As Treasury Secretary, Janet Yellen wants to treat America’s ailing economy like her father diagnosed patients at his small medical clinic run out of his home in the working-class neighborhood of Bay Ridge, Brooklyn. In her opening testimony at last week’s confirmation hearing, Yellen explained that her father was just as attentive to the patient’s overall medical history as the immediate health complaint.
Yellen laced her answers to lawmakers on the Senate Finance Committee with this clinical diagnosis of the economic recovery ahead, focusing on the long term health of the American economy post-pandemic.
It seemed like the right approach. The country faces an immediate crisis and long-term woes. Ending the pandemic by putting vaccines in arms is the highest national priority, but after that, creating long-term, equitable economic growth is paramount. Yellen conveyed both messages in her appearance before lawmakers last week. The first woman to be Treasury Secretary, Yellen’s being sworn in by fellow former San Franciscan, Kamala Harris, underscored that this is a real changing of the guard not only at the Department but across the government.
Yellen urged lawmakers last week to “act big” on economic relief to combat the coronavirus pandemic. Her words come with authority. She is the first American to hold all three of the top economic positions in government: Chair of the President’s Council of Economic Advisors, Chair of the Federal Reserve and Secretary of the Treasury. The 74-year-old arguably comes into the job with more preparation than Robert Rubin or Alexander Hamilton, James Baker or Andrew Mellon. When she walks into the Secretary’s Conference Room and Diplomatic Reception Room, sits at the head of the 24-foot conference table, and settles back into her mahogany and leather chair, she’ll be on terra firma.
Yellen’s confirmation was a sure bet even before Democrats took control of the Senate in the Georgia run-off elections. Her appointment back in November was received with bipartisan praise, even getting a public stamp of approval from President Trump’s first National Economic Council director Gary Cohen. (Indeed, Trump thought about keeping her at the Fed.) All eight living treasury secretaries penned a letter the day before Yellen’s confirmation hearing advocating on her behalf. Fielding questions from Senate lawmakers, the Yale Ph.D. outlined her stances on a number of issues in her portfolio as Treasury Secretary, from minimum wage hikes to taxation and economic sanctions.
These are the most important takeaways from last week’s hearing.
The Biden Rescue Plan and the Deficit:
Just five days after the rollout of the Biden Rescue plan, Yellen’s hearing was the first public forum for Republicans to air their grievances with the $1.9 trillion spending program that will likely consume most of the first weeks of the Biden administration. Pennsylvania Senator Pat Toomey zeroed in on the ballooning national debt, which is likely to be the most common Republican attack on the relief package.
“The only organizing principle I can understand, it seems, is to spend as much money as possible, seemingly for the sake of spending it,” Senator Toomey said.
Yellen forcefully defended the deficit spending, arguing that the long investment in a robust economic recovery would outweigh the immediate costs and avoid scarring effects on workers and small businesses. She highlighted the need for funding to distribute vaccines, reopen schools, and deliver $1,400 stimulus checks.
“People worry about a K shaped recovery but before the pandemic, we lived in a K shaped economy,” Yellen said. “One where wealth built upon wealth while working families fell behind, especially people of color.”
To address debt concerns, Yellen reminded Senators that the low interest rate environment of recent years has changed the way economists look at government debt. She pointed out that while the debt to GDP ratio has increased, the interest burden isn’t any higher now than before the 2008 recession and the Fed could always increase interest rates when debt levels start to run the risk of inflation.
As a leading liberal economist who raised concerns about the debt as recently as 2018, Yellen’s embrace of deficit spending reflects a broader rethinking on this issue within Democratic circles.
The Climate Crisis:
In her answers to questions on trade and job growth, Yellen emphasized the need for the economic recovery to be built around investment in clean and renewable technology.
“The Treasury will look at ways we can direct investment and enable private firms to have the information they need to support sustainable investing,” Yellen said.
Primarily, Yellen focused on Biden’s proposed infrastructure plan, which would put significant funding toward developing green technology. In her framing of the issue, the transition to the green economy will be an opportunity for the U.S. to revitalize its manufacturing sector and create new jobs, for example, in solar panel installation, which is among the fastest-growing jobs in the country.
“In addressing this very serious crisis there’s also the opportunity to create good jobs,” Yellen said.
One area in particular that Yellen encouraged action on was the investment in electric vehicles. In an exchange with Michigan Senator Debbie Stabenow, she said she would work with President Biden to restore Obama’s Electric Vehicle Tax Credit program to help bolster the electric vehicle market.
Both Democrats and Republicans on the Finance Committee probed Yellen about the most pressing issues regarding US-China relations that will likely define President Biden’s foreign policy agenda.
Yellen staked out a hard-line stance on China, which will be a signpost for the Biden administration’s policy toward Beijing. She called out a number of China’s “abusive and illegal practices” and accused Beijing of currency manipulation, product dumping, forced technology transfers, and intellectual property theft.
“China is our most important and strategic competitor,” Yellen said. “We will use the full array of tools available to address this threat.”
As Yellen sees it, the Biden administration’s Chinese policy will have to play out on two fronts. One is to fortify international alliances and use multilateral actions to combat Chinese aggression. The other is to strengthen the American economy through investment in green technologies, most importantly the production of lithium batteries, according to Yellen.
On China and other issues like economic sanctions, Yellen’s emphasis on the national security responsibilities of the Treasury Secretary is a novel interpretation of the position’s portfolio.
There’s a lot we still don’t know about Yellen. How will she pursue trade deals with the post-Brexit UK or deal with controls on foreign purchases of sensitive U.S. assets or antitrust policy which, although primarily under the purview of the Justice Department, will surely be of interest to Yellen? Yellen chaired the San Francisco Federal Reserve Bank and taught at Berkeley—she was a first-hand witness to the rise of big tech and Silicon Valley. Where she stands on anti-monopolism, a topic unexplored in her confirmation hearing, could be among the most interesting things to watch during her tenure.