Yellen’s confirmation will warm the chilly heart of Wall Street, which fears “tapering” — slowing the $85 billion per month pace of buying bonds, a.k.a. printing money — even more than it seemed to fear the possibility of a default. She probably will continue, perhaps even longer than the departing Ben Bernanke would, the “quantitative easing” that is “trickle-down economics” as practiced by progressives:
Very low interest rates drive investors into equities in search of higher yields. This supposedly produces a “wealth effect” whereby the 10?percent of Americans who own about 80?percent of stocks will feel flush enough to spend and invest, causing prosperity to trickle down to the other 90?percent. The fact that the recovery, now in its fifth year, is still limping in spite of quantitative easing is, of course, considered proof of the need for more such medicine.
Easing serves two Obama goals. It enables the growth of government by deferring its costs with cheap borrowing. And it redistributes wealth: By punishing savers, it effectively transfers wealth from them to borrowers.
Although Yellen’s convictions are honestly convenient for the current administration, members of the Senate Banking Committee should question her about what she considers appropriate — and inappropriate — relations between a Fed chair and government’s political officers. The senators should read “Inside the Nixon Administration: The Secret Diary of Arthur Burns, 1969-1974,” and “How Richard Nixon Pressured Arthur Burns: Evidence from the Nixon Tapes,” by Burton A. Abrams in the Journal of Economic Perspectives (Fall 2006).
Various of Burns’s diary entries begin “President called and asked me to come over,” “The meeting at Camp David,” “President telephoned.” Although the Fed chairman insisted “there was never the slightest conflict between my doing what was right for the economy and my doing what served the political interests of RN,” RN took no chances. His speechwriter William Safire, in his memoir “Before the Fall,” recounts that Nixon planted negative media stories about Burns — e.g., saying Burns was requesting a large pay increase, whereas he actually suggested a pay cut — and threatened to weaken him by expanding the Fed’s Board of Governors.
There is no reason to doubt Yellen’s intellectual integrity; there is reason to wonder where she thinks the autonomous Fed now fits in the government. The Fed seems to be evolving into a central economic planner with a roving commission to right social wrongs such as unemployment. About this Yellen talks with a humane passion that speaks well of her but is more suited to a political official.
There is considerable congruence between Yellen’s economic theories and the policy preferences of the Democratic liberals who secured her nomination. They probably favor quantitative easing forever and consider themselves her constituents. Is she prepared to disappoint them.
