Janet Yellen: The treasury secretary who Trump thought was ‘too political’ – and ‘too short’

Janet Yellen, the woman in charge of running the world’s largest economy - just savour that thought for a moment - was considered by Donald Trump to be “too short” to hold high office. 

When her term in office as head of the United States Federal Reserve came to an end in 2018 (she had been appointed by Barack Obama in 2014), President Trump praised her publicly.  Privately, however, he felt that at 5ft 3in, and despite her glittering academic career and fine record of public service, she wasn’t quite up to the job. Literally. So she was replaced, by a tallish man, and she went off to be an academic again, with a post at the prestigious Brookings Institution, ready to see what might in due course turn up. (As it happens, the average height for a female in the USA is 5ft 4in, so she isn’t even that short). She didn’t have to wait so long for her personal fortunes to improve - 3 November 2020, to be precise, and last Wednesday she was sworn in as treasury secretary by vice president Kamala Harris.  

President Trump’s heightism over the head of the Fed was unprecedented, as far as we know, in modern times, but Ms Yellen has many more, happier, “firsts” to her name. She is the first woman to lead the US Treasury, just as she was the first female chair of the Fed. She was the first person to have held both positions, plus a couple more at the apex of economic life. She was also the first woman chair of the presidential council of economic advisers, under Bill Clinton, a post which she held from 1997 to 1999. She was last year the president of the American Economics Association, and thus informally regarded as the best in the trade by her peers, and a further great honour - the economists’ economist. The only thing she lacks, so far, is a Nobel Prize, but not to worry because her hubby George Akerlof, won one back in 1970. Maybe predictably, given the trends, their son Robert is an academic economist. Janet met George during an earlier spell when she was employed by the Fed, when they met in the canteen. They married in 1978.  

Short or not, Ms Yellen is well qualified for her new role, as she is also by academic training, specialising in the labour market (ie unemployment) and the gender pay gap, both especially important over the next few years. She graduated with the highest honours from Pembroke College in Brown University, Rhode Island, in 1967. She picked up her PhD from Yale four years later, and the rest of her life has been spent going through the revolving doors of academia and appointed public office. She’s taught at Yale, the London School of Economics and Berkeley. Her formative intellectual years were the high noon of Keynesian orthodoxy, and she remains broadly of that outlook, especially as his ideas seem to have regained something of their resonance in this century.  

Pragmatic as she likes to think herself, Ms Yellen certainly has a Keynesian answer to the current Covid-driven crisis - government spending and borrowing freely to stop the Covid slump evolving into a protracted depression. At her recent three and a quarter-hour long confirmation hearing in front of a Senate committee hearing she had an admirably simple message to the politicians, the nation and the world. The objective is to “beat the pandemic”, the method is to “act big” and the means is to “protect workers”. 

She emphasises spending on vaccines, job retention schemes, small businesses and social security, and is conscious of the special duty to protect the opportunities for people of colour. To Ms Yellen the danger is of a “K-shaped" recovery. In that scenario, an initial sharp decline is followed by a recovery in living standards for the generally well-off, but then society splits into two, one half heading back up, the others going down again - the two branches of the K. As Ms Yellen puts it, the US economy even before Covid was one where “wealth built on wealth, while working families fell farther and farther behind. This was especially true for people of colour”.  

During her testimony she had to patiently answer questions on everything from tax cuts to cryptocurrencies to the state of the stock market. Throughout she was clear, measured and balanced, the very voice of reason. To the sometimes windy senators she was respectful, even deferential, always acknowledging their concerns and saying at every available opportunity that she looked forward to working with them on tax reform or asset price bubbles or manufacturing in Michigan.

Down the line, via Zoom, it was a masterful performance and it reminded this observer of something else Donald Trump once said of her, that she was “too political”. Reaganite tax-cutters found ready agreement from Ms Yellen that this is no time to hike taxes (though she formally sticks to the Biden plan to reverse tax cuts for those on $400,000 (£291,000) plus a year and, in due course, an estates tax on inheritances in excess of $7m). She conceded that the money the Fed and Treasury have pumped into the economy more or less continually since the financial crisis of 2008 has inflated the value of shares, property, gold, classic cars, you name it - but she says little about restraining it. Or take the sinophobes griping about trade with China, for another example. Not so long ago she criticised Mr Trump (after he had declined to employ her again at the Fed) for his obsession with the US trade deficit with China. Her point was that, to any economist, any given bilateral deficit doesn’t necessarily matter so much if you run surpluses elsewhere (though America doesn’t do much), and the answer to a trade deficit is to make your economy structurally competitive.  

