Federal Reserve

The Case for Janet Yellen for Fed Chair

There is a powerful case to be made for Yellen for head of the Federal Reserve based strictly on how she's done her job.


Washington, D.C., is a generous and forgiving place. It's full of people who have had successful careers and made lots of money in spite of having been tragically wrong on the great issues of the day. But one sin warrants no mercy: being right.

That's the problem faced by Janet Yellen, the vice chairman of the Federal Reserve, who is a leading candidate to replace Chairman Ben Bernanke when he steps down next year. Her chief competition is Larry Summers, who was Bill Clinton's Treasury secretary and director of Barack Obama's National Economic Council.

Underlying the debate is the dispute over how the Fed has done its job.

Conservatives think it has been reckless in expanding the money supply. Liberals say it deserves credit for keeping a severe recession from being much worse.

Liberals prefer Yellen, who has been tabbed a "dove" on inflation, favoring easy money. Conservatives are apt to prefer Summers, who leans the opposite way. Bentley University economist Scott Sumner says he has been "unable to turn up a single instance of Summers criticizing policy as being too tight over the past five years."

Also playing a role are attitudes about the desirability of giving this powerful job to a woman for the first time. The New York Times reports that Christina Romer, who served on Obama's Council of Economic Advisers, views "the choice of the next leader of the Fed as a test of the administration's commitment to inclusiveness."

A Wall Street Journal editorial, meanwhile, dismissed Yellen as the darling of "the Democratic Party's gender liberals." Summers, a white male, appeals to those who resent preferences based on race or sex. He wins bonus points for daring, as president of Harvard, to suggest that females are less likely than men to be exceptionally good at math.

It's an article of faith among conservatives that efforts to promote diversity are at war with the principles of meritocracy. But the alleged conflict is absent this time. There is a powerful case to be made for Yellen strictly on how she's done her job.

Her notable achievement has been to assess the dangers faced by the Fed and to distinguish the real from the bogus. Since the financial meltdown of 2008, Bernanke's critics have been haunted by the specter of inflation. Yellen has seen it for the illusion it is.

By 2009, conservative economists were warning that an explosion in prices was on the way. Last year GOP presidential candidates agreed that Bernanke was, in Newt Gingrich's words, "the most inflationary" Fed chairman ever. But the claims have proved baseless again and again.

Since Bernanke took over in 2006, the Consumer Price Index has risen at an average annual rate of 2.3 percent—which, according to economist Mark Perry of the conservative American Enterprise Institute, gives him the best anti-inflation record of any Fed chairman in the past 40 years. In May, prices were up just 1.8 percent from a year before.

The problem with the U.S. economy in recent years has not been inflation but persistent weakness and unemployment. Nominal GDP, Sumner notes, has grown at the worst pace since Herbert Hoover was president.

Not everyone saw what was coming. This week, a news story in The Wall Street Journal compared hundreds of predictions made since 2009 by Fed officials. "The most accurate forecasts overall came from Yellen," the Journal found. "The least accurate forecasts came from central bank 'hawks,' those who feared Fed policies would trigger rising inflation."

One of the former hawks admits being wrong. Narayana Kocherlakota, head of the Federal Reserve Bank of Minneapolis, said last year, "Inflation is not coming in as hot as I expected. You have to learn from the data."

As every investor knows, past performance is no guarantee of future results. Just because Yellen had the foresight to push monetary expansion doesn't mean she's the person to rein it in when conditions change. But her ability to grasp realities that baffled other experts suggests she has a deeper comprehension of how the modern economy works.

What became clear last fall, as Republicans mocked polls that showed Mitt Romney trailing, is that the important divide in modern debates is not between the right and the left. It's between the people who follow dogma and the people who follow evidence. Yellen is one of the latter, but I'm willing to forgive her.

NEXT: Steve Chapman on the Case for Janet Yellen for Federal Reserve Chair

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  1. That’s not a woman, that’s a man, baby!


    I’m sure someone has beat me to it, but just in case, we can all start to cheer up, there are actually Libertarian countries in the world! North Korea made the top 10, I can’t wait to move there:

    Libertarian Countries

    1. That dude is a complete dipshit.

    2. Sodomy, whoring, drugs and taxes are the only things we care about? What about guns, gold and cheap transplant organs?

