge, we look at the measures she might take to get the economy humming again.Guest: Jeanna Smialek, who covers the Federal Reserve and the economy for The New York Times. We want to hear from you. Fill out our survey about The Daily and other shows at: nytimes.com/thedailysurveyFor an exclusive look at how the biggest stories on our show come together, subscribe to our newsletter. Read the latest edition here.Background reading: Ms. Yellen became an economist when few women entered the discipline. She is now set to become the first female Treasury secretary and one of the few people ever to have wielded economic power from the White House, the Federal Reserve and the president’s cabinet.While she may have excelled at some big jobs in the past, this role may be her hardest yet.For more information on today’s episode, visit nytimes.com/thedaily

From The New York Times, I'm Michael Barbaro. This is The Daily. Today, as President-elect Joe Biden assembles his cabinet, his most high-profile appointments are beginning to give us a picture of the direction and ambition of his presidency. To start, I spoke with my colleague, Gina Smilick, about Biden's choice of a Treasury Secretary in the midst of a new financial crisis. It's Tuesday, December 1st.

It's Tuesday, December 1st. President-elect Joe Biden will nominate Janet Yellen. Janet Yellen, and this is the breaking news, will be the nominee for Treasury Secretary. If approved by the Senate, Yellen would be the first woman to hold the cabinet-level position of Treasury Secretary in the agency's 100-year history. But boy, will she have her work cut out for her starting on day one. Gina, you cover economics for The Times, which is why we want to talk to you about Joe Biden's choice for Treasury Secretary, which is Janet Yellen. And I want to start by asking you how important you think the job of Treasury Secretary is going to be in this incoming presidential administration, given the situation that she will be walking into. I think it's honestly hard to overstate how important this job is going to be. You know, the Treasury Secretary is the person who liaises with Congress over fiscal spending packages. And so I think her role in negotiating with what looks quite

possibly like a Republican Senate is going to be really crucial in shaping both the size and the scope of the next government spending package and the ongoing relief to this coronavirus pandemic. And then I think she's also going to be a really important voice in talking about what kind of reforms need to be made coming out of this crisis. But at that moment, we're going to have to talk about how financial regulation responds and how government spending packages should be shaped going forward. And I think on all of those issues, Janet Yellen is going to really be the voice at the forefront. So when it comes to the economy, she will be the single most important person in the Biden administration? I would say yes. From a political standpoint, she will be the

most important person to sort of form the first line of defense for the economy against the ongoing effects of this pandemic recession. So what should we know about Janet Yellen and how she arrives on Biden's radar? Where does that story start? Janet Yellen was kind of a wonk from birth. So I think you kind of have to go back to sort of her roots to talk about how that story started. You know, she's born in Bay Ridge, Brooklyn, so middle class neighborhood in Brooklyn. She is the child of a teacher who stayed home to raise her and a doctor. She was class valedictorian, editor of her school newspaper. She once quite famously interviewed herself for the school newspaper because the newspaper editor traditionally interviewed the valedictorian. Oh, geez. Yeah, she was a nerd. She had a rock collection, which came out in that article.

So she was a nerd from the start. She went to Brown University. I always liked math and science, and I went off to college with the thought I might be a math major. And she knew she wanted to study something mathy because she liked math. But I was fortunate to take economics during my first year at Brown, and that was love at first sight, and I never looked back. But when she took economics, she just fell in love. You know, she realized that it had this huge potential to shape the public conversation and to have an impact on ordinary people's lives. And that was what she wanted. It was really about things that are fundamental to human welfare. Opportunity, the ability to support one's family and to achieve one's goals,

to have a secure retirement, to see one's children advance and do well. She was never after getting some sort of Wall Street job with an economics degree. She was really interested in having some bearing on how the world played out for real people. I think one thing that is important to know about Janet Yellen is she ascribes to this ideology, which is called Keynesian economics. And the gist of that is just that any time the economy is going badly and things are not playing out as you would want, there is some government role in righting the ship. And we shouldn't allow a prolonged period of very high unemployment. Free markets are good news. They generally are beneficial, but they don't work perfectly.

