COMMENT It has to be Yellen to head the Fed
By Hossein Askari
President Barack Obama's choice for the next chair of the Federal Reserve System is blatantly obvious. There should be no debate or discussion. His choice should be made immediately for the sake of United States and global financial stability. It should not be delayed another day. The person for the job is Dr Janet Yellen. If President Obama does otherwise, his name and legacy will be seriously tarnished.
The Fed chair should arguably be a macroeconomist. Dr Yellen received her economics training at Yale University, undoubtedly one of the premier economics PhD programs in the United States. At Yale, she worked with one of the most renowned American macroeconomists of the 20th century - James Tobin (the 1981
recipient of the Nobel Prize in Economics). She has been a professor at the University of California Business School, a premier academic institution. She has authored a number of important papers on monetary policy, labor markets, income distribution, international trade and more. Moreover, in a globalizing world, the chair of the Fed should have a strong appreciation of international economics and international finance. Again, Dr Yellen meets the test in her earlier work at the Fed and in her participation at the Bank for International Settlements (BIS).
While good economics training is important, it is by no means everything. I can think of many Nobel laureates in economics (even some of those who are macroeconomists with a heavy dose of international economics and finance) who would make terrible Fed chairs. Experience, a "feel" for domestic and international financial markets, sound judgment and a steady hand are arguably as important as economics training for a perspective chair of the Federal Reserve.
Dr Yellen has been vice-chair of the Fed (2010-present), president and CEO of the San Francisco Federal Reserve Bank (2004-2010), chair of the President's Council of Economic Advisors (1997-1999), a member of the Board of Governors of the Fed (1994-1997) and of course a voting member of the Fed's Open Market Operations Committee (where monetary policy is decided) for a number of years.
She has invariably had the most accurate economic forecasts on the Board of Governors and has shown a steady hand, attributes that bring stability to financial markets. Dr Yellen has done it all, done it well and shown sound judgment. She is more than qualified for the job when it comes to the highest standards of economics, financial experience and sound judgment.
But most important of all, and something that President Obama should note full well, she is a person of unquestionable integrity and independence. It is this criterion - independence from Wall Street special interests - that makes Dr Yellen the best candidate by far among those being seriously considered by the president. Lest anyone has forgotten, let me stress why this criterion matters so much in this day and age.
In 2007 and 2008, the world financial markets collapsed. The world economy is still paying a heavy price. In the United States, unemployment shot up to over 10% and is still stubbornly high. Families have been destroyed. This has been the worst economic recession since the Great Depression. And it not over yet.
While the spark for the crisis was the US subprime mortgage market, requiring massive financial bailouts, most observers attribute much of the blame to selfish, greedy and unethical bankers, unwise financial deregulation during the Bill Clinton presidency, and to lax financial supervision and enforcement.
The bailouts of some financial institutions, though necessary, were done in ways that could at best be classified as unethical and against national interests, with senior government officials who were former Wall Street bankers negotiating with their former companies and partners and settling on terms that were truly outrageous - banks receiving 100 cents on the dollar for their bad investments and greed.
A telling outcome of the crisis is that no prominent Wall Street banker was jailed (the jailed Bernard Madoff was technically a financial advisor) and Wall Street bankers are back to where they were before the crisis, with fat paychecks and bonuses while Main Street just looks on.
It is no wonder that many of our former senior financial officials are also back to Wall Street and also with fat paychecks, consulting contracts and $200,000-a-pop speaking fees. They have done the heavy lifting for Wall Street and now they are reaping their rewards.
If President Obama nominates any of these former officials to be the chair of the Fed, he will confirm a number of facts. Wall Street owns the White House as well as the United States Congress. In other words, when it comes to the most important financial and economic appointment in the world, bad decisions and judgment, bad performance and conflicts of interest matter little. What matters is Wall Street's representation in the halls of power.
It is an insult to Dr Yellen and to all women to make this nomination a gender issue. It has nothing to do with gender. Her record of service reminds me of my teacher and one of my heroes, Robert Solow. A Nobel Laureate, he is to my mind one of the most distinguished macroeconomists of the century. Although repeatedly asked to do private consulting with offers of lucrative fees, he always refused. Instead, he devoted his time to his research, tirelessly educating his students and serving the nation by advising a number of presidents. Once he said to me something to the effect that with private sector consulting he would lose his independence, he would be owned by business interests, and whatever he said would be perceived as tainted.
President Obama should ask himself one question. If he were an average American who had suffered through this crisis, would he sleep better at night with Dr Yellen at the helm or one of the past government officials who arguably planted the seeds of the financial crises, made wrong decisions, exercised lax supervision, showed bad judgment, continued to help Wall Street with questionable bailouts and who now reap fat paychecks from Wall Street interests?
Dr Janet Yellen is simply the best candidate for the job. Delaying her nomination would invite speculation and introduce unnecessary uncertainty into US and global financial markets. President Obama owes it to all Americans, and indeed to the world, to nominate Dr Yellen as soon as possible to succeed Dr Ben Bernanke when he steps down as Fed chairman early next year.
Hossein Askari is Professor of Business and International Affairs at the George Washington University.
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