Friday, February 17, 2017

Saint Janet Yellen: The Best Fed Chair Ever?

OK, so the immediate reaction of many to this title might be to laugh, but I challenge anybody reading this to name another Fed Chair who was clearly better than she is.  I do not think you can.  However, one reason why one may not think much about her is that things have been so inconsequential since she has been Chair.  Nothing much has happened.  She continued the Quantitative Easing for awhile started by Bernanke and then stopped it.  Inflation has remained below 2% mostly.  Growth has not been dramatic, but it has been steady and higher than in most other advanced market capitalist economies.  There has not been a recession since 2009.  There have been no bubbles and no crashes.  Nothing dramatic has happened and certainly nothing bad, even if lots of deep problems of the US economy such as inequality remain.  But that one is not the Fed's responsibility anyway.  So, bottom line, she has been doing a great job even if everybody is quite certain Trump will replace her, with all kinds of candidate names being thrown around.  But none of these will be better than she has been.

So, going backwards her most serious rival might be her immediate predecessor, who  looks to have played a substantial role in the save of September, 2008 that involved buying a lot of eurojunk from the ECB, only to roll it off over the next six months or so.  Of course some of the more innovative things done then were coming out of the NY Fed, but Bernanke did an excellent job when the crisis hit.  At the same time, Janet was around during that period, initially as San Fran Fed president, and then later as Vice Chair.  But where Bernanke looks not so good is the runup to that crisis, where he seems really not to have seen it coming.  Who saw it coming and as far back as 2005 sounding the alarm about the housing bubble?  Oh, right. Janet Yellen.

Frankly the records look worse as one goes back further in time.  Of course Alan Greenspan got lots of praise during the "Great Moderation," but then many later decided that he laid the groundwork for the housing bubble and crash that came later, and even he himself has admitted that he may have contributed to it.  I give him credit for a great save at the time of the 1987 crash, but it does seem that he stayed in too  long and deserves some of the blame for what came later.

Volcker gets lots of praise for breaking the inflation that came out of the 1970s, but then this was done in connection with the deepest recession since the Great Depression, even if it did not last long.  His legacy is certainly a mixed bag.  G. William Miller before him was viewed as pretty much of a disaster with inflation taking off under him, and with his predecessor, Arthur Burns getting blamed for stagflation, even if it was not all his fault.  Earlier Fed chairs in the 40s, 50s, and 60s had a generally strong economy to deal with, but they had this tendency to "take away the pumchbowl just as the party got going," leading to stop and go policies that marked that period.

Arguably earlier chairs had greater challenges with the Great Depression and World War II, but in much of that either they engaged in disastrous policies or were subordinate to others, and behavior of  the Fed chairs early in its history seems to have bee mostly awful, with the recession of the early 20s and then the reatlly total botches of 1929 and 1931, with Bernanke struggling to avoid the mistakes made in that latter year, which turned what had been a bad recession into the Great Depression.

So, really, Janet Yellen looks about as good as they get when you think about it. We are now in a situation where Donald Trump has three openings on the Board of Governors to appoint.  I have no idea who he will pick, but I lay odds that they will not improve what goes on there, especially if he decides to go for some gold bug nuts or whomever.  However, for all the talk now that assumes it is a done deal that she will be replaced, if things go downhill for Trump, it may come to pass that he may be betting Yellen to stay on next January, although I shall not bet on that.  In the meantime, she and Obama and others have handed him a pretty well functioning economy that will probably continue to do well at least for awhile to come and that he will take credit for.  We shall see.

Barkley Rosser


john c. halasz said...

Umm... Marriner Eccles. said...

He kept taking the bloody punchbowl away. But he is a candiate, I grant, more than others. Certainly was in for a long time and the economy generally did very well, but that was the postwar general boom that was global. Don't think he deserves any special credit for that.

Jerry Brown said...

Since Eccles was appointed in 1934 and was chairman until 1948, how many times could he have taken the punchbowl away? I don't think he is generally associated with the postwar boom, but more for his work coordinating with the Federal government during the depression and WWII. I think he deserves a lot of credit for that. Maybe special credit.