They have imperfections, and sometimes they break down. And when that happens, the government needs to step in and fix the problem. And I guess that tied in with my own upbringing. My parents had grown up, they were college students during the Great Depression, and it had influenced their lives. And so she is very much of that sort of activist, interventionist vein of economics. You know, I heard very often when I was growing up about what it meant to family life if someone lost a job. And that philosophy really went on to influence every job she took throughout her entire career. And what were those jobs?

So she worked in a number of key economic policy positions, both, you know, as an academic, then she was at the Federal Reserve Bank, which is the nation's central bank. Then she moved to the Clinton White House as a top economic advisor. So she's central bank. Then she moved to the Clinton White House as a top economic advisor. So she was in a really chief advisor role to the president. And she ultimately lands in the 2000s at the Federal Reserve Bank of San Francisco. And I think what's interesting about her time in San Francisco is that she is in charge in that role of kind of keeping tabs on the entire West Coast economy. And she is talking to people on the ground and noticing that something weird is happening with the housing

market. House prices and development prices are really getting out of line with, you know, what economists call fundamentals, what should be justified based on economic conditions. And she's sort of getting worried that a financial bubble is forming out there. And so in this role, she really sort of served as an early person saying that there might be something going wrong in the economy. And she turns out to be right. She doesn't spot it early enough for the Fed to really do anything about it, unfortunately. But she is right. The housing bubble bursts. There is a huge recession.

The worst recession since the Great Depression. Throws millions of people out of work. Unemployment hits basically 10%. You know, terrible, terrible fallout from this. But I think her prescience and noticing it is something that earned her a lot of kudos, both with Democratic policymakers and with economists throughout the field. Good afternoon. Over the past five years, America has fought its way back from the worst recession since the Great Depression. So then you fast forward to 2013, and the labor market is still looking rough. The economy is still growing slowly. And this is surprising to everyone, because at this point, we're technically

four years after the recession. So things should be picking up by now, but nothing is. Everything is very painful still. I think everybody understands we've still got a lot of work to do to rebuild the middle class. And Ben Bernanke, the Fed chair who got us through the initial phases of the crisis, has announced that he's stepping down. So his job is going to be open. Today, I just want to take a minute to pay tribute to Ben for his extraordinary service. But I also want to announce my choice for the next chair of the Federal Reserve. Faced with filling what is arguably the most important job in the global economy at that

moment. One of the most important appointments that any president can make. Barack Obama decides that he is going to nominate. One of the nation's foremost economists and policymakers, current vice chairman, Janet Yellen. And making that decision, he cites her record with the housing market. She sounded the alarm early about the housing bubble. Her strong background in economics.

She doesn't have a crystal ball, but what she does have is a keen understanding about how markets and the economy work. And really voices confidence that she's the right person to lead us through this next period. I'm absolutely confident that she will be an exceptional chair of the Federal Reserve. And evidently, Congress agrees because she is confirmed to the role and she is headed to the Fed as its first ever female chairwoman. Thank you, Mr. President. I'm honored and humbled by the faith that you've

placed in me. I pledge to do my utmost to keep that trust. And so how do we start to see her Keynesian economic philosophy and all her years of experience throughout the Fed start to turn into policy at this really delicate moment in the American economy. Right. So she comes in to this economy in 2014 that is weak, but is slowly healing. And as it slowly heals, economists are starting to get worried that the Fed, which has interest rates at very low levels in order to stimulate demand, that's their primary tool for doing that, needs to get on the ball. You know, they need to start hiking those interest rates to slow things down a little bit. But Janet Yellen looks around and she sees an economy that still isn't pulling workers in fast enough. And she feels that there is more room to run with this labor market. And so what we see her do is plot a really patient path forward for interest rate increases.

She doesn't do it quickly. She lets the economy continue to heal. She lets the labor market continue to pull people in. And the reason is that, you know, when the Fed is balancing its two jobs, which is to maintain stable prices and to find and foster maximum employment, she really overweights the maximum employment side of that equation. You know, she wants to get people into the workforce and working. And I think, you know, this is a consistent view that Yellen has held for a long time.