      1. You’ve started a pretty good list there.

      2. Forgot about child slavery. A true libertarian state would have no roadz and child slavery!

        1. How can we drive our gas guzzling SUVs to the monocle factory and oppress the cheap laborers, without some roadz?

          1. Because they are SUVs, who needs roads!

    3. It’s The Penguin!

    4. Uh, what does “libertarian” mean again?

      The isle of Man seems like a pretty happening place.

      1. Is that like “Whore Island? “

  2. I thought you had to be a Goldman-Sachs alum to be qualified. Or is that Treasury Secretary?

    1. No, you just have to have sold your soul to Goldman Sachs, you don’t have to work there/

  3. Inflation is monetary, the entire basis of this column is wrong.

    We have had huge amounts of inflation, do I need to post a link to M2?

    1. Haven’t you listened to a thing Shriek has said?

    2. True, but credit is what really matters, and that has decreased significantly. That’s why we haven’t seen the price explosions. We’ve been lucky that the rest if the world is fucked too and is working to keep out relative prices down/stable.

  4. Carlos Danger for Fed Chair!!!!!

  5. Jackie Rogers Jr. Jackpot Wad!

  6. The article should be titled “They Both Suck”.

    And did I imagine spending $70 at the gas station yesterday? Or half again at the grocery store than I was spending a few years ago?

    1. No, no. See we exlude the things that everybody has to buy to live and stay employed from the inflation index, that way politicians can say they’ve “solved” inflation.

      1. Yup, exactly, cause those things that we pretty much have to buy don’t affect how much “disposable income” we have at all, whatsoever.

        It’s only by the very small remnants we have of a free market that have let us survive this long…

        1. Er, wow, I mangled that sentence.

          1. Fuck, man, parser repair is expensive.

    2. This is why I only pump $20 of gas, at a time, unless I’m going on a long trip. Filling up is too painful.

      Groceries are getting crazy expensive. I think we spent around $400 last month, for only 2 people. I do buy expensive stuff though, steak and seafood. But I buy almost all my produce at the Asian market, and even that seems to be almost twice as expensive as it was 5 years ago.

      1. But computers don’t cost more – so no inflation!

      2. Beer prices are through the roof, which is bullshit! Can’t get a premium sixer for under $9 anymore. It ain’t right.

      3. I am seeing inflation in the sizes of products being reduced. I am betting that the Fed’s inflation measurements don’t account for that.

        3 recent examples:

        My favorite chips went from 22 ounces about a year ago down to 20 ounces, and within the last month down to 18 ounces. 25% increase in price, since the 18 ounces cost the same as the 22 ounces.

        Oscar Meyer Honey Ham went from 10 ounces down to 8 ounces & they slap a big red label say “1/2 pound” so most people won’t notice. 20% increase.

        House Brand of Oatmeal cookies went from 16 oz to 14 oz down to 12 oz. 25% increase in price.

  7. So Summers or Bernanke with tits, that’s the choice? That’s it?

  8. Once again Chapman displays his ignorance of everything.

    Christina Romer, who served on Obama’s Council of Economic Advisers, views “the choice of the next leader of the Fed as a test of the administration’s commitment to inclusiveness.”

    How can these people call themselves economists and be so driven by emotion?

    1. Yeah, Chapman had 2 decent articles recently, then it was back into decline for him. Oh well. Sucks to be him.

    2. Leaving aside for the moment the fact the the Fed and its practices suck, the huge importance of the Fed chair is such that we shouldn’t use any criterion other than the person’s ability to do the job. We totally skipped that the last two presidential elections–you’d think we’d have learned a lesson by now.

      Of course, by electing Obama, we guaranteed a statist, socialist fuck will be nominated, either way.

      1. You can’t use “ability to do the job” because it’s a job that ought not be done.

        MY criteria for the job is “Which one of these assholes is going to die soonest?”

