Top Quotes: “Empathy Economics: Janet Yellen’s Remarkable Rise to Power and Her Drive to Spread Prosperity to All” — Owen Ullmann

Austin Rose
19 min readMay 12, 2024



“THE MEN WHO HAD LED THE FEDERAL RESERVE BOARD EVER since the nation’s central bank system was established by the US Congress in 1913 had always kept their focus on the needs of Wall Street and the financial industry. But when Janet Louise Yellen became the first female chair of the powerful institution in February 2014, she was determined to show that it represented the economic interests of all Americans.”

“I pointed out that a very large share of Americans – almost a third of adults – have some sort of criminal record.

“The Federal Reserve Act of 1913, signed into law by President Woodrow Wilson, created a central bank system with twelve regional branches. Established in the wake of a 1907 bank panic, its goal was to replace the vicious boom-bust cycles and bank runs of the past with financial stability by serving as the lender of last resort. Over the decades, by moving interest rates up and down and managing the supply of money circulating in the economy, the Fed shaped the economy’s pace of growth, the rate of inflation, and the level of unemployment — and not always successfully. Because the United States had the world’s largest economy and the dollar was the currency most in demand by other countries, the Fed’s actions rippled across the oceans to every other continent.”

“When Robby was very young, his parents belonged to a babysitting co-op with twenty couples who would babysit for one another and earn points they could redeem with another couple so they could go out to dinner and a movie.”

Fed governors wielded tremendous power, possibly more than any unelected position in Washington. Indeed, the entire Federal Reserve System is among the most powerful and least understood institutions in government. School civics classes teach students about how Congress, the presidency, and the judicial system work, but the Fed gets scant, if any, attention, even though its actions influence everyday life — the cost of consumer goods, home mortgage and car loan rates, interest on deposits, the job market and wages, home and stock prices, even the value of the dollar compared to other currencies, which influences export and import prices and the cost of overseas travel.

The Fed accomplishes this in a powerful, but indirect, manner by setting the interest rate that banks charge one another for overnight loans they keep on deposit at the Federal Reserve. These funds are the banks’ “reserves.” The interbank interest rate for these loans is called the “federal funds” rate — commonly referred to as the “fed funds” rate. The Fed determines what this overnight loan rate should be to meet its monetary policy goals, and that rate, along with expectations about how the Fed might move it in the future, influences all other interest rates, from short-term loans to thirty-year mortgages. Stock and bond prices are also heavily influenced by Fed rate moves. When the Fed cuts rates, all forms of business and consumer loans become less expensive and stock prices go up, as bonds that now carry lower interest become a less attractive investment alternative and as economic growth prospects improve. The foreign exchange value of the dollar also tends to fall, making exports less expensive for foreigners and imports more expensive for US consumers. When the Fed raises rates, lending becomes more costly, stock prices usually fall, bond yields rise, growth of profits is expected to slow, and the exchange rate of the dollar rises because investments in US bonds now offer higher returns.

What causes inflation? There are many reasons, but a main one is when consumer and business demand is greater than the supply of goods and services that can reliably be provided over time. Strong demand prompts businesses to hire and expand capacity. That’s fine so long as businesses have some extra capacity to expand production and hire people with the right skills looking for jobs. When the demand runs into supply constraints at businesses and in the labor market, the excess demand prompts an increase in wages and prices. Then the price increases can build on themselves because people begin to expect them and raise wages and prices in anticipation of future increases or to make up lost ground if prices have outrun wages or squeezed profits. If it’s not careful, the Fed can encourage such a price spiral by keeping interest rates too low, triggering excess borrowing and spending.

The increase in the inflation rate during the COVID-19 pandemic is an example of demand exceeding supply, not because of an overheated economy, but because of a series of bottlenecks in manufacturing and shipping. That has been exacerbated by a labor shortage caused by people shunning the lowest-paid jobs or leaving the labor market because of health concerns or the lack of affordable childcare. The Fed assumed inflation would subside once supply bottlenecks ended and the labor market returned to traditional patterns. But high inflation could persist if the prospect of rising prices becomes engrained in consumers’ expectations.

