News that Vice President Biden intends to nominate the former chairman of the Federal Reserve, Janet Yellen, to be treasury secretary certainly has its ironies. We’re still in the midst of watching the Democrats maneuver to defeat the nomination to the Fed board of Judy Shelton on the grounds that she would compromise the independence of the Fed from the Treasury. Mr. Biden’s move is practically a merger.
How is that going to be handled by the Republicans who used Fed independence to libel Ms. Shelton? Are Senators Susan Collins, Lamar Alexander, and Mitt Romney going to go after Mrs. Yellen the way they did Ms. Shelton? What of Senator Sherrod Brown and the rest of the Banking Committee Democrats who are rallying against Mrs. Shelton in the most demagogic fashion? Not to mention the New York Times and the Washington Post.
Ms. Shelton herself, we’ve pointed out, is no particular enemy of Fed independence. It is true that she has called for coordination between the Fed, the Treasury, and Congress. That, though, is because of, in Humphrey Hawkins, statutory language that requires “improved coordination among the President, the Congress, and the Board of Governors of the Federal Reserve System.” It’s one of the points she’s made in the Wall Street Journal.
Most of our coverage of Mrs. Yellen has been in the context of her accession to chair the Fed. It was a time when the central bank was being eyed as a culprit in the Great Recession. At one point, Mrs. Yellen actually apologized. “I’m sorry that light bulbs didn’t go off in my head a couple of years before they really did, but there was no question,” she told the New Yorker’s Nick Lemann. “I was hearing stuff that was scary. And I wouldn’t have seen it in the data.”
If we’re inclined to mark the point yet again, it’s because it was plain as day in the data, at least to our sources. In late 2005, James Grant, writing on our op-ed page, warned that since George W. Bush had acceded to the presidency, the value of the dollar had plunged by 46% to barely a 500th of an ounce of gold. We editorialized until we were blue in the face. In early 2008, the Sun warned that New York apartment prices, measured in gold, had begun collapsing.
The collapse of real estate and the 2008 financial crisis began soon thereafter. Mrs. Yellen, we don’t mind saying, wasn’t the only one who didn’t see it in the data. Ben Bernanke was also quoted by Mr. Lemann in the New Yorker, in his case as saying “The crisis came from causes not captured by the new Keynesian models used at the Fed . . .” Yet they both have been resisting any suggestion of monetary reform or even, in Mrs. Yellen’s case, voluntary rules.
We’d like to think that someone in the Senate might open up these questions when Mrs. Yellen comes up for confirmation as Treasury Secretary. It’s not just the question of the independence of the Fed. It’s also the question of monetary reform itself. It’s going to be something, after all, if when Chairman Jerome Powell’s term is up in 2022, Mr. Biden elevates Governor Lael Brainard, who came from Treasury, to the Fed chairmanship. The logic of having Judy Shelton on the board grows clearer by the day.
Image: Detail of a photograph of Janet Yellen, Federal Reserve.