And it is something that she pairs with a real concern for making sure that the folks at sort of the margins of the labor market, you know, minorities, people with less education, et cetera, making sure they have opportunities. So, you know, as Fed chair, she starts to talk about inequality. The extent of and continuing increase in inequality in the United States greatly concern me. Which is really an issue that the Fed has kind of stayed away from because for a long time, it's viewed as a political hot button. And she's kind of the first Fed chair who comes in and says, inequality is not a political issue.

Inequality is an economic issue. And we need to be thinking about what it means for the future of our economy. It is no secret that the past few decades of widening inequality can be summed up as significant income and wealth gains for those at the very top and stagnant living standards for the majority. And she thinks that that could really hold back the economy's potential in the longer term. And she also actually says in a speech, I think it's appropriate to ask whether this trend is compatible with values rooted in our

nation's history. Among them, the high value Americans have traditionally placed on equality of opportunity. But it's out of line with American ideals. And that sets up a real tension moment between her and Congress. What do you mean? So she is testifying before the House Financial Services Committee. And Mick Mulvaney, who is at the time a Republican representative from South Carolina, basically tells her, you're sticking your nose in places that you have no business to be. That she is sticking her nose somewhere that it doesn't need to be in talking about inequality as an economic issue. You have no business in the long term labor markets. And to the extent you claim to be wanting to help fix income inequality and wealth distribution in this nation.

In the view of many of us, you're actually making it worse. And she very much defends herself. I'm sorry, I've also talked about long run budget problems and deficit problems in this country. And they're your responsibility. But you went to great lengths this morning, Madam Chair, and I think correctly so, to point out that you're not political. And when you start to talk about items that are outside of your jurisdiction, outside of your portfolio, you are being political.

All of my predecessors have talked about large, important economic trends and problems affecting the country, whether it has to do with trade or productivity. Will you agree with your predecessor that monetary policy has a time impact on the world? She says, this isn't political. I'm not doing this because of my partisan leaning. I'm doing this because this is an economic issue that we all need to care about. This is very much within my purview. And I think the thing that is worth knowing is that in both of these issues, in full employment and in inequality, Janet Yellen has really been vindicated in the years since. The Fed now talks about inequality all the time. They very clearly see it as something that they need to

be attuned to and aware of. And they also very much view full employment as something that they need to weight a little bit more heavily relative to inflation when they're setting policy. And so I think she has very much proven to be pretty prescient as a policymaker. She was ahead of the game here. And I think it's important to emphasize that she walked a middle line on both of these things. You know, in neither case did she come out all guns a-blazing saying that we need to deal with these issues in this moment and here's the way I'm going to do it, et cetera, et cetera. She kind of managed to inject it into the policy conversation in a way that it hadn't been there before. And so she is the kind of person who maneuvers behind the scenes to really elevate issues without kind of ever being

labeled as someone at the extremes of a policy conversation. So there's a kind of ever being labeled as someone at the extremes of a policy conversation. So there's a kind of diplomacy and a subtlety to this progressive economics that she's practicing from the Fed. Absolutely. I think you can kind of see her as an extremely practical progressive. So, of course, President Obama leaves office in 2016, Mm-hmm. So, of course, President Obama leaves office in 2016, and President-elect Donald Trump, who is not a subtle or diplomatic progressive, is now president, and he is a populist, he is a conservative Republican. And so what happens to Janet Yellen. So Donald Trump is a big fan of low interest rates, and he actually considers Janet Yellen to stay on in her role at the Fed. But he ultimately decides that he wants his own person in that job. And so he replaces her with one of her Republican colleagues at the Fed board, and she sort of exits stage left.

You know, she leaves the Fed. Got it. Which I think brings us to now. And I have to imagine that a big reason why President-elect Joe Biden is choosing Yellen in this moment is because of this experience she has navigating the American economy through its last major financial crisis. Absolutely. I think Janet Yellen really brings three sort of key ingredients to this role. You know, she has the crisis chops. That's really important.