When the Fed wants to stimulate a weak economy and reduce unemployment, it adopts an “accommodative” policy. That means it keeps interest rates low or reduces them — which is called monetary “easing” —to spur more lending and greater economic activity. Conversely, if the Fed is worried about a too-hot economy in which demand outstrips supply and increases the prospect of higher inflation, it adopts a “restrictive” policy. It increases interest rates — monetary “tightening” —and maintains them at a relatively high level to keep economic growth more in line with sustainable supply. The Fed began raising rates in 2022 to prevent higher inflation from becoming engrained in the economy.”

In response to the financial crisis of 2007–2009, the Fed slashed its interest rate to zero, started buying US Treasury bonds directly to pump trillions of dollars into the economy and lower mortgage and other interest rates, scrapped banks’ reserve requirements, and began paying interest to banks on their deposits with the Fed. These extraordinary moves allowed the economy to recover and resume growing over the following decade, albeit more slowly than expected or desirable. But the economy fell off a cliff again when the COVID-19 pandemic forced a historic shutdown of economic activity in the spring of 2020. The Fed came to the rescue again with more bond-buying and zero interest rates. The Feds success in reviving a critically ill economy twice in recent times shows how much it has learned about monetary policy since the Great Depression, when it did not ease policy aggressively and raised interest rates partway through the recovery — just the opposite of the easy money medicine the sick patient desperately needed at the time. If the Fed erred during the pandemic, it was the opposite of the past: it had provided too much stimulus that ignited inflation, a problem the central bank was forced to combat in 2022.

When Congress created the Fed, the system represented a compromise among public and private interests and between advocates for central vs. regional control — and it gave the new agency considerable independence from short-term political pressures. That’s come in handy as the Fed has focused on its “dual mandate” of promoting full employment and achieving price stability, objectives mandated by Congress in 1978. In particular, the Fed can pursue unpopular interest rate hikes to combat inflation without being required to respond to pressure from the president or lawmakers, whose main concern is low interest rates and a booming economy in time for election years. The president names the Fed Board chair and six other governors, and Congress confirms them; but once installed, they cannot be fired by the elected politicians for their policy decisions.”

“The governors who run the Fed — a collection of economists and people from business and finance — are appointed for a single fourteen-year term, though few stay that long. In rare cases, governors have served longer than fourteen years by first completing a departed board member’s unexpired term and then winning reappointment to a full term. The chair of the board is nominated by the president for a four-year term; there is no limit on how many terms the chair serves so long as his or her tenure as a governor hasn’t expired.

Interest rates are determined by the Fed governors and the presidents of twelve Federal Reserve Banks that represent US geographic regions. These Federal Reserve districts were created more than a century ago based upon their economic activity at that time. They are located in Atlanta, Boston, Chicago, Cleveland, Dallas, Kansas City, Minneapolis, New York, Philadelphia, Richmond, San Francisco, and St. Louis. Each president is chosen by the regional bank’s board of directors, which is composed of bankers, businesspeople, and community representatives. The regional bank presidents must also be approved by the Fed’s Board of Governors. Each regional bank’s responsibilities include overseeing financial institutions in its area, providing loans to banks when needed to keep the financial system healthy, clearing checks, circulating currency, and enforcing federal consumer protection and fair lending laws.”

“EVEN AS THE EFFECTS OF THE HOUSING COLLAPSE EBBED, YELLEN spent her early months back in Washington engaging in postmortems on the causes of the financial crisis and helping the Fed implement new safeguards contained in Dodd-Frank. The new law, the biggest overhaul of financial regulation since the 1930s Glass-Steagall Act, imposed a set of tough rules and new consumer protections with the aim of preventing future financial crises.

