Janet Yellen was confirmed this month as the new Chair of the Federal Reserve and the first woman to hold the post. But will the fact that she is a woman be the only “first” worth cheering during her term? Probably not. Much is known of her role in helping Ben Bernanke devise the program of quantitative easing. However, her passion as an old-school progressive economist is not much appreciated by the public. Perhaps this was what caused a last-minute attempt to dump her in favor of Larry Summers. She was said to lack a proper understanding of financial markets. However, her nomination was rescued when opposition to Summers surfaced because of his very closeness to financial markets, which had almost brought the financial system down. More than 500 top economists signed a letter to President Obama supporting Yellen’s nomination, and senators, including Elizabeth Warren, argued that she would in fact make the financial system safer by taking on big banks.
It is worth watching to see how Yellen’s term will unfold and whether it will set a gradual sea-change across the world in policy direction away from the neo-liberalism of market-driven economics, initiated by Milton Friedman with the help of Ronald Reagan and Margaret Thatcher. Michael Hirsch writes in the National Journal about Yellen’s two passions: fighting unemployment and reining in Wall Street’s excesses. She has indicated she will oversee the financial-regulatory agenda herself, rather than handing the job over to a deputy. A student of both James Tobin and Joseph Stiglitz, she devoted much of her career to studying market failure and income inequality and is reputed to favor economics that serves the people. She is known to be empathic and to see the unemployed not simply as a number, but as a person who feels pain. An economist with an activist penchant and the first Democrat to hold the Chair of the Federal Reserve since 1979, she may indeed profoundly change the economic debate.
However, the process may be slow. Advocates of liberalism still abound. As Fed Chair, she needs to put forth the consensus view, and she has in the Vice-Chair, Stanley Fischer, previously Chief Economist at the World Bank, Deputy Managing Director of the International Monetary Fund, Vice Chairman of Citigroup and Governor of the Bank of Israel, a strong and independent minded colleague.