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article imageOp-Ed: Economists supporting Yellen despite poor forecasting record

By Andrew Moran     Sep 13, 2013 in Business
New York - It should be soon that United States President Barack Obama will pick his nominee to succeed Ben Bernanke as Chair of the Federal Reserve.
At the time of this writing, the two final picks are Larry Summers and Janet Yellen, both representatives of the same policies enacted currently by the central bank: inflation, intervention and artificially low interest rates.
Over the weekend, around 300 economists penned an open letter to the president encouraging him to appoint Yellen to helm the Fed. The letter was initiated by the Institute for Women’s Policy Research and was signed by economists like Joseph Stiglitz, Alan Binder and Alice Rivlin. The letter will be sent to the White House sometime next week.
Essentially, those who wrote their names in support of it argued that Yellen is a competent candidate, has been effective in her role as vice chair and has a tremendous forecasting record, despite her past speeches and orations suggesting otherwise. Also, it seemed that the women’s organization didn’t appreciate the fact that the media has been pushing Summers to succeed Bernanke.
“The catalyst for me was all the media attention to Larry Summers, which often seemed to read as if it came directly from some sort of campaign being organized on his behalf, presumably by friends of Mr. Summers," said Heidi Hartmann, founder and president of the Washington-based Institute for Women's Policy Research, a research and policy advocacy group. "The time table is relatively quick since it has been widely thought that a decision could be forthcoming in a matter of weeks."
If Yellen is tapped to helm the central bank then she would become the first woman to do so.
Economic Policy Journal showed its astuteness when it cited a quote from Stiglitz in which he wrote in the New York Times: “Ms. Yellen has shown herself to be not only excellent in forecasting but balanced.”
But does she have sublime forecasting record? If one were to just research a few of her speeches prior to the housing crisis and economic collapse, the answer would be resounding and emphatic: no. Indeed, her remarks showed that she did not have any inkling about the seriousness of the situation, nor did she paint a bleak picture of the economy — instead she just noted “a soft landing” and a minor slowdown.
At the beginning of 2007, Yellen spoke to an audience at the Joint Rotary Clubs of Reno and the East Bay, in which she informed that there is no collapse and the notions of a recession are just overstated:
“While the decline in housing activity has been significant and will probably continue for a while longer, I think the concerns we used to hear about the possibility of a devastating collapse—one that might be big enough to cause a recession in the U.S. economy—have been largely allayed.”
One month later, Yellen delivered a speech at the Sacramento State University’s College of Business Administration Executive Speaker Series. Here, Yellen described stabilization of the housing market after a “continued weakness.”
“Despite the continued weakness in housing construction, which as I said enters directly into the calculation of real GDP, there are some signs of stabilization in other aspects of housing markets, suggesting that construction activity may level out before too long.”
She later stated in the speech: “Outside of housing and domestic autos, the rest of the economy has been doing quite well; that’s why it might be called a “bi-modal” economy,” explained Yellen. “In summary, I believe that a soft landing is the most likely outcome over the next year or two.”
If one to look even further back to 2005, a couple of years before signs of a tremendous bubble — only seen by the likes of Peter Schiff, Ron Paul and Jim Rogers, all proponents of Austrian economics — Yellen was even worse off in her speech.
“First, if the bubble were to collapse on its own, would the effect on the economy be exceedingly large? Second, is it unlikely that the Fed could mitigate the consequences? Third, is monetary policy the best tool to use to deflate a house-price bubble?
“My answers to these questions in the shortest possible form are, ‘no,’ ‘no,’ and ‘no.’”
This certainly is not an endorsement of Summers, who has also been a Washington and Wall Street insider that has supported the status quo of manipulating the money supply as well as bailing out his friends in the immense financial institutions.
The fact remains that both Yellen and Summers are absolutely no different than Bernanke and those who have come before him. The only thing that libertarians, adherers of Austrian economics and anti-central banking can rejoice is that Yellen has admitted on record that the unemployment rate is higher than official government numbers, which should be at least in the mid-teens.
“Moreover, the government’s current estimate of 12 million unemployed doesn’t include 800,000 discouraged workers who say they have given up looking for work. And, as exhibit 6 shows, 8 million people, or 5.6 percent of the workforce, say they are working part time even though they would prefer a full-time job. A broader measure of underemployment that includes these and other potential workers stands at 14.4 percent.”
Who should be at the head of the Fed? What about the people who correctly predicted what would happen and those who were right in the consequences of the inflationary and disastrous quantitative easing initiatives? In a perfect world, men like Schiff, Dr. Paul or even Tom Woods would be vast improvements to any one following Bernanke.
One thing that should be hoped for is that next person to helm the Fed won’t be selected based on gender. This path should be despised by females because it would be condescending and insulting to women everywhere and certainly not based on ideas, record or even character.
This article was initially published on Capital Liberty News.
This opinion article was written by an independent writer. The opinions and views expressed herein are those of the author and are not necessarily intended to reflect those of
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