The law contained provisions for all the reforms Yellen had called for while at the San Francisco Fed. It limited commercial banks from investing in risky speculative activities such as hedge funds. It created a Consumer Financial Protection Bureau to regulate mortgages, student loans, and credit cards. It required banks to increase their capital requirements — the percentage of their assets held in low-risk forms such as cash and bonds. It authorized the Fed to regulate large financial institutions that weren’t traditional banks. It established rules for “stress tests” of banks begun two years earlier by the Fed to determine whether the largest banks had adequate capital during a severe downturn. And it authorized the Securities and Exchange Commission (SEC) and Commodity Futures Trading Commission (CFTC) to regulate over-the-counter derivatives.”

“As the group laughed, Betsy Duke chimed in that no one should be surprised about the slow car trip because “I’ve seen her car.” In fact, it was a twenty-one-year-old vehicle, a 1992 Acura Legend that Yellen had purchased before coming to Washington in 1994. “It was a great car. It never had one single solitary thing wrong with it,” she explained. “I loved this car, it was in perfectly good condition, and I never got rid of it.

“Joanne Lipman, the former Wall Street Journal and USA Today editor who has written about gender discrimination in the workplace, said the Summers vs. Yellen drama is a classic example of how men and women of her generation tend to pursue workplace advancement: Summers aggressively lobbied for the Fed chair, while Yellen passively sat back. “Women grew up acculturated to being pursued. The man asks you on a date; the man asks you to marry him, and it is unseemly for the woman to go out and ask for things herself,” Lipman explained. “And it seems immodest to put yourself out there. That has been a cultural issue around women for hundreds of years. You wait to be asked, you don’t raise your hand for anything. So, everything she did was so in line with what the culture tells you about a woman.” The man, meanwhile, is waving his hand frantically in the air whether he is qualified or not.”

“The Fed has the ability to help lower-income people at the margins by making it easier for them to obtain bank loans and other financial resources through the community development programs at the reserve banks and the Fed’s Division of Consumer and Community Affairs in Washington.”

“In her 2014 speech, Yellen offered four partial solutions to narrow the inequality divide: better health care, education, and social services for children; more affordable higher education; more opportunities to start a business; and increased incentives to save and leave inheritances. Much of that agenda became part of President Joe Biden’s $3.5 trillion Build Back Better program unveiled in 2021 — and shelved later that year — to improve the nation’s social safety net.

As she evaluated her own role in combatting inequality as Fed chair, Yellen said she convinced her colleagues to wait a long time until unemployment was low before raising interest rates, and then they did so very gradually. She knew that minorities and low-wage workers were the last to benefit from an expanding economy as new jobs were created and the pool of available labor shrank. That is why she wanted to keep interest rates low and the economy growing for as long as possible without reigniting inflation. In fact, the expansion that began in 2009 and ended with the COVID-19 pandemic was the longest in US history and resulted in record low unemployment and poverty rates for Blacks and Hispanics.”

“Progress toward a more diverse Fed has been slow but noticeable. During her time as chair, Yellen had the satisfaction of seeing the first Black person installed as a regional bank president in the system’s history: Raphael Bostic, who became head of the Atlanta Fed in 2017, on the strength of her recommendation. Four years later, in addition to Bostic, three of the twelve presidents were women and one was of Indian descent. President Biden’s nominees to the Fed’s Board of Governors in Washington in 2022, when confirmed by the Senate, would mark the most diverse seven-member Board in the central bank’s history: two white women, one Black woman, one Black man, and three white men. Yellen could take satisfaction knowing she helped shape a Board that finally resembled the nation’s population.”

“At the time Yellen spoke,. women still earned 17 percent less than men overall — 10 percent less when adjusted for occupations and experience.”