She has really deep relations on Capitol Hill because of that period of her life. And, you know, this era when she was really interfacing with these senators and representatives a lot as Fed chair. And finally, she's got really good diplomatic relations. You know, she was, for years, one of the people who went to Group of 20 meetings and all these big international shindigs as a U.S. representative. So people recognize her globally. So really across all three of these policy dimensions, she's going to bring sort of this reputation to the Treasury at a really dire economic moment.

We'll be right back. Gina, like all cabinet appointments, Yellen has to be confirmed by the U.S. Senate, control of which is still up in the air. There are these two races in Georgia that are going to determine control. And, of course, cabinet confirmations used to be a kind of given. It just kind of happened no matter who was president. But that era is definitely behind us. And so I wonder what you think the chances are that Janet Yellen will be confirmed.

I know she was already confirmed as Fed chair, but that was six long years ago. I think when I speak with analysts, the perception is definitely that she has a good shot at a fairly comfortable confirmation. And the reason is that senators don't love to back away from their previous positions. You know, a lot of people who have previously voted to confirm her for Fed chair, which is such an important role,

aren't going to want to say, you know, I thought that person was totally qualified to lead the global economy as Fed chair, but not as treasury secretary. Huh. Do you think that's clearly part of the calculation that Biden has made here? I think so.

And she's extremely qualified. And interestingly, the progressive wing of his party seems to kind of embrace her, despite the fact that she has relatively centrist background and views. And why do you think that is? I think it is because she has so consistently been a pro-labor voice,

and she seems like a realistic possibility. You might not get Elizabeth Warren, but you get Janet Yellen, and you feel like you've definitely gotten a win for workers. And so they're comfortable with her because of that. So Gina, let's assume, based on what you just said, that Janet Yellen is confirmed, and that she inherits an economy far worse than the one she confronted as the Fed chairwoman in 2014. Given how she handled the last financial crisis, what do you expect a Janet Yellen solution to today's economic crisis would look like? So I think there are a lot of unknowns,

but there are a couple of things we can pretty definitively say based on things she has said recently. The first point there is that she is clearly going to favor an aggressive government response to this crisis. I think one very specific place we could see that play out is when it comes to state and local governments. So state and local governments are really struggling amid the coronavirus pandemic. They haven't had the same amount of revenue coming in and they're spending a lot of money on the public health response. And so she has been a steadfast advocate

for making sure that money gets to those entities because if you don't get money to them, they're major employers and eventually they will lay off workers. And so she has been saying like, let's not repeat the mistakes of recessions past when we haven't supported these state and local entities enough.

Let's get them money now. And so I think that that's something you'll see her pushing for us as Treasury Secretary. And what else do you think would characterize her response, this kind of interventionist approach to getting through the pandemic recession? I think we'll see her really embracing some of the things that Democrats have been pushing for all along. I imagine that that's going to look like, you know, continuing unemployment insurance benefits and continuing them at generous levels, maybe reinstating expanded unemployment insurance, which expired earlier this summer, but was a, you know, helpful feature early in the crisis. Right. This was the $600 a week to people who lost their job from the federal government.

Yeah. Yeah, absolutely. And so I don't think we know exactly the contours of what that'll look like yet, but I think we can certainly expect that she's going to take sort of that support for households, support for families role that she has often played, you know, as an outside advocate. I think she'll bring that to the treasury. And if this Congress remains Republican, I wonder how successful you think Yellen could be in actually getting these interventionist policies that you just described passed. I think if this Congress remains Republican, she is going to really struggle to get state and local supports through. You know, that is something that I think she's been very clear. There is no question in her mind that that is needed. But I think it's just very hard to sell with the Republicans. I think that you might see

greater success in things like unemployment insurance. And there's a really simple reason for that, which is that many, many people who are constituents to many, many different Congress members are suffering right now and need unemployment insurance benefits. And so there is some more bipartisan support to, you know, really help your base out. And so she might have better luck along those dimensions than she will with the state and local stuff. So like President-elect Biden, Janet Yellen has a lot riding on those two Senate races in Georgia and the Democrats winning those seats. Right. That said, there are other things she can do without the Senate.

