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12:56 pm
Wed October 16, 2013

Nobel Laureate Joseph Stiglitz On His Friend And Former Student Janet Yellen

Originally published on Thu October 10, 2013 3:43 pm

Nobel Laureate Joseph Stiglitz has been friends with Janet Yellen and her husband for 40 years. He says they are “an unusual kind of ‘power couple,’ powerful in the realm of ideas” who bring a unique, creative view to every issue they take up.

Yellen took Stiglitz’s first class at Yale. In 40 years of teaching, Stiglitz says Yellen stands out.

President Obama has nominated Yellen to head the Federal Reserve Bank. She would be the first woman to lead the bank, breaking a 100-year glass ceiling and, some argue, becoming the most powerful woman in U.S. history.

Stiglitz tells Here & Now’s Meghna Chakrabarti that Yellen “brings together a deep understanding of monetary economics, financial markets, and an understanding of labor markets, and right now we have problems in all those.”

Stiglitz says she enjoys broad support, including from Wall Street, because “they have seen her intellect, her honesty, her transparency. She’s somebody that everybody who’s worked with her has found her great to work with.”

Yellen may still face tough questions at her confirmation hearing. Republicans Senators Richard Shelby of Alabama and Bob Corker of Tennessee have criticized Yellen’s views on monetary policy, saying she is not worried enough about the threat of inflation.

Guest

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Transcript

ROBIN YOUNG, HOST:

Well, the small lady with the large IQ, as one colleague describes Janet Yellen, is also now officially President Obama's nominee to head the Federal Reserve. She'll face some tough questions, including from Republican senators who say she is soft on inflation. But if she's confirmed, what kind of chair will she be?

HERE AND NOW's Meghna Chakrabarti spoke with Nobel Prize-winning economist Joseph Stiglitz yesterday. Professor Stiglitz, who's now at Columbia University, but he was Janet Yellen's professor at Yale and is close to both Yellen and her husband, economist George Akerlof. Stiglitz began by talking about the couple.

JOSEPH STIGLITZ: They're all extraordinarily lively, extraordinarily original. George was my best friend in graduate school at MIT, and he shared the Nobel Prize with me in 2001. So we've all been very close, and as I say, they all have - bring always a creative view of every issue they touch on.

MEGHNA CHAKRABARTI, HOST:

So what's the better deal, winning the Nobel Prize in Economics or being able to put those theories into practice as Fed chair?

(LAUGHTER)

STIGLITZ: You need to do both, and that's why they really are a power couple, an unusual form of power couple because it's powerful in the realm of ideas. The country hasn't had very many of those.

CHAKRABARTI: Well, Professor Stiglitz, let's talk in particular about one of the ideas that Janet Yellen and her husband, George Akerlof, really sort of made their mark on, and that was the idea that workers who are actually paid more or higher than the market wage are actually happier and more productive, and that overall might be better for the economy than what a strict sort of free-market analysis might say the going wage should be.

STIGLITZ: That's right. It's called the efficiency wage theory, really important in understanding why, for instance, we have unemployment and why the markets often don't act as standard old-fashioned theory suggested. It highlights one of the really important aspects of Janet's work. She brings together a deep understanding of monetary economics, of financial markets and an understanding of labor markets.

And right now, you know, quite honestly, we have problems in all these markets.

CHAKRABARTI: So what would your response be to some of Janet Yellen's critics in Washington? I mean, for example Senator Bob Corker, one of the top Republicans on the banking committee, has said that he believes Yellen's views on monetary policy are dovish.

STIGLITZ: There is a tradition that has been worried about inflation. Now you have to remember that the Fed, in the United States, I think quite rightly has a number of mandates. It's not just fighting inflation, it's maintaining full employment, maintaining growth and maintaining financial stability.

The excessive focus just on inflation in the years before the crisis I believe contributed to creating the crisis. As I look at the American economy now, and I think most people would agree with me on this, the major problem with the United States right now is a lack of growth and a lack of jobs.

And so having somebody at the helm who has a balanced view of all of the mandates that it is supposed to fulfill is something - somebody that we really need right now.

CHAKRABARTI: So in that case do you see her ascendency to the Fed chair as a change in the possibility for what the Fed can do for the U.S. economy, or given the fact that there has already been this massive stimulus program just a continuation?

STIGLITZ: She does represent continuity, and I think one of the reasons the market is so supportive - of course one of the reasons those in financial markets and Wall Street are so supportive of Janet is that they've had an opportunity to deal with her, they've seen her intellect, they've seen her honesty, her transparency.

Everybody who's worked with her have found her really great to work with.

CHAKRABARTI: I've seen it said that there's a toughness to her, that perhaps - this is what other people are saying - perhaps we didn't see in current Fed Chair Ben Bernanke. I guess I'm wondering, Professor Stiglitz, if there's something about Janet Yellen that you know that hasn't been reported yet that you think could give us some good insight into what kind of Fed chair she's going to be.

STIGLITZ: She is very straightforward, very honest. She has an enormously good sense of humor. I think that's one of the things that enables her to be tough. She is extraordinarily fair, and people - when she's being tough have said, you know, she's not asking anything of me that she wouldn't ask of herself.

Everybody who's dealt with her, from - you know, and I've talked to central bank governors in different countries, I've talked to people who work for her, they all come away with enormous sense of respect for her.

CHAKRABARTI: Professor Stiglitz, before we go, since we do have you, I would love to know what your thoughts are right now on the government shutdown and the coming fight over the debt ceiling limit, which is soon to be reached. What's your take on what's been happening in Washington?

STIGLITZ: Essentially absurd. There's a particularly absurdity to the fight over the debt ceiling because Congress passes laws about taxes, Congress passes laws about expenditures, and what we borrow is simply the difference between what we've enacted in legislation about expenditures and taxes.

So to say that, well, we aren't going to allow you to borrow the difference is like saying we're going to pretend that two and two is not equal to four, we're going to pretend it's equal to five or three, and you figure out how to make the arithmetic add up. It is literally absurd.

CHAKRABARTI: Joseph Stiglitz is a Nobel Prize-winning economist and professor at Columbia University. His latest book is "The Price of Inequality: How Today's Divided Society Endangers our Future." Professor Stiglitz, thank you so very much.

STIGLITZ: It's a real pleasure.

YOUNG: And thank you, Meghna Chakrabarti. Quick note: new jobless numbers are out. The shutdown is having an effect. About a quarter of the newly unemployed are government contractors stalled by the partial closing. We'll be back in a minute with Jeremy in Phoenix, HERE AND NOW. Transcript provided by NPR, Copyright NPR.