“The critics were vastly outnumbered by legions of Fed watchers who applauded Yellen’s tenure as she exited. “She can point to a number of accomplishments at the end of her term,” the Journal concluded in its December article. “The lowest unemployment rate in 17 years (4.1 percent), steady if puzzlingly low inflation (2.1 percent), healthy economic growth (2.7 percent) and progress on the Fed’s plan to unwind its crisis-era stimulus efforts by raising short-term interest rates and shrinking its balance sheet.””

“In an op-ed in the Washington Post on February 4, Summers became the most prominent Democrat to warn that so much spending, combined with the Fed’s program of pumping massive amounts of money into the economy, would spark the biggest burst of inflation since the 1970s. He proved correct, and Yellen admitted in 2022 that she was wrong in predicting inflation would soon subside.

As she reflected on the inflation debate sparked by Summers at the start of the Biden administration, Yellen conceded that the unprecedented nature of the economic collapse caused by the pandemic made it difficult to determine the inflationary dangers lurking in the wake of so much stimulus spending. “That’s a big question,” she said. Though she had worried that the size of the initial relief package was too big and might prove inflationary, she still preferred to err on the side of doing too much rather than too little. In 2022, she had to grapple with doing too much.”

“As Yellen had feared, Manchin cited inflation worries when Biden unveiled a second huge spending package costlier than the $1.9 trillion emergency relief plan. The Build Back Better Act was a package of social benefits totaling $3.5 trillion over ten years. It was a wish list of expanded government benefits that progressives had long dreamed of enacting. It included subsidies for childcare and universal pre-K; dental, hearing, and vision coverage under Medicare; paid family leave; and subsidies to boost green energy. Biden planned to pay for it by boosting income taxes on families making more than $400,000 a year and by raising the corporate income tax slashed under Trump.

Manchin and another recalcitrant Democrat, Kyrsten Sinema of Arizona, voted for the $1.9 trillion relief package but opposed the high price tag of the second one, and they were enough to block passage in a Senate evenly divided between Democrats and Republicans.”

“On April 19, the Treasury Department announced the creation of a Climate Hub and a climate counselor to confront the threat of climate change and to help transform the economy into one with a net-zero emissions future. The office would assess economic and tax policy, financial risks, and lending programs all based on the goal of combatting global warming. In an April 21 speech explaining the policy to the Institute of International Finance, Yellen said the federal government planned to aggressively tackle climate change. “We are committed to directing public investment to areas that can facilitate our transition to net-zero and strengthen the functioning of our financial system so that workers, investors, and businesses can seize the opportunity that tackling climate change presents,” she declared.

Toward that goal, Yellen notched an early victory at a meeting of the Group of Twenty (G20) finance ministers in Venice on July 10, when the group endorsed for the first time financial penalties for emitters of carbon into the atmosphere as a way to reduce harmful greenhouse gases.”

“On October 25, 2021, Yellen followed up on her concern about the economic disadvantages of minorities by taking an unprecedented step as Treasury secretary: naming the department’s first Counselor for Racial Equity. The counselor would coordinate Treasury’s efforts to advance racial equity by identifying barriers to accessing benefits and economic opportunities and seek ways to reduce them. “The American economy has historically not worked fairly for communities of color. The pandemic threw a spotlight on this inequity; people of color were often the first to lose their jobs and businesses,” Yellen said in announcing the new position. “Treasury must play a central role in ensuring that as our economy recovers from the pandemic, it recovers in a way that addresses the inequalities that existed long before anyone was infected with COVID-19.””

Had Congress listened to Yellen in 1998 and curbed energy consumption, Russia might not have earned enormous oil export revenue to finance its attack on Ukraine twenty-four years later.

““Stories of native marginalization are older than the country, and you do not need a PhD in economics to know that our economy has never worked well for Native Americans,” Yellen continued. “This is why we’re here… ensuring that Native communities are counted, that you’re heard and that you are represented.” On June 21, 2022, to underscore that pledge, Biden appointed Mohegan Tribe Chief Lynn Malerba as the nation’s first Native American treasurer of the United States, and Treasury announced the creation of a new Office of Tribal and Native Affairs. The announcements coincided with Yellen’s travel to Rosebud Indian Reservation in South Dakota, the first time in history that a Treasur secretary has visited a Tribal nation.

