Yellen wanted this to be the best of all possible worlds, but the best world she could conceive of was terrible.
In June 1996, Janet Yellen — then a member of the Federal Reserve Board of Governors, later chair of the Fed herself, and currently secretary of the Treasury — wrote an extraordinary memo to then-Fed Chair Alan Greenspan. Anyone who wants to understand how the world works should read it, and thank Tim Barker, a historian who obtained it via the Freedom of Information Act.
What makes the memo so telling is threefold.
First, while expressed in abstruse technical language, it shares a perspective with the most radical left-wing critiques of capitalism. Yellen goes 90 percent of the way to proclaiming, “The history of all hitherto existing society is the history of class struggles.”
Second, Yellen is not, of course, calling for a proletarian revolution. Rather, as Noam Chomsky has pointed out, “vulgar Marxist rhetoric is not untypical of internal documents in the government,” just “with values reversed.” In Yellen’s case, she is making the case for, as she writes, the positive “impact of heightened job insecurity.” A rise in worker insecurity in the mid-1990s meant everyone was too scared to ask for raises, which meant businesses wouldn’t need to hike prices, which meant even with the falling unemployment at the time, the Fed didn’t need to raise interest rates to slow the economy and throw people out of work.
Third, Yellen is not a monster. Indeed, from the perspective of regular Americans, she’s about as good as it gets at the summit of power. The problem, for those of us down here on the ground, is her overall worldview. She might personally want things to be nicer but is certain the science of economics places incredibly sharp limits on the possible, and all we can do is try to make small improvements within those limits.
The memo is titled “Job Insecurity, the Natural Rate of Unemployment, and the Phillips Curve.” Barker learned of it from references in the books “Maestro” by Bob Woodward and “Empathy Economics” by Owen Ullmann. Greenspan distributed the memo to the entire Federal Open Market Committee, or FOMC — the group that decides interest rates — and it worked. As Ullmann puts it, “Yellen rescued Greenspan from his tight spot.”