Opinion, Berkeley Blogs

Yes, I am now strongly on team Janet Yellen as far as the Federal Reserve is concerned. Why do you ask?

By Brad DeLong

And we are live at the *Financial Times*:

Why Janet Yellen is now best choice to lead the Federal Reserve: There is, in my view, now only one candidate to be chair of the U.S. Federal Reserve. Janet Yellen, the current vice-chair, stands head, shoulders and torso above the rest of those on the shortlist. The withdrawal of the candidacy of Lawrence Summers, the former Treasury secretary and my first choice, has removed her only real competition.


I have watched her from a distance, since she left the corner office next to mine at the Berkeley Economics department and moved across San Francisco Bay to become president of the Federal Reserve Bank of San Francisco in 2004 and she has shown a better understanding of the state of the economy and the impact of economic policies than most of her peers at the Fed.

Ideally, I would ask for more. I happen to be in the faction of economists who think that what the Fed needs now is a regime change like the one that Paul Volcker imposed in 1979, as he launched the very painful breaking of the stagflation of the 1970s. It needs some of the bold leadership that President Franklin Roosevelt launched in the US in the 1930s, and that Prime Minister Shinzo Abe is pushing in Japan right now. Ms Yellen is, to my taste, a little overinvested in the proposition that the Feds current policy consensus is the appropriate policy.

When the two leading candidates were Ms Yellen and Mr Summers, everyone who was not crazy knew that the policy stakes were small: the two have very similar views of the economy and were likely to follow very similar policies. Now the policy stakes are actually significant -- and a substantial chunk of Americas future prosperity may well ride on the outcome.