Friday, October 24, 2014

The Troubling Prospect Of Janet Yellen As Leftie Political Crusader

By Carrie Sheffield

ederal Reserve Chairwoman Janet Yellen’s unprecedented speech on income inequality harbingers worrisome policy prescriptions by a central bank created to serve limited functions. Her wide-ranging critique of America’s economic and education systems could well position her as the monetary equivalent of activist judges who legislate from the bench. This would be anathema to a system of limited government.

“The extent of and continuing increase in inequality in the United States greatly concern me,” Yellen said in Boston remarks reminiscent of the junior senator from Massachusetts, Democrat Elizabeth Warren. Yellen continued, “I think it is 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.”

As The New York Times’ Neil Irwin points out, her soliloquy is unusual compared to traditional Fed chief behavior as a public figure “who generally tries to steer as far away from contentious political debates as possible.” Irwin contrasts Yellen’s remarks with her predecessor Ben Bernanke, who said in a 2007 speech that public policy addressing economic inequality “inherently depends on values and social trade-offs and is thus properly left to the political process.”

In her speech, Yellen completely ignored her sole job descriptions: controlling interest rates and money supply. Instead, she touched on a hodge-podge of factors she believes drives income inequality, from family vacations to kids’ nutrition. And as The Wall Street Journal highlights, Yellen failed to address the argument over whether the Fed’s bond buying and zero-interest-rate policies have exacerbated inequality by pushing up prices of assets “primarily held by wealthier Americans,” such as stocks.

“My purpose today is not to provide answers to these contentious questions, but rather to provide a factual basis for further discussion,” Yellen intoned. Yet her facts are disputable.

By comparing prior decades of income distribution with today’s, Yellen is comparing apples and oranges. It is incredibly difficult to compare today’s labor force with that of the 1950s, when America’s economic infrastructure allowed it to tower over war-ravaged competitors, and before millions of unskilled immigrants entered the workforce, exerting downward pressure on wages, particularly at the lower end. Women entering the workforce also drove down wages through further competition.

In terms of scholarly content, Yellen’s speech was all over the map.

Read the rest here.

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