The plight of the Internal Revenue Service (IRS) was another concern that captured Yellen’s attention. Whenever Republicans controlled Congress, they often reduced IRS funds and staff, which resulted in fewer audits, less service, and more opportunities for people to evade paying their taxes. Indeed, from 2010 to 2020, the IRS workforce had decreased from 95,000 to 76,000, and the budget fell from $14 billion to $12 billion. The problems of the agency increased significantly during 2021, as the COVID-19 pandemic caused staff shortages and diverted resources to distribute relief money. The result was a record backlog in unprocessed tax returns and inadequate staff to assist the public. Yellen figured that a relatively small investment in improved IRS compliance would produce many times that in higher collections and would also improve tax return processing. The IRS also planned to hire more workers.

In the spring of 2021; the Treasury proposed an $80 billion increase in the IRS budget over a ten-year period. It said the added resources — along with tighter income reporting requirements and tougher penalties for non-compliance — would help close the “tax gap,” the difference between taxes owed to the government and those actually paid. According to a Treasury analysis in May, the tax gap totaled nearly $600 billion in 2019 and would rise to $7 trillion over the next decade if left unaddressed —roughly 15 percent of taxes owed. The plan would double the IRS workforce.

On June 9, the New York Times published an op-ed by five former secretaries of the Treasury expressing their support for the plan. Entitled “We Ran the Treasury Department. This Is How to Fix Tax Evasion,” it was signed by Democrats Timothy Geithner, Jacob Lew, Robert Rubin, and Lawrence Summers, and Republican Henry Paulson. The following month, the nonpartisan Congressional Budget Office (CBO) produced a report that found the payback from bolstering the IRS would be sizable: an $80 billion budget increase over ten years would bring in $207 billion in additional tax revenue, for a net gain of $127 billion.

“The Biden agenda included rejoining the Paris Climate Accord to fight global warming and strengthening alliances with NATO members that were shredded by Trump. The goodwill that poured in encouraged Yellen to pursue an ambitious and long-elusive goal raised initially by Biden’s transition team, one that — if successful — would be a historic accomplishment and seal her legacy as a titan at Treasury: the first major global corporate tax treaty in a century.

Yellen raised the prospect in a letter to her Group of Twenty counterparts on February 25, 2021: “As we know, the changing global economy presents new challenges for corporate taxation. The United States is committed to the multilateral discussions… overcoming existing disagreements and finding workable solutions in a fair and judicious manner.”

The issue had been the subject of long-standing talks that involved 140 countries under the sponsorship of the Organisation for Economic Co-operation and Development (OECD), a group of wealthy countries that seeks to promote economic progress and world trade. The talks had two goals in mind. The first was to agree on a minimum global corporate tax rate to prevent multinational corporations from sheltering their profits in low-tax countries. The second was to tax a portion of e- commerce profits based on earnings from sales in each country rather than on where the companies are headquartered, as was the current rule. This digital tax would only apply to the largest e-commerce companies, such as Amazon and Google. This approach had long been sought by European countries frustrated that they could not tax US-based giants that made so much of their profits off customers in Europe.

Though seemingly sensible objectives, the tax proposals were highly controversial. Low-tax havens, such as Hungary, Ireland, Estonia, and several small island nations, did not like the idea of losing their advantage in attracting corporations to stash their earnings. The digital tax idea, naturally, sparked vigorous opposition from the affected companies, which could afford to employ legions of lobbyists to mount a counteroffensive in Congress by anti-tax Republicans.

