The headline in the print edition of the Denver Postof an associated press story on the nomination of Janet
Yellen highlights a quote from President Obama, “She understands the human cost
when people can’t find a job.” This statement about then-new Fed Chair Yellen,
which emphasizes Yellen’s Keynesian-based commitment to the unemployment prong
of the Fed’s dual mandate, underlies why some
economists feared that no matter how bad policy might have been during Bernanke’s tenure, policy is likely
to get worse rather than get better from a sound money perspective during a
Yellen reign. Her empathy for the unemployed was clearly present in her remarks
following her first official policy meeting which as reported by the Wall Street Journal
“were a notable affirmation of her commitment to low rates until the
economy is much stronger.” She emphasized, “The recovery still feels like a
recession to many Americans, and it also looks that way in some economic
statistics.” She then chose to support her remarks not with usual econ jargon
and statistics, but“Ms. Yellen instead exhibited a personal touch ... by
coloring her comments with experiences of three people who had struggled to
gain full-time work.” Unfortunately Yellen’s strong compassion for the plight of the unemployed comes tied to a faulty understanding of the cause of unemployment. ….To Read More…..
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