President Obama’s nomination of Janet Yellen to be the next Chair of the Federal Reserve is encouraging news. Yellen has extensive relevant experience as both a researcher and a policymaker. Most importantly, she has had a correct diagnosis of what is driving the chronic joblessness crisis in the U.S. economy: aggregate demand for goods and services remains too weak to support full employment. While we’re confident that she will continue to keep monetary policy supportive of demand, we also think policymakers outside the Fed should take her diagnosis much more seriously. In particular, they should note her research that shows how contractionary fiscal policy has been in the current recovery, and that this contractionary fiscal policy is wholly responsible for the recovery from the Great Recession proceeding so much more slowly than recoveries from previous recessions. Yellen’s nomination should be a clear signal that too many policymakers have decided to ignore, or actively worsen, today’s joblessness crisis.
EPI Research and Policy Director Josh Bivens is available to discuss Yellen’s nomination.