        1. Or “Who is most likely to sit there and do nothing”. That would be a better criteria since dead people get replaced.

          1. I’m counting on the person who will die soonest will spend a lot of time in medical procedures. Ben Bernanke has been healthy enough to devote 100% of his time to his “job”. Cutting that down to 75% will be good for society in general.

        2. I hear you, but we could get even worse “leadership” from the Fed.

  9. I nominate Nobody for Federal Reserve Chair. Stop messing with the money supply.

    1. gold standard. No fed. No fractional reserve banking.

      1. You say that as if it will ever happen.

      2. Oh god… not a Rothbardtard anti-fractional reserve banking nut.

        No fed, free market in banking. No regulations on reserve requirements, they always end badly.



        If you don’t want them loaning out your deposits then just get a damned safety deposit box.

        Every time in history we’ve had a mostly free market in banking the consumer has never wanted to pay the bank to warehouse their money, they much prefer to be paid interest on their deposits.

        1. “they much prefer to be paid interest on their deposits.”

          How’s that working out for them fuckface

          1. Huh? If you’re talking about the current CENTRAL BANKING system, which isn’t what I advocate at all then you’ve just attacked a strawman.

      3. http://www.freebanking.org/201…..-receipts/


        “Actually I say it is wretched economics, involving the elementary error (one that would earn any student in my undergrad Monetary Economics class an F) of confusing what individual, competitive bankers can get away with with what ordinary central bankers get away with on a routine basis. An individual bank can’t get away with lending more than its excess reserves; in the example, if our ultra-Rothbardian makes a fresh deposit of $50,000, and his bank seeks to maintain a 10% reserve, it can in fact only lend $45,000. That is, it is limited to lending rather less than the savings brought to it, which means there’s no “thin air” lending. As for lending $450K, the possibility is “arguable” only in the sense that anyone who doesn’t argue with it doesn’t know how banks work. For their sake: when banks make loans, the borrowers tend to spend the proceeds. In a competitive banking system that means writing checks that are likely to end up with other banks, which then return them to the lending bank for settlement in reserve money. All this tends to happen within days. So our banker in this case would soon be confronted with a $450K clearing debit, which he’d have to cover somehow.”

        1. Somewhat naiive.

          The way it typically works is banks make a deal to lend the money, then they go to the Fed to actually get the money.

          As it is the reserve requirement is only 1% anyway. And the Fed generally looks the other way on it if the FDIC says the assets are OK.

          1. Did you read where I said “No fed”?

            Did you even read anything I said at all?

            *holds his head in his palm*

            1. You said it in a DIFFERENT POST. Check your ego at the door please.

          2. Thanks for stating a bunch of shit I already know jackass. Why don’t you actually read my comments instead of replying to them when you haven’t the slightest clue what I’m fucking talking about which is a free banking system with no Fed and no FDIC. I was responding to someone’s comment who said we should end “fractional reserve banking”.

            1. Why don’t you write clearly asshole instead of assuming I’m going to to paste together all your posts into one coherent one?

              1. You can’t read the comment directly above it where I say “no fed” ?

                Anyway sorry for being so touchy, but I get so tired of having to educate people on this subject because of how many “Austrians” are indoctrinated into the anti fractional reserve banking cult.

                And it *is* a cult, you can’t reason with these people when I get responses which basically amount to “how dare you question ‘TOP’ austrian econonomists!”

                1. And you couldn’t read MY comment above where I said:

                  “You can’t use “ability to do the job” because it’s a job that ought not be done.”

                  1. If we can be civil I agree with you on fractional reserve banking as a concept,
                    I guess I’ve decided that FRB enables government growth and I don’t see the need to defend FRB that much because of what it ultimately brings. Maybe conceptually FRB doesn’t HAVE TO enable government growth, but I haven’t found any lasting historical counter-arguments. (I’ll admit I haven’t made it a priority to look for them.)

                    1. There is no banking without fractional reserve. No one is going to be getting a loan to buy a house either.

                      Fractional reserve banking has NOTHING to do with government growth. That’s CENTRAL BANKING. Without fractional reserve banking there are no loans and the money is just sitting there doing nothing. Also, without a central bank all they can do is loan out real savings, there is no “thin air lending”.

