The Political Stance of Monetary Policy in US – Janet Yellen on Inequality

No doubt there are some political risks here. But was she supposed to remain silent on inequality for her entire tenure? For the Chair of the nation’s most powerful economic institution to ignore one of most powerful economic trends of our time would be close to a dereliction of duty.

Arguments are raging over the extent and shape of inequality. No question, we need to be extremely careful with the numbers. When Chair Yellen talked about ‘stagnant living standards for the majority’, my eyebrows were not the only ones that went up (I was in Boston for the same conference). A lot depends on the measures adopted, but household incomes have been rising across the distribution, albeit slowly, and especially slowly in the middle.

However, this passage did give me the opportunity to point out how different labels can be applied to a flat trend. As a basic rule, describe a flat trend it as ‘stable’ if you like it, and ‘stagnant’ if you don’t – both are accurate, but convey very different meanings. Yellen would also have done much better to avoid mentioning the ‘Great Gatsby Curve,’ showing a purported link between income inequality and intergenerational mobility, now widely disputed (including in a paper by Boston Fed economists presented the following day).

So, we can nit-pick at some of Yellen’s statements, wring our hands over whether she should even mention inequality, and play guessing games about her real motives (all good fun), but we should not miss the real story of her speech: in substance, it offered more to the right than to the left.

Chosen excerpts by Job Market Monitor. Read the whole story at Janet Yellen´s Inequality Speech Revealed a “Closet Conservative” | Brookings Institution.