September 10, 2013
Economists supporting Janet Yellen
Econbrowser readers know that I feel that Janet Yellen would be an excellent choice for the next chair of the Federal Reserve. For those of you who feel the same way, I call your attention to an open letter of support from economists that you could sign.
If you are a professional economist who lives and/or works in the United States and you would like to join in signing this open letter, please send your name, title, and affiliation to YellenLetter@iwpr.org.
Posted by James Hamilton at September 10, 2013 01:37 PMdigg this | reddit
China just passed another milestone on its way to becoming a major player in world currencies.
The yuan has cracked the top 10 of most traded currencies as ranked by the Bank for International Settlements (BIS). No. 9, to be precise -- up from No. 17 during the last survey, in 2010. Yuan trading volume now equals $120 billion a day.
What will happen to the dollar after we have a new FED Chair? Is there really any difference between anyone mentioned as a candidate?
Posted by: Ricardo at September 10, 2013 04:06 PM
If you are a professional economist...
I wonder if these kinds of open letters would be more persuasive if "professional economist" was further restricted to "professional economist in the fields of macroeconomics and monetary policy"? One of the things that bugs me about a lot of these open letters is that many of the names on the list are, technically speaking, "professional economists," but their area of expertise is in a completely irrelevant field. Writing a paper on the economics of wine production in southwest France during the Hundred Years War might qualify you as a professional economist, but why should anyone take that economist's views seriously with respect to macroeconomic issues? I think this is one of the consequences of ever increasing specialization within the discipline. What you end up with are competing lists with each side saying their's is bigger.
who lives and/or works in the United States
Why would that be important? Frankly, I'm more interested in what Simon Wren-Lewis or Nick Rowe might have to say about the next Fed Head than I am in hearing whatever Allan Meltzer has to say. And given that whatever the Fed does is likely to affect external economies as well as the US economy, why shouldn't overseas economists butt in? Afterall, they have a stake in this as well.
Posted by: 2slugbaits at September 10, 2013 05:02 PM
Can we further limit this to economists who predicted the tech and real estate bubbles and exclude those who call for bubbles to rebuild economies?
Posted by: Anonymous at September 11, 2013 10:27 AM
Sounds a bit strange - why should we listen to those with economic expertise who argue that we should pick the second-best economist (among those in the running) for fed chair? I'd like to hear them explain. If it has to do with economic expertise, then they should explain why they believe that Yellen knows better than Summers (and why, by extension, they think they themselves also know better than Summers). I doubt the economic expertise of any economist who would attempt such arguments. If it has to do with "other criteria," then why should we listen to economists, as opposed to experts on the "other criteria?"
Summers has made some past mistakes, but what has Yellen done to show that she has better judgement? For that matter, was Bernanke ever properly chastised for following Greenspan in every single vote of the latter's chairmanship? Did Yellen demonstrate better? Did she question the housing bubble before it burst? Larry has pointed out why it is bad to give free implicit insurance to the too-big-to-fail banks. (No doubt the banks remember this.) Has Yellen come out with anything of equal value or candor? If there are dangers in the unprecedented measures the fed is now taking, between the two, I sincerely believe Summers would be more likely to perceive them and act appropriately.
For those who doubt the dangers, I recall a post on this cite early on in the recent recession questioning how the fed could possibly fail to be able to increase the money supply. If something really new and unanticipated comes up, we will need the very best and brightest. If you can guarantee that no such thing will happen, then I will sign for Yellen. Otherwise, I advocate Brad DeLong's response to this petition.
Posted by: don at September 11, 2013 04:08 PM
Let's see - who hasn't signed (besides Larry Summers)? I didn't see Paul Krugman or Greg Mankiw on the list. Perhaps they weren't asked? I didn't see Menzie there, either.
Posted by: don at September 11, 2013 04:25 PM
Krugman and Mankiw can't sign petitions as part of their agreement with the NYT IIRC.
Posted by: GT at September 11, 2013 05:16 PM
Come on people, take control of your government. Obama and his surrogates have effectively restricted the debate to 2 candidates.
There are a number of better candidates, and James Hamilton would be near the top of my list.
Posted by: tj at September 11, 2013 05:38 PM
don at September 11, 2013 04:25 PM: Menzie did sign, and he and I discussed this before putting up this post.
Posted by: JDH at September 11, 2013 05:56 PM
In an interview when he was Assistant Secretary of the Treasury and in front of then Senator Tom Daschle, he admitted to not understanding Reserve Accounting. OK, that's only a technical matter and simply ignorance which can be rectified. He is a creature of Wall Street and as such will not support the proper banking regulatory regimen required in a Fiat money based monetary system. That's the reason he should not be Fed Chair.
Posted by: TJ Scott Jr. at September 12, 2013 04:05 AM
The WSJ did a study of the top 14 decisionmakers at the Fed over the last five years in terms of their ability to forecast future economic events. Janet Yellen came out on top, and indeed, in sharp contrast with Summers, in 2005 was the first of those at the higher reaches of the Fed worrying about the housing bubble.
Oh, and I signed the petition, and back in 2009 when there was some doubt that Bernanke might accept a reappointment was one who blogged for her as the replacement on Econospeak, with McBride at Calculated Risk the only other person to do so at that time. I have been for her for a long time. She is the best candidate of any, including all the possible outsiders.