To the senators, however, she told them pretty much what they wanted to hear regarding - her words - “China’s abusive, unfair and illegal practices”, citing currency manipulation, intellectual property theft, forced technology transfer, low environmental standards and weak worker rights, subsidies and so on. It was quite the litany, and no doubt much of it true, but only as an afterthought did she slip in a vague coded suggestion that America might like to get its own act together. Her routine did the trick, though. For such a woke progressive, Secretary Yellen won remarkable bipartisan support and was ratified by 84 to 14, with one abstention. Only a few Trumpites such as Ted Cruz and Josh Hawley held out, presumably waiting for Donald Trump Junior or Ivanka to storm the Capitol.

She may well have also won the senators over with a slightly schmaltzy take on how Janet Louise Yellen growing up in Brooklyn (she still has the accent) was inspired by the example of her father Julius, the local GP. She was an only child, and her mother, Ann, a primary school teacher, so the family would have been relatively comfortable, but nowhere near the wealth of the Trumps.  

It gives some insight into her background and outlook, too:

“He was the kind of doctor who treated the whole patient. He knew about their lives, about when they’d been fired, or couldn’t pay. Those remained some of the clearest moments in my childhood. My parents had been children of the Depression, and they had a visceral reaction to economic hardship. Economics is sometimes considered a dry subject, but I’ve always tried to approach my science the same way my father approached his, as a means to help people.

“The pandemic has caused widespread devastation. Whole industries have paused their work. 18 million unemployment insurance claims are paid every week. Food bank shelves are going empty. The damage has been sweeping, and as the president-elect said, our response must be too.”

Politically astute and diplomatic as she usually is, Ms Yellen cannot have found it easy working with President Trump, and he, in turn, knew full well where her political sympathies lay and that she wouldn’t manipulate interest rates or the value of the dollar as a political favour him. It wasn’t just that she was on the short side, in other words, and it appears the suspicion was mutual. Last year Ms Yellen gave an interview to Marketplace, and she let rip. All they did was ask her if she thought the president “has a grasp of macroeconomic policy?".

“No, I do not... I doubt he would even be able to say that the Fed’s goals are maximum employment and price stability, which is the goals that Congress have assigned to the Fed. He’s made comments about the Fed having an exchange-rate objective in order to support his trade plans, or possibly targeting the US balance of trade. And, you know, I think comments like that shows a lack of understanding of the impact of the Fed on the economy, and appropriate policy goals.”

Life will certainly be more congenial, despite the challenges, in the Biden administration, where she may be treated with a little more respect. She speaks highly of her deputy, Adewake “Wally” Adeymo, the first person of colour to occupy the role, and he may enjoy a higher profile than is usual, the pair working more as a team. Old acquaintances describe her style as “argumentative, but in a good way”.  She should fit right into Mr Biden’s cabinet. Fortunately, too, she appears to hold no grudge against her successor at the Fed, Jerome Powell, and has lavished praise on his response to the pandemic. At 74, she has acquired some wisdom, having warned about the real estate bubble in 2005 and 2007 (though not strongly enough), kept monetary policy loose during the Great Recession after 2010 (though not loose enough),  and, while helping set interest rates, was the best among her peers at forecasting the economy. Her biggest mistake was probably joining in the collective complacency when the Clinton administration demolished the last barriers (indeed firewalls) between risky investment banking and the high street banks, one cause of the collapse a few years later. The downside of installing such a solid representative of the mainstream economics establishment is that she will cleave towards group think, which has caused trouble enough in the past.  

With her mop of white hair and penchant for upturned collars she will soon be a familiar sight on the international stage, and the world will be forming its judgements on Ms Yellen’s judgements, many of which will have a global impact. There will be no shortage or turbulence or of criticism. In her younger days Secretary Yellen used to enjoy hiking (that’s in the walking sense, not interest rates) and once completed a 60 mile journey in a week. The pleasant beaches of California have been more the thing in recent times, but time for walks, her extensive stamp collection and cooking for fun will now be hard to find. Her new job will be the toughest slog of all. She will need those political wits of hers.