Who Is Janet Yellen? A Look at the Front-Runner for the Next Fed Chairman
It’s not surprising that classmates of Janet Yellen at Fort Hamilton High in the Bay Ridge section of Brooklyn consistently describe her as an overachiever. Under her picture in the school yearbook, The Tower, Yellen is listed as the class scholar and member of the honor roll, the boosters club, the psychology club, and the history club, as well as the editor-in-chief of the Pilot, the school newspaper. When she graduated in 1963, she cleaned up, winning the Phi Beta Kappa award, the Mayor’s Committee Scholastic Award, the math award, science award, and the overall English department prize, in addition to being class valedictorian. “Janet is pretty much now what she was then: a straight arrow,” says Charles Saydah, a classmate. “She was a classic liberal, which meant you were antiwar, antibomb, but she was never strident about it. She was obviously the smartest person in the class—it wasn’t even close.”
Yellen, currently vice chairman of the Federal Reserve, is the front-runner to replace Ben Bernanke when he steps down as chairman in January. As President Obama’s awkward dance played out this summer with his preferred candidate, Larry Summers, Yellen carried on in her nonconfrontational manner, illustrating some of the marked differences between herself and Summers. “If you say something incorrect around Larry Summers, what he would say is, ‘Did you go to graduate school? Have you studied economics at all?’ ” says Kevin Hassett, a fellow at the American Enterprise Institute who worked as an economist at the Federal Reserve Board of Governors when Yellen joined the board in 1994. “Janet would say, ‘Have you thought about it this way?’ She has the ability to move toward consensus.”
Yellen is characterized by those who know her as a brilliant thinker who focuses on the human side of economics. “She looks beyond the technical institutions to how they affect people. That might make her feel sympathetic for the unemployed … but is a person who’s concerned about human welfare considered weak or dovish? I don’t think so,” says economist Robert Shiller, who’s writing a second book with Yellen’s husband George Akerlof, an economist and winner of the 2001 Nobel prize for economics. “We need a less macho government.”
Yellen was born in Brooklyn. Her father, a doctor, practiced family medicine, and her mother, a teacher, stopped working to raise Janet and her brother. She attended Pembroke, Brown University’s women’s college, where she was one of a few women majoring in economics. “She was a stellar student, far and away above anyone else right from the start,” says Judith Twiggar Reinhardt, a fellow econ major.
Yellen made economics her career choice after hearing a lecture by James Tobin, a Yale professor and acolyte of John Maynard Keynes, the British economist who believed that governments should alleviate recessions with aggressive public spending. “There was something about [Tobin’s] strong sense of morality and social responsibility that greatly impressed me,” Yellen told Reuters in 2012. She got her doctorate at Yale: Tobin, a future Nobel prize winner, was her adviser. The notes she took for one of his classes were so precise future students used them as a reference.
Yellen developed the “efficiency wage” model of unemployment, suggesting that if people feel underpaid, they’ll work less efficiently and will be more likely to quit, implying that cutting wages could lower productivity. “She thinks [unemployment] is a terrible scourge,” says Alan Blinder, a Princeton University economist nominated to the Federal Reserve Board of Governors with Yellen in 1994. “These are not just statistics to me,” Yellen said in a speech to the AFL-CIO in February. “We know that long-term unemployment is devastating to workers and their families. The toll is simply terrible on the mental and physical health of workers.”
Yellen joined the faculty of the University of California at Berkeley’s Haas School of Business in 1980. President Clinton appointed her in 1994 to the Federal Reserve Board of Governors, the central body of the Federal Reserve system, which includes the Fed’s 12 district banks. Yellen was the second Democratic appointee, after Blinder, in 14 years. She was “pretty gutsy,” he says. Yellen dissented three times in 1995 and 1996 on votes by the Alan Greenspan-chaired Federal Open Market Committee. Yellen argued that the Fed should be more transparent about what it was doing, which ran counter to its tradition of secrecy. In 1997, Clinton nominated her to head the White House Council of Economic Advisers, a job she held for less than two years before resigning, she said, for family reasons and to return to Berkeley. Friends suggest she wasn’t ideally suited for the job, which is competitive and highly political.
Throughout her career, she and Akerlof have collaborated on studies focusing on economic drivers of behavior, which has set them apart from the field. One, “An Analysis of Out-of-Wedlock Childbearing in the United States,” published in 1996, posited that the increasing availability of birth control and abortion had led to a decrease in shotgun marriages and a huge increase in single-mother households. Cutting welfare benefits, which conservatives wanted, would therefore do little to reduce out-of-wedlock births.
In 2004, Yellen became president of the Federal Reserve Bank of San Francisco, which she helped transform from a sleepy outpost into a center of macroeconomic research. “People became much more ambitious when she got there,” says Justin Wolfers, a visiting scholar. Yellen continued her tradition of standing in the cafeteria lunch line with the proletariat and eating with the staff, which was unheard of at the time.
She has brought many of the same qualities to her job as Bernanke’s vice chairman since 2010. She’s credited with forming the Fed’s communications policy, including quarterly press conferences by the chairman, and for arguing to maintain the Fed’s zero interest rate policy and continuing bond purchases. Saydah, Yellen’s former classmate, might be describing her work as an economist when he says Yellen often sat out the partying that consumed some of their high school peers: “She was more intent on getting wherever it was she’d decided she was going.”
— With assistance by Peter Coy