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Janet Yellen, President Obama’s choice to head the Federal Reserve, is widely regarded as a New Keynesian, meaning she favors government or central bank intervention in the economy.
Together with her husband, Nobel Prize-winning economist George Akerlof, Yellen co- authored a theory on “fair wages” that was a precursor to a later progressive campaign for the government to ensure “fair” pay to employees.
Yellen is poised to become the first female leader of the Central Bank. She is currently vice chairwoman of the Board of Governors of the Federal Reserve System.
She previously served as chairwoman of President Clinton’s White House Council of Economic Advisers and taught economics at the Haas School of Business at the University of California, Berkeley.
During her tenure at the Clinton White House, Yellen was commonly referred to as a leader in the New Keynesian movement, named after 20th century British economist John Maynard Keynes, whose theories influenced the New Deal
In April 1994, the Chicago Sun-Times hailed Clinton’s appointment of Yellen and other like-minded leading economists as the “rebirth of Keynesian economics.”
“[T]he appointment to the Fed of Blinder and Yellen demonstrates a New Keynesian ascendance that isn’t fully recognized,” reported the Sun-Times.
Also in 1994, the Boston Globe reported Yellen was a major mover of the New Keynesian movement, which was an updated version of the Keynesian theory of government economic.
The New Keynesian movement calls for an increase in money supply or decrease in interest rates, believing such a move will lower unemployment. The movement believes government intervention can lead to more employment than laissez faire, free market policies.
The Boston Globe reported Yellen was among a “whole generation of economists [who] made their reputations during the 1970s devising these New Keynesian doctrines of wages, prices and market failures.”
Yellen’s most prominent theory was called the Fair Wage-Effort Hypothesis and Unemployment.
The theory posited “workers proportionately withdraw effort as their actual wage falls short of their fair wage.”
At the University of Chicago, professors Edward P. Lazear and Kathryn Shaw explained Yellen’s definition of “fair”: “A wage is generally considered as fair if the pay spread is lower than the performance differential.”
In other words, Yellen believes people will work more if they believe their wages are “fair.”
The theory helped lead to progressive policies of economic “fairness,” including the concept of a “living wage,” in which the government determines what is a fair wage.
Obama has previously supported the “living wage” concept, originally a pet project of the controversial Association of Community Organizations for Reform Now, or ACORN.
A WND review of Yellen’s recent speeches and academic papers finds a theme of arguing for lowering interest rates and other government intervention.
“More generally, by lowering interest rates, fiscal consolidation should diminish net capital inflows into the United States, thereby reducing the current account deficit in this country and current account surpluses elsewhere,” she stated in a 2011 speech on global rebalancing.
Yellen wrote: “Still, I expect the recession will end sometime later this year. That would make it the longest and probably deepest downturn since the Great Depression. Growth will come from a variety of sources. One is federal government spending resulting from the stimulus program passed by Congress earlier this year.”
She said the stimulus package “provides tax cuts that leave more cash in consumers’ pockets, as well as direct government spending increases that add to payrolls and boost economic output.”
With additional research by Brenda J. Elliott.