Janet Yellen’s old ideas are bad fit for Joe Biden’s cabinet and the US economy

Yellen continued the mistaken policies of her predecessor, Ben Bernanke, driving interest rates lower to stimulate the economy and being too slow to raise them

Her interventionist economics are wrong for the times, which call for a banker or someone with more private-sector experience to stabilise the economy

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Janet Yellen, then Federal Reserve Board chair, appears before a Senate Banking, Housing and Urban Affairs Committee hearing on February 11, 2016. Yellen could be the first woman to hold the position of US Treasury Secretary. Photo: EPA-EFE

Published: 10:00pm, 26 Nov 2020Updated: 8:22am, 27 Nov 2020

Barack Obama’s new book describes former US Treasury Secretary Henry “Hank” Paulson as “tall, bald and bespectacled, with an awkward but unpretentious manner”. I interviewed him once and found him surprisingly inarticulate.

However, in a crisis he was exactly the man to have on your side – a lifelong banker who knew how the markets worked and the people in and around them, having lunched with politicians and statesman alike as chief executive of Goldman Sachs. He was the man who stopped the rot in 2008 by acting fast and wisely to curb the crisis that was threatening to destroy the global financial system.

President-elect Joe Biden’s choice as nominee for Paulson’s former role, former Federal Reserve chair Janet Yellen, has been loudly applauded by almost all serious commentators in the business media. I disagree.

Her appointment is perhaps the worst decision to come out of the new administration so far and is likely to lead to more loose money, further expanding debt, an equity boom and eventually a big bust.

Then Treasury secretary Henry Paulson (centre), flanked by congressional leaders, announces a tentative deal on legislation to mitigate the unfolding financial crisis, on September 28, 2008. With his years of banking experience, Paulson is exactly the man to have by your side during a crisis. Photo: AP

This is not to decry her many achievements as a policymaker, practitioner, thinker and guru in the field of economics. She is likely to be the first woman to hold the job in 231 years and will have held the top three economic jobs in the US government, having also led Bill Clinton’s Council of Economic Advisers.