                      Also I did link you to a historical case where such a system worked out well.



                      I linked to his book above too.. the oll.libertyfund.org one in my first comment.

        2. Since some people are too stupid to get implications from my comment directly above this one… the rest of the quote which I cut out because of character limitations on Reason’s comment system:

          “So our banker in this case would soon be confronted with a $450K clearing debit, which he’d have to cover somehow. He can’t cover it with a mere $50K of new deposits. So unless he was sitting on another $400K of excess reserves beforehand (which possibility of course begs the question, why hadn’t the greedy shyster lent those already?), his bank will go bye-bye, or at least would do so in a free banking system in which there was no alternative of a central bank rescue.

      4. Sorry, but I can’t think of much else that makes my blood boil more than “libertarians” who go around denouncing fractional reserve banking when they haven’t the slightest fucking clue how banking works.

        It isn’t fraud buddy, banknotes never claimed to be warehouse receipts. Why is it I have to bother to educated these supposed “anarchist” Rothbardtards who believe in regulating reserve requirements when that was one of the main reasons the US banking system was so fucked in the latter half of the 19th century, that along with the ban on branch banking?!

        1. *bother to educate

          Unless you believe that loaning out REAL savings (IE people’s FUCKING SAVINGS DEPOSITS) to allow the money to be USED for something instead of sitting around doing nothing is somehow evil because of some stupid religious zealotry your stance makes no fucking sense at all.

        2. I consider myself pretty Rothbardian, but I agree completely.

          Can we call it “DeSotian” instead, (as in Jesus Huerta de Soto), when talking about fractional reserve banking and free banking an the like. I don’t think it’s even correct to say Rothbard was unambiguously against free banking.

          1. I just get so angry whenever I try to explain this to people on the DailyPaul for example… It’s like talking to indoctrinated retards… “But you’re questioning TOP Austrian economists!” (I’ve literally had some moron say this to me on there).

            And if that isn’t bad enough alone you have people like Invisible Finger who can’t seem to fathom you can have fractional reserve without a central bank.

            1. Where the FUCK did I ever say that? You’ve got an ego the size of Dunphy.

              I actually agree with you about free banking, but since you are such an asshole I won’t engage in the discussion with you. Based on the other whining in your posts I’m guessing this has happened to you before.

              1. Again I apologize. I just really get sick of having to explain this shit to people and most of the responses I get are pure question begging… basically amounting to “an austrian could never be wrong!” (not accusing you of saying that)

        3. It’s a pisser to have so-called AnCaps tell me how I get to bank.

          Hey 100% only folks: Fuck you. If I deposit in a fractional reserve bank, that is my business not yours. If you want to only use full-bodied commodity currency or warehouse receipts with 100% backing that is none of my business.

          The difference is you doing what you want to do does not cause me the least amount of anger or concern. I even support your choice!

          You 100% guys cannot say the same thing.

  10. Can we please stop seeing articles from this jackass on reason? Yellen would have printed about three times as hard as Bernanke.

    Why is reason paying this shitface?

    1. Would have? She’s likely the next chair, so “will be” would be the correct wording.

    2. Yeah, Krugnuts has been going all out on flacking this bitch for like a week, which tells you everything you need to know.

  11. Well, she’s as ugly as Greenspan, so she has that going for her.

    1. This administration really has some type of hangup for fugly dykes.

      1. Well, they don’t want to be accused of promoting women because of their looks.

  12. Did Yellen predict the housing bubble? No, she’s just as clueless as Sideshow Ben, so STFU, Chapman.

  13. Steve Chapman is stacking the deck big time here, making it appear as though everyone thought Yellen’s unconcern about inflation was wrong.
    I can hardly imagine anyone looking at the economy back then and seriously having any worries about inflation. Few if any on the Fed
    had any worries, so Yellen was by no means alone on this.
    Chapman also falsely implies that “the issue has been decided,” which could hardly be less true. Of course, one reason for the lack of inflation is that the Fed’s policies have been so ineffective, which hardly is a commendation for Yellen’s claimed expertise. Ending QE
    in a manner that does not destroy the economy is not a given. There are several obstacles that could cripple the Fed’s power and plunge the nation into recession in short order. Neither Yellen nor the Fed controls their own destiny – they are banking on mostly good fortune
    to successfully terminate their artificial economy. Now Robert Shiller, someone who HAS actually been right in the past about the US economy, is seeing asset bubbles in the stock market. Deja vu, all over again. And Yellen’s policies are now seen as a problem, not part of the solution. It’s not nice to blow bubbles, Janet.

