Yellen's encore: Lending economic heft to Biden's virus plan

On a cold, gray February afternoon, Treasury Secretary Janet Yellen stepped out of the West Wing wrapped in a puffy black parka and clutching a folder of documents, seemingly oblivious to the Washington custom of having an aide schlep the paperwork.

Viewed as an outsider to partisan politics, she now has a place in President Joe Biden’s inner sanctum, a Ph.D. economist who does the reading, knows the numbers and treats her staff as peers rather than underlings.

Yellen, entourage in tow, had been at the White House to strategize about how to push through Biden’s proposed $1.9 trillion coronavirus relief plan -- a package that could determine how quickly the U.S. economy heals, how the Democrats fare in the midterm elections and just how much Americans can trust the government to solve the nation's toughest problems.

The House passed the package Saturday, sending it to the Senate.

As a former chair of the Federal Reserve, Yellen carries the authority of a public servant who has already helped steer the economy back to health once and now has been called back at age 74 for an encore after former President Donald Trump declined to offer her another term as chair.

She is framing the need for the giant COVID-19 bill in starkly human terms, applying a lifetime of research and thought to the challenge of recovering the jobs lost to the pandemic at a record clip. And her credentials are enough to give pause to Republican lawmakers and other economists who argue the package is so big it would overwhelm the economy.

“Yellen is uniquely poised," said Brian Deese, director of Biden’s National Economic Council. "She has as much experience and expertise of addressing the challenges of our time as any living economic policymaker today. She doesn’t have a steep learning curve.”

Even in a Washington riven by partisanship, Yellen is held in high regard by members of both parties. As president of the San Francisco Fed, she sounded the alarm about the housing bubble before it fully burst in 2008, triggering the Great Recession. She helped nurse the economy back to health as the Fed’s vice chair and then as chair sustained the longest expansion in U.S. history by holding interest rates near historic lows.

During Yellen's confirmation hearing, Republican Sen. Mike Crapo of Idaho opened his questioning by saying how much he appreciated her public service: “We had a good working relationship while you were at the Fed and I look forward to developing and continuing that good working relationship."

Nobel Prize-winning economist Joseph Stiglitz, who considers Yellen to be one of his best former students and her husband, George Akerlof, to be one of his best friends, said she is a rarity in the nation's capital.

“We should think about it as a compliment to Biden that he wanted somebody who was a technocrat,” Stiglitz said. “She’s a very bright, congenial, humorous and nice person, a combination which is very unusual in Washington.”

Yellen's hard-won credibility is now staked on administering a dose of financial adrenaline and mass vaccinations that can bring back the 9.9 million jobs lost to the pandemic within the next two years. That would be an unprecedented burst of hiring. By contrast, it took a grinding six-plus years to recover the jobs lost in the 2008 recession.

Biden's proposed stimulus package is broad, with its $1,400 checks to eligible Americans and nearly $500 billion for schools and state and local governments. But Yellen believes that more narrowly targeted measures on unemployment benefits or food aid might miss deserving people like the mother who was forced to leave her job because the pandemic closed schools and childcare centers.

“Success to me would be if we can get back to pre-pandemic levels of unemployment,” Yellen said at a recent New York Times conference. “The truth is there are pockets of pain that go beyond what can be reached in those highly targeted ways.”

The Biden campaign first contacted Yellen about ideas for financial relief in May, back when she believed her career in public service was over. Trump decided not to renominate her when her term expired in 2018, instead choosing Fed governor Jerome Powell to lead the U.S. central bank. Powell ended up largely continuing Yellen’s vision rather than bending to Trump’s wishes.

After the Fed, Yellen joined the Brookings Institution and gave speeches on economic policy to major companies such as Goldman Sachs, Google and the hedge fund Citadel that paid her in excess of $7 million. She recommended that because of low interest rates Biden could embrace a large aid package financed by debt, according to a campaign adviser who insisted on anonymity to discuss private conversations.

It was a suggestion that brought her more fully into Biden’s orbit. If Biden based his politics on empathy for hurting Americans, Yellen could supply the economic rigor to show how that empathy could be translated into policies to boost hiring and ease economic pain.

Gene Sperling, a former director of the National Economic Council for Bill Clinton and Barack Obama, said both Biden and Yellen had a feel for how long-term job loss could crush people emotionally and economically in ways that made it impossible for them to feel whole again. Both saw it as essential to restore jobs as fast as possible.