ProGrowthLiberal said...

"Since Eccles was appointed in 1934 and was chairman until 1948, how many times could he have taken the punchbowl away?"

Try the 1937 recession.

ProGrowthLiberal said...

Some of us are worried that the FED has prematurely raised interest rates. Of course only time will tell and we all hope the economy gets back to the employment to population ratio of 62% with modest inflation (OK that would be my measure of full employment) so may our criticism is premature. But that's just it. The FED must do policy in real time while we critics gets the luxury of looking at their tenures with the virtue of 20/20 hindsight. said...

I was thinking of William Martin, 52-70, only one to serve longer than Greenspan. Eccles was 34-48, a weird period where indeed he pulled the punchbowl away in 37. For the second half of his term Fed was subservient to Treasury officially due to war reasons. Maybe this was good, but it was not doing of Eccles. Sec of Treasury sat on Board during this period until Fed-Treasury Accord in 51.

Actually looking at it, Saint Janet easily bests both of these guys, really.

Jerry Brown said...

Professor, as far as I know, the man Marriner Eccles came in during the depths of the Great Depression and did not get in the way of FDR's fiscal policies. And then he did not get in the way of the probably largest war mobilization of all American history. That is good enough for me. And not only did he not get in the way, he supported those policies, again, as far as I know, since I have no firsthand knowledge of that time (he left the chairmanship in 1948 when my father was about 2). So I would give him extra special credit for that, especially considering that time period. And considering that FDR basically suspended the gold standard and revalued the currency shortly before his arrival. Extraordinarily disruptive times for the nation, and for policy.

So I don't disagree that Yellen has been a decent Fed chair- I just don't know she was the best ever. And I get argumentative at very late hours of the night. Sorry about that, and I hope my post at EV did not upset you too much. I'm pretty sure it got you some readers though :)

ProGrowthLiberal said...

"I was thinking of William Martin, 52-70, only one to serve longer than Greenspan."

Here is my case against this nominee. We had three recessions during Ike's glory years despite Ike's infrastructure stimulus (that internet system). We did have a go-go economy in the 1960's from the JFK/LBJ tax cuts, Great Society, and Vietnam buildup. But we ended up with too much aggregate demand during the late 1960's. Martin should have taken away the punch bowl but he bowed to political pressure. OK - the run up in inflation was temporary and not the worst thing ever. But it did usher in that awful New Classical revolution.

Jerry Brown said...

PGL- The internet system stimulus Ike did. :)

john c. halasz said...

Eccles came in with a clear and articulate understanding of the Fisher debt deflation dynamic (before Fisher had published and partly redeemed his reputation), and kept rates low to accommodate the ad hoc New Deal, including pegging long T-bond rates low ("financial repression"). As to the 1937/38 recession, that was largely due to FDR's fiscal retrenchment, though Eccles went along with that. (I think, among other things, both were worried about the coming wave of CIO strikes and were attempting to pre-empt the effects, mistakenly IMO, since any ill effects could have been dealt with after and likely the increase in wage-led demand would have had a larger effect than any profit squeeze or inflationary burst). And then he accommodated the hyper full employment war economy, (when the Fed deficit peaked at 32% of GDP), and the sharp post-war production-switching recession, while keeping rates pegged until his run-in with Truman in 1948. The total fed debt after the war stood at 120% of GDP, but Eccles kept rates low during the next 3 years, when combined inflation over that time was 30%, thereby greatly reducing the fed debt burden. It's pointless to speak of the post-war international boom after 1948, since Eccles had quit. But he had helped to set the table.

On the other hand, I don't see what is so great about Yellen's stewardship, since GDP has limped along at 2% and QE, (which occurred when she was vice-chair), has introduced major financial market distortions without having any discernible effect on demand growth, other than to further skew income distribution. In fact, most of the recorded GDP growth since the official end of the recession has been due to the fracking boom, (which began in the middle of the recession), since that greatly reduced the trade deficit and has constituted the only sector that has experienced increased investment, (and in the case of NG, which has been produced below the cost of production since 2012, has been running on fumes due to cheap money from the Fed).