  14. Chapman,

    MV = PY. It’s basic monetary economics. Yes, velocity has remained muted. That has helped keep inflation down. “Ohmigod we’re going to immediately have inflation!!!1!” has never been the concern of those opposed to continued expansion. It is the fact that the massive expansion of the money supply has rendered the economy particularly susceptible to it should there be an unanticipated increase in velocity. Moreover, unless you assume that inflation is only a phenomenon affecting consumer prices (and if you do, you’re an even bigger idiot than I thought), there has been a tremendous amount of inflation in asset prices. Bubbles are not good for long-term economic growth, as the financial crisis demonstrated.

  15. One thing to consider is that M3 has not been reflated… Check Shadow Stats.

    The way Bernanke is just putting up smoke and mirrors. That money never left the NYFRB. Bernanke is paying the banks a higher interest rate than interbank rates and so none of them are loaning the money out!

    It’s just a free stream of money to give the banks time to heal their balance sheets, since obviously a large bank CAN’T FAIL it would be ARMAGEDDON!

    So yeah… no increase in M3 and there will be no major inflation.

    1. This was supposed to be in reply to Bill Dalasio.

      1. Also… meant to say “Bernanke’s game is just smoke and mirrors” screwed that sentence up badly…

    2. This does appear to be the case. That said, I stand by my earlier point. There’s nothing stopping the banks from loaning out that money. That is, from increasing the velocity. The banks’ keeping their cash in the FRBNY is what’s keeping velocity low.

      1. Well yeah, I’m not sure what happens when they do start loaning that money out. Probably bad stuff.

      2. There’s also the POMOs and stuff that give the primary dealers free money too. Which seems to get channeled into stocks and stuff.

  16. the entire basis of this column is wrong.

    Standard Chapman column, then.

    What a surprise.

  17. This administration really has some type of hangup for fugly dykes.

    No shit. I ordinarily try to refrain from appearance-ist comments, but I just saw a picture of the new EPA head for the first time, yesterday.

  18. The best (although still weak) reasons to prefer Yellen over the clintonsuckup summers is that she is the wife of George Akerlof, and that she is well aware of the finance system cartel’s looting for fun and profit.

  19. Yellen is as bad a choice as Greenspan and Bernanke were. If she is appointed we are likely to see a huge devaluation in the USD as she keeps thinking that there is no inflation by ignoring reality.

    First, there is the usual argument that if we use the same methodology as we used in the 1980s we would get inflation of around 5 – 6%, which is not exactly benign. Anyone who accepts the BLS reports without question is no better than those that accepted the official Soviet reports that were published by Pravda in the 1980s because it is obvious that healthcare, housing, food, and energy are not properly counted.

    But there is a bigger problem. It is very clear that we have seen a massive amount of credit creation and money printing. The fact that a lot of it went to the bond market, housing, or stocks does not mean that there is no inflation. Median rents are now at a historical high. Health care costs are ridiculous. The housing market shows that it is in another bubble and ready to go down. But the big error is about the price expectations. Given the massive improvement of productivity thanks to greater world trade, we should have seen price deflation just as the 1920s should have shown price deflation. The reason that we do not is because the Fed’s money printing and credit injections are preventing the market to do its job. The fact that Yellen does not understand this point shows that she is the typical clueless Keynesian who tends to get such jobs.

  20. This administration really has some type of hangup for fugly dykes.

    Of course; hot hetero women would be sexist.

  21. There’s massive amounts of excess reserves at the moment. Once it is lent out, there will be quite a bit of inflation with it hitting consumer products last. I think we are already witnessing the beginning of it with the stock market and housing market.

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