“That is a place where both of their hearts merge with the lessons and experiences of previous deep recessions,” Sperling said.

Sperling worked with Yellen during the Clinton administration when she was chair of the Council of Economic Advisers, a post that focuses on research. But for all the seriousness of the equations and charts, Yellen was game for indulging in some silliness.

Sperling remembered one morning in 1999 when the monthly jobs report was particularly strong and Yellen was debating how to describe it at a meeting of senior White House officials without resorting to cliches.

Sperling suggested that the pair just push back their chairs and do a little hallelujah dance. So they did. Sperling recalls that White House press secretary Joe Lockhart later opined that Gene Sperling was not exactly Gene Kelly and Janet Yellen not quite Janet Jackson.

Yellen received her doctorate from Yale University when few women were becoming economists. She came to believe in treating the “whole patient” of the economy, a concept borrowed from her father, a medical doctor in Brooklyn. There were simply parts of life that could be missed by major economic numbers, she felt.

Yellen juggled parenting with her work as a professor at the University of California, Berkeley, in the 1980s, helping to build her son’s pinewood derby car as a colleague fed economic data into a computer.

One of her most prominent papers co-written with her husband was about how generous pay for a babysitter revealed how wages can motivate workers and increase productivity. Her son, Robert, is now an economics professor in Britain.

For a woman often perceived to be standing alone, Yellen has been part of a team since her time at the Fed. She meets frequently with Biden, participates in daily White House senior staff meetings and speaks with Deese several times a week. Biden's team will be fleshed out with Cecilia Rouse, nominated to chair the Council of Economic Advisers, and the incoming director of the Office of Management and Budget. Biden has nominated Neera Tanden for the job, but her prospects are grim in the Senate.

What Yellen did at the Fed — and now appears to be doing at Treasury — is elevating the importance of workers, taking a fuller view of the economy at a Cabinet agency that once was perceived as largely the domain of whisperers to Wall Street.

Her key argument is that adding jobs quickly will help to boost wages, reduce inequality and strengthen the economy for decades to come. It’s an argument cultivated from years of research that fully blossomed during Yellen’s time as Fed chair.

The Fed has the dual mandate of maximizing employment and stabilizing prices. Before Yellen, controlling inflation had always been the favored responsibility and the runaway price increases of the 1970s and early 1980s had shaped a generation of economists. But she saw how the unemployment rate could drop to a 50-year low of 3.5% in 2019 without the risk of inflation.

Yellen did increase rates from near-zero levels in 2015 as the economy finally showed signs of durability after the 2008 financial crisis, arguing that a small rate increase was less disruptive than a large one later that could cause layoffs of poorer workers.

“She’s not antibusiness, not anti-Wall Street," said Claudia Sahm, a former Fed staff economist. “But she has brought workers and employment front and center.”

Biden’s $1.9 trillion package is almost unfathomably large, coming after roughly $4 trillion already provided to support a shuttered and weakened United States. It's equal in size to the entire gross domestic product of Brazil, the sixth most populous country in the world.

That price tag has raised red flags with Republican lawmakers and some leading economists who say it's more than the economy needs, concerns that Yellen is trying to allay.

All 10 of the Republican senators who countered with a smaller $618 billion relief proposal voted to confirm Yellen, including Maine Sen. Susan Collins, who said Yellen’s presence ensures that Biden has a “qualified economic team in place.”

Critics of the plan notably include Harvard's Larry Summers, also a former treasury secretary. In an online debate about the package, Summers said he has enormous respect for Biden and the “serious and able people” on his economic team. Yet he has misgivings.

“This goes way beyond what is necessary to meet the absolute imperative of relief,” Summers said. He also said it could undermine other Democratic priorities such as infrastructure.

But Biden and Yellen are undaunted, intent on steering the U.S. economy in a new direction — one that puts a premium on job growth, relies on low interest rates to borrow and seems at odds with the previous administration's reliance on the stock market as a primary measure of success.

Yellen, with her academic bent and deliberate manner, was never a good match with the bombastic Trump.

Anna Gifty Opoku-Agyeman, co-founder and CEO of the Sadie Collective, a group focused on increasing the representation of Black women in economics, has hosted Yellen at her organization's conferences. She said Yellen values differences of opinion and diversity because that helps her get a fuller sense of the economy.

Opoku-Agyeman said: “The loudest person in the room isn’t always the smartest.”