You know, there are places she can have an impact just unilaterally as Treasury Secretary. Like what? You know, where the Trump administration saw trade as generally a bad deal for America and really tried to rewrite the rulebook, I think Janet Yellen looks at trade and sees it as something that has really helped the economy to grow faster and had just myriad benefits that need to be taken into account when you're trying to rework the system. She recognizes that there are flaws. I don't think that we're going to see a return to sort of the 1990s and the 1980s and the sort of full-fledged embrace of free trade with limited rule book. I think what we're going to see is a very sort of measured approach to trade that

emphasizes global cooperation, emphasizes leadership at international bodies like the World Trade Organization, but also tries to make sure that there are safeties in place to make sure that workers at the sort of bottom of the income spectrum here in America don't get hurt by these policies. So in Janet Yellen's view, the United States can actively participate in global trade without it, to borrow a Donald Trump word, screwing American workers. Right. So finally, Gina, you started by saying that it would be hard to overstate what Yellen's importance would be as Treasury Secretary because of the significance of this financial crisis and the responsibility that she will have for trying to solve it.

But also, you said, because of the regulations that might follow when we eventually emerge from the crisis. What did you mean by that? experience has been building towards. You know, she has very much spent her time in economic policy kind of trying to carve out a space where she puts training wheels on capitalism, you know, makes it safer for households and for businesses. And I think Treasury Secretary is going to be a really interesting perch from which she can sort of further those goals. And so I think you could see her be activist in kind of pushing for common sense, middle of the road reforms that nevertheless leave the system a little bit more guarded. Things like stabilizers that kick in anytime the economy takes a turn for the worse that don't necessarily require Congress to vote to pass a package. So for example, if unemployment shoots

up, maybe unemployment insurance immediately becomes more generous. And that's the kind of thing that we've seen her talk about, the fact that that could be useful. And I think you could see her really have a bully pulpit to push for policies like that. She can't pass them, but she can certainly advocate for them as Treasury Secretary. And I think at the end of the day, what we're just going to see is sort of this realization of her career-long economic philosophy, which is just that, you know, capitalism works, markets work, but sometimes the government needs to step in and make sure that they are fostering an equal chance for everybody and a real sort of, you know, positive economy that can lift all boats. And I think this is

kind of her moment to make sure that that comes true. And I think this is kind of her moment to make sure that that comes true. Regina, thank you very much. We appreciate it. Thanks for having me. We'll be right back. Here's what else you need to know today. I will now scan this document and immediately deliver it to the Wisconsin Elections Commission to be filed. On Monday, President Trump's attempt to deny Joe Biden his victory hit its latest roadblock when officials in Wisconsin and Arizona certified Biden's victory, despite pressure from the president not to do so. At the same time,

the president was again rebuffed in Georgia, which has also certified Biden as the winner. The truth matters, especially around election administration. The truth matters, especially around election administration. On Monday, two top Republican officials there, Secretary of State Brad Raffensperger and Governor Brian Kemp, rejected Trump's demand made on Twitter that they investigate baseless claims of voter fraud and, in the case of the governor, that he illegally interfere in the election process on Trump's behalf. There are those who are exploiting the emotions of many Trump supporters with fantastic claims, half-truths, misinformation, and frankly, they are misleading the president as well, apparently. And just to put this in perspective, our seven-day average in terms of new case numbers is north of 14,000, 14,657 to be precise.

In a dire warning about the pandemic, the governor of California, Gavin Newsom, said that the state's intensive care units could be overloaded by the middle of December, and that hospitals could be full by Christmas. If these trends continue, we're going to have to take much more dramatic, arguably drastic action, including taking a look at those... In response, Newsom said that he may impose severe restrictions, including regional stay-at-home orders in the coming days. That's it for The Daily. I'm Michael Barbaro. See you tomorrow.