The hundreds of billions of dollars in revenue the proposals could raise, however, were irresistible to finance ministers around the world who were keenly aware that corporate tax revenue was needed to pay for government programs that had been declining for decades. Without an agreed-upon minimum tax, countries had been cutting corporate tax rates to deter companies from moving capital to more favorable havens. It was a race to the bottom. At Trump’s urging, Congress cut the US corporate tax rate in 2017 from 35 percent to 21 percent, a move in line with other countries in recent years.”

The average corporate tax rate globally had fallen from 40 percent in 1980 to just 24 percent in 2021.

The loss of corporate revenue has been a contributing factor in rising budget deficits in the United States for more than half a century, as lucrative tax loopholes granted by Congress allowed some of the most profitable companies on the planet to pay little or no taxes. Historical tables by the White House Office of Budget and Management showed that corporate income tax revenue as a share of the US economy shrank from 6 percent in 1952 to a mere 1 percent in 2019. To help pay for his ambitious spending programs, President Biden had proposed increasing the corporate tax rate to 28 percent, although he signaled that he would entertain a slightly lower figure.

The global talks had gone nowhere under Trump, who had opposed a new tax on digital companies, but the negotiations gained momentum once Yellen indicated a willingness to consider digital taxing and to take a collaborative approach rather than Trump’s nationalistic my-way-or-the-highway stance. Negotiators were looking at a tax floor of 15 percent. The minimum tax would not be mandatory but would have incentives to comply: if a country kept a 10 percent tax rate instead of the agreed-upon 15 percent, companies would be subject to paying the 5 percent difference to the country where they are headquartered, thus removing the advantage of sheltering their profits elsewhere.

Yellen took the ball and ran with it. She won support for a tax deal at a meeting of finance ministers from the wealthiest democracies, the Group of Seven (G7), in London in early June. On the plane over, she had spent four hours going over the complex issues with her top international tax expert, grilling him down to the minutiae. A tentative agreement was reached by 132 countries on July 1 and endorsed at a meeting of the Group of Twenty finance ministers in Venice and then by finance ministers from the European Union in Brussels later that month.

The accord — expected to take effect in 2023 — established a global minimum tax of 15 percent on multinational corporations with more than $900 million in revenue. The largest multinationals, those with more than $24 billion in revenue, would start paying taxes where their sales are recorded, not just their home base. In other words, Apple would pay less US taxes but more overseas, while Sony would pay more US taxes and less in Japan. Financial, energy, and mining companies were excluded from the arrangement to get most countries on board.”

“After a virtual meeting with her G7 counterparts on September 9, Yellen hailed the historic achievement that had now been supported by 134 countries representing more than 90 percent of the world’s economic activity. She urged participating nations to adopt the new rules swiftly. “The new international tax system would meet the needs of the 21st century global economy by providing governments with resources to invest in their workers and economies, as well as improving the standing of U.S. businesses by leveling the playing field in which they compete,” she said in a statement released by the Treasury Department.

On October 8, Yellen could celebrate her biggest victory in her first nine months in office: 136 nations agreed to the biggest overhaul of international tax rules in one hundred years, a deal made possible when holdouts Ireland, Estonia, and Hungary threw their support behind a 15 percent minimum corporate tax. Kenya, Nigeria, Pakistan, and Sri Lanka remained opposed, but they lacked the economic clout to thwart an agreement. “When this deal is enacted, Americans will find the global economy a much easier place to land a job, earn a living, or scale a business,” Yellen declared. Then she added an observation that once again underscored her determination to make economic policy — even trade — work to the benefit of everyone: “President Biden often talks about a foreign policy for the middle class. Today, is what foreign policy-making for the middle class looks like in practice.”

It would be up to Congress to make the accord a reality by 2023. Lawmakers would have to ratify the agreement — signed by 137 nations as of the end of 2021 — and agree to a new minimum 15 percent tax rate on foreign earnings of US corporations.”



Austin Rose

I read non-fiction and take copious notes. Currently traveling around the world for 5 years, follow my journey at