But still more important, you seem to be over-estimating the effects of monetary policy and what the Fed or any CB can do, over against fiscal policy and public investment and regulation. SInce monetary policy tends to assume equlibrium and ignore debt dynamics. (In fact, corporate cap-ex collapsed in 2001, never to recover, which was disguised by the housing bubble, accommodated, at the very least, by the Fed.)

Anonymous said...

Bow down to the ones you serve. said...


Eccles doubled reserve requirements in 1937. Yellen has avoided anything remotely that damaging.

Also, while current growth not as high as earlier episodes, it is better than most other high income nations. Which is doing better?

I said Martin was stop and go. Did not say he was better.

I do not see either Eccles or Martin as clearly better than Yellen. Name one other one who did not mess up. She has not, even if the economy could be doing better (and there are major problems such as inequality that the Fed can only do a very limited amount about). I still say she is the best we have had, even if she is not really a "saint," :-).

ProGrowthLiberal said...

Jerry - good catch. I should edit that to interstate system. Otherwise Al Gore will school me that Gore invented the internet.

Unknown said...

While Ms Yellen may be the best Chairman ever, the fact that inflation has remained below 2% is a strike against her, not in favor. The place level was below its 2% trend when she took over and has remained so. Ditto the trend level of NGDP. The Fed should have been acting to get these aggregates back on track.

Jerry Brown said...

PGL, yes- Al Gore will be pissed if you give the credit to Eisenhower. But he probably would assume that you were making a joke, just like I assumed. Its actually quite humorous, although I do have an odd sense of humor apparently :)

ProGrowthLiberal said...

Unknown makes this point re Yellen - "Ditto the trend level of NGDP. The Fed should have been acting to get these aggregates back on track."

I think this is a fair point with the caveat being how to get this done in a depressed economy. But let's apply this to the Eccles FED. From 1937 to 1939, cumulative nominal GDP growth was only 0.5%.

D said...

Paul Volcker. How could anyone deny that (1) double digit inflation had to end (2) ending it would cause short-run dislocation- put PV under severe pressure, S-T (3) the recovery of the 1980's was good, and far better than the miserable 2.2% GDP growth/high U6 of Yellen's term?

john c. halasz said...


I checked it out and actually Eccles raised the reserve requirement in June 1936, the reason apparently being that there were huge excess reserves in the banking system to be mopped up, (since banks weren't lending and/or there was little loan demand). About the same time the Treasury Dept. started to sterilize incoming gold flows, (which probably had the larger effect). But the 1937 recession was proximately caused by FDR's fiscal retrenchment, with tax rises and budget cuts, (especially for work relief programs), under the illusion that output had returned to pre-depression levels. Eccles stated in 1939 that the fiscal/monetary contraction had been a huge mistake. (But this was a much different Fed era and reserve requirements nowadays don't maqtter much, as opposed to capital requirements, which have been so extensively gamed.)

As to monetary policy having little influence on income distribution, really??? What was NAIRU doctrine, but a deliberate attempt to control inflation via wage rate suppression? (If you want to control for a macro variable, you need a specificly targeted control variable, but you can't use the same variable to control for two macro targets). And Yellen was reportedly the one to have arrived at the 2% inflation target, which wasn't based on any actual damages from inflation, but due to a dubious theory about "stick prices" assuming perfect market adjustment otherwise. Now that the Fed can't achieve that target, (while having ignored the huge debt build-up), so a just-so story looks a little ridiculous. And certainly QE policy, by inflating financial asset inflation, has further contributed to growing income inequality, without noticeably contributing to increased real investment and growth, (while being counteracted by the need of insurance/retirement funds, a significant share of "capital markets", to increase their savings rates due to low returns/hing asset prices, to meet their future contingent liabilities). said...


Probably the 1937 recession (for which the term was coined) was more due to fiscal policy than monetary policy, but monetary policy was definitely reinforcing the recessionary trend. No getting Eccles out of that one. He simply does nto beat Yellen. Sorry, even if nice try.