Posted by: Barkley Rosser at September 12, 2013 01:29 PM
I think Yellen and Summers are both excellent candidates and don't have any view on who should be chosen. However, I don't understand the constantly repeated argument that, in the words of the open letter, that "while leading the San Francisco Federal Reserve Bank in 2005, she warned of an impending real estate meltdown as asset prices rose unrealistically." I've seen this assertion repeated in just about everything I've read, saw Alan Blinder claim it on CNBC, and now its in the letter. Where does this belief that Yellen predicted the housing bust and its effects before anyone else come from?
For example, in her 2005 presentation on Housing Bubbles and Monetary Policy, Yellen said:
"In my view, it makes sense to organize one’s thinking around three consecutive questions—three hurdles to jump before pulling the monetary policy trigger. First, if the bubble were to deflate on its own, would the effect on the economy be exceedingly large? Second, is it unlikely that the Fed could mitigate the consequences? Third, is monetary policy the best tool to use to deflate a house-price bubble?
My answers to these questions in the shortest possible form are, “no,” “no,” and “no.”
Moreover, in her 2006 presentation Prospects For The Economy, Yellen said:
"Now let me fill in the highlights and shadows—some of the factors that could make economic activity either stronger or weaker going forward. First, house prices could surprise us in either direction. In other words, instead of the significant moderation I’ve built into my forecast, house price appreciation could either slow much more than I expect, or it could continue at its current pace. If it slows much faster—or, worse yet, reverses course—the impact could be very restrictive for both residential construction and consumer spending. Alternatively, house prices might go on climbing as fast as ever. If so, the continued stimulus to spending could keep economic activity growing at an unsustainable pace, creating inflationary risks"
As late as October 2006, Yellen stated at the FOMC meetingthat
"Of course, housing is a relatively small sector of the economy, and its decline should be self-correcting. So the bigger danger is that weakness in house prices could spread to overall consumption through wealth effects. This development would deepen and extend economic weakness, potentially touching off a nonlinear
type of downward dynamic that could trigger a recession. But so far at least, there are no signs of such spillovers. Consumption spending seems on track for healthy growth."
And this 2007 Wall Street Journal articlesays that Yellen is now less worried about a possible housing bust.
By late 2007, Yellen was worried about housing, but then so was everyone else.
I don't believe that the ability to make predictions is really a qualification for Fed chairman. But I wonder why people keep claiming that Yellen predicted the housing bust and its consequences before anyone else? I don't see the evidence.
Posted by: Rick Stryker at September 12, 2013 07:23 PM
Sorry, I am unable to get the link right, but McBride at Calculated Risk has it as a link if you google properly. Yellen expressed concern about impact of housing bubble in a speech in Salt Lake City in October, 2005.
Posted by: Barkley Rosser at September 13, 2013 01:35 PM
In the first link of Yellen's two page statement on housing bubbles, Janet Yellen also stated that: "other strategies, such as tighter supervision or changes in financial regulation, would not only be more tailored to the problem, but also less costly to the economy."
She argued for tighter regulation of the banking sector rather than pricking the bubble with a Fed-instigated recession. Well-regulated banking sectors almost never have financial crises.
In the second, she said "the delayed effects of our past policy actions might impact spending with greater force than expected. This could show up especially in the housing market and via housing prices and balance sheet effects on consumer spending."
She was a Fed Governor, was she supposed to use completely unguarded language and say that housing was definitely in for a complete collapse and that we're all going to die?
--She seemed more worried about housing in your 2006 quote as well.
In the fourth link, it also says "when it looked like the housing downturn could turn into a bust that risked tipping the broader economy into recession, Yellen said she found it more difficult to sleep." This discussed Yellen in 2006. In 2007 she was still waking up at night worried about housing. That's still pretty worried.
Posted by: Alexander Hamilton at September 13, 2013 07:19 PM
The Salt Lake City speech that Barkley refers to is available here. In that speech, Yellen says "Certainly, analyses do indicate that house prices are abnormally high—that there is a “bubble” element, even accounting for factors that would support high house prices, such as low mortgage interest rates. So a reversal is certainly a possibility." She goes on to conclude that "My bottom line is that while I’m certainly not predicting anything about future house price movements, I think it’s obvious that a substantial cooling off of the housing sector represents a downside risk to the outlook for growth."
Thus, she is pointing to housing as a downside risk and is not predicting a housing bust that will take down the economy. The Salt Lake City speech was given around October of 2005. Her presentation on "Housing Bubbles and the Economy," also around that same time, made it clear that she did not believe that a housing bubble deflation would necessarily have a big effect on the economy.
Moreover, in February 2007, less than a year before the onset of the Great Recession, Yellen had this to say about housing:
"The bottom line for housing is that the concerns we used to hear about the possibility of a devastating collapse—one that might be big enough to cause a recession in the U.S. economy—while not fully allayed have diminished. Moreover, while the future for housing activity remains uncertain, I think there is a reasonable chance that housing is in the process of stabilizing, which would mean that it would put a considerably smaller drag on the economy going forward."
Despite what people keeping saying, Yellen did not predict the housing bust. I'm not sure why the open letter relies on an assertion that is so easily falsified. My guess is that the assertion has been repeated so often by so many people that it's just accepted as a fact and nobody checks it.
I also don't understand why people consider this housing prediction to be an important qualification. Whether Yellen did or did not predict the housing bust seems irrelevant to me.
Posted by: Rick Stryker at September 13, 2013 08:37 PM
According to the WSJ report just now, Summers withdrew his candidacy.
Posted by: Rick Stryker at September 15, 2013 01:51 PM