News reports indicate that the Obama administration is going to nominate Janet Yellen to succeed Ben Bernanke as the
Chairman Chairwoman Chairperson of the Federal Reserve System.
What does this mean for the U.S. economy?
- More quantitative easing. It’s all over for the U.S. dollar. Better spend them as fast as you get your hands on them.
academic economistidiot with a PhD and no experience in the real world will be in charge of the most powerful central bank in history. Consider this quote:
“For my own part I did not see and did not appreciate what the risks were with securitization, the credit ratings agencies, the shadow banking system, the S.I.V.’s — I didn’t see any of that coming until it happened.”
– Janet Yellen, 2010
Really, Janet? I, and other economists like me, saw it coming for at least 8 years before it happened. But then, we were looking at what was happening in the real world and not what our imaginary mathematical forecasting models were predicting.
- Along with continued QE, a Yellen-led Fed will print money to create jobs. Unfortunately, Fed economists don’t realize that it’s not that there are no jobs but that people have given up looking for jobs:
Three million Americans have been looking for work for one year or more; that’s one-fourth of all unemployed workers, which is down from 2011’s peak but far larger than was seen before the Great Recession. These are not just statistics to me. We know that long-term unemployment is devastating to workers and their families. When you’re unemployed for six months or a year, it is hard to qualify for a lease, so even the option of relocating to find a job is often off the table. The toll is simply terrible on the mental and physical health of workers, on their marriages, and on their children.
If the current, elevated rate of unemployment is largely cyclical, then the straightforward solution is to take action to raise aggregate demand. If unemployment is instead substantially structural, some worry that attempts to raise aggregate demand will have little effect on unemployment and serve only to stoke inflation. I see the evidence as consistent with the view that the increase in unemployment since the onset of the Great Recession has been largely cyclical and not structural.
Update: it’s official.