As for NAIRU, you are all in a tizzy about NAIRU and the 2% inflation target, but I note that Yellen convinced Greenspan of this in the mid-90s, based on some reasonable work about downward stickiness of wagges done by her husband, George Akerlof, when Greenspan was convinced that zero percent should be the target, so he went into the Fed basement and got some productivity studies that allowed him to keep policy loose when many were screaming about NAIRU, and the unemployment rate kept on going down.

And as long as inflation has remained below 25 that target has remained an argument for continuing stimulus. Just exactly what is it you think Yellen has done that is so bad? I suggest your original comment on this over on Eonomistsview was just abysmally and massively stupid, and you are trying to defend, but just falling very hard on your face repeatedly. said...

John C.,

Pay no attention to last part of last post. I thought you were somebody else over there.

Jerry Brown said...

Professor Rosser, John Halasz made no comments at Economists View as far as I can tell. I however did and was responsible for the first comment on the "Links for 2-18-17" and perhaps it was me who you meant to refer to as stupid.

I will repeat the comment for Mr. Halasz's benefit and apologize to him for referring to him in regards to it.

"Up too late once again, but Professor Rosser, I would say Marriner Eccles compares favorably to any Fed official of any sort. As noted by John Halasz at EconoSpeak."

Now I do apologize if John would rather not have been mentioned there. But this is not a massively stupid comment and is a very arguable one. You obviously disagree, but that is fine. I disagree with your argument also, but wouldn't call it massively stupid.

In any event, if I were you I would be more careful about calling people names when they hadn't even commented on the blog you are talking about. And if you were referring to my comments, I am happy to take the blame for them, but I would ask you to read them again and explain where I was falling on my face repeatedly. said...

Yes, it was you, Jerry, and I think I misinterpreted the meaning of your opening line.

However, yet again, I increasingly see no case for Eccles being better than Yellen. He supported at one point contractionary fiscal policy, even if later he changed his tune. He doubled reserve requirements, which was not all that wise to do. His performance after 1940 is not a performance. He had it imposed on him to simply accommodate the Treasury for wartime purposes and the Treasury Secretary sat on the Board. This was a big nothing. Well, he did not immediately halt the recovery that started in 1933 when he came in in 1934, but he certainly aided putting a big monkey wrench in it starting two years later.

Again, just what are the ground for saying Eccles was better than Yellen, who convinced Greenspan not to tighten in the mid-90s, called the housing bubble in 2005, and has basically made no obvious mistakes since she came in? This is not even close.

BTW, I was assuming that "JohnH" on Economistsview was our John here, but probably not, although he was repeatedly spouting similar lines. A lot of people repeated a lot of pretty stupid drivel about this over there.

So, I continue to stand with Yellen being the best, and certainly better than Marriner Eccles. How get yourself to bed, Jerry.

Jerry Brown said...

Well I was referring to myself when saying "up too late", certainly not you. Sorry if that wasn't clear. I can understand that if you thought that was a commentary about you that it would be unfair and stupid. That was not my intention.

My advocacy of Eccles is based a lot on the history of the time that he became Fed chair- In the midst of the Great Depression, right after FDR had revalued the currency and left the gold standard for most intents and purposes. During and after the worst financial crisis we have had, where banks were failing left and right. Extraordinary times, and I believe he did a good job of it. And then of course WW2 and the massive mobilization and then demobilization after.

Perhaps that is not the best way to look at things, but I don't think it is abysmally and massively stupid.

Like I had said earlier on this thread, I consider Yellen to be a good Fed chair, and I get argumentative late at night apparently. But I think you would agree that my comments both here and at Economist View on this subject are well within the bounds of reasonable discourse if you were to re-read them. And I am sorry that they have apparently upset you. Perhaps realizing that I was referring to myself in the "up too late" comment would help you to see that.

I do enjoy your writing and the blog. Best Wishes,
Jerry Brown. said...

Got it. OK.