-Welcome, everybody.
I'm so happy to have you here, friends and colleagues
to Radcliffe Day 2016.
And let me just say before I get started
that I know it's warm in here.
And I invite you to take off your jackets.
Do whatever it takes to be comfortable.
I'm Liz Cohen, Dean of the Radcliffe Institute.
As Harvard's Institute for Advanced Study,
Radcliffe convenes faculty and students
from all of Harvard's schools and audiences from far
beyond our gates to share inquiry
into the arts, humanities, sciences, and social sciences.
That is why I am delighted to welcome so many of you
today, both here in Cambridge and online,
to join in our annual celebration.
I am especially pleased to welcome Drew Faust, Harvard
President and Founding Dean of the Radcliffe
Institute, Provost Alan Garber, and Bill Lee, Senior
Fellow of the Harvard Corporation,
along with other members of Harvard's governing
boards, the Harvard Alumni Association, the Radcliffe
Deans Advisory Council, the Schlesinger Library
Council, the Radcliffe Associates Program, the Anne
Radcliffe Society, as well as past members of the Radcliffe
College Board of Trustees and Alumni Association.
We are very excited to have a United States Attorney General
Loretta Lynch, class of 1981, Harvard Law School, class
of 1984 with us today as well.
And, of course, we are thrilled to have Janet Yellen,
Chair of the Board of Governors of the Federal Reserve
as our 2016 Radcliffe Medalist.
And a special welcome to former Chair of the Fed Ben Bernanke
and to Harvard Professor of Economics Greg
Mankiw for helping us pay tribute to our guest of honor.
Welcome, as well, to the very few
of you here today hoping to get advance word on what
the Fed will do with interest rates at its June meeting.
I would like to recognize the reunion classes of 1941,
'46, '51, '56, '61, '66, '71, '76, '86, '91.
Did I forget one?
'81, '86, '91, '96, 2001, 2006, 2011, and our newest
graduates in the class of 2016.
We also welcome former Bunting Fellows,
current and former Radcliffe Fellows,
and the Harvard undergraduates who
so ably serve as our fellows' research partners.
Everyone, please join me in congratulating members
of the earliest class represented here today,
the great class of 1939.
All of us gathered under this tent
are joined by an even larger audience watching online.
To the viewers who have told us that they would be watching
in Japan and to all of you tuning in from afar,
my warmest welcome.
As we come together on Radcliffe day
we think of classmates and friends no longer with us.
Please join me in a moment of silence
to honor their memories.
When Elizabeth Cary Agassiz and her colleagues
founded Radcliffe College in 1879,
they knew that the world needed the best minds, women and men,
working together to forge a world of action informed
by ideas.
This mission continues at the Radcliffe Institute
for Advanced Study today.
Let me share a few highlights from the year
we have just completed.
We have enjoyed more than 50 enlightening presentations
from Radcliffe Fellows.
To name just three-- anthropologist
Laurence Ralph discussed police brutality in Chicago.
Choreographer Karole Armitage spoke
about creating meaning through movement.
And author Michael Pollan delivered
an autobiographical talk about his trajectory as a writer.
An exhibition of feminist poetry at the Schlesinger Library
opened with powerful student readings
of their own original poems and the work of acclaimed poets
like June Jordan and Adrienne Rich, Radcliffe class of 1951,
whose papers grace the Schlesinger's collections.
That exhibition entitled "A Language to Hear Myself"
is open today and will remain open through June 17th.
I hope you will make a point of visiting.
Our annual science symposium investigated the past, present,
and future of DNA.
While our annual Gender Conference
examined the fascinating and timely topic
of language and gender.
All year we collaborated with the Harvard University
Native-American program to explore issues related
to Native Americans in the US and indigenous peoples
worldwide.
We organized new research projects,
compelling public events, a major conference, performances,
and more.
An exhibition featuring photographs
of Native American women is on display
in the Johnson-Kulukundis Gallery in Byerly Hall.
Please stop by after lunch today.
This exhibit is the most recent use
of our newly renovated gallery, which we just
opened this academic year.
We had high hopes that this new space
would provide a creative laboratory for experimentation
and original expression by a wide circle of artists
and scholars.
It has fulfilled those hopes from the very first
installation, by Team Lab, an innovative Japanese collective
of computer scientists and artists.
Since then, Radcliffe Fellows, including
filmmakers and a composer, have shared their work
in the gallery.
More information and videos of this year's exhibitions
and events are on our website.
And ambitious plans are under way for next year.
We'll be holding conferences on subjects ranging
from the world's endangered oceans to gender and sports,
and from the international refugee crisis to slavery
and universities.
The Schlesinger Library will continue
to diversify its holdings by collecting even more
archives of individuals and groups
whose stories contribute to a fuller picture of US history.
We will hold a panel discussion about the challenges
and rewards of collecting the papers of one such group,
political conservatives.
Our fellowship program will welcome
more than 50 new Fellows, coming here
from six continents, who will pursue
an astonishing array of projects,
from novels and operas to the history of the civil rights
movement, to epigenetics and black holes.
The support of many of you right here in this tent
makes all of these programs possible.
We are in the midst of a major capital
campaign for Radcliffe's future, expertly
chaired by Sid Knafel and Susan Wallach.
More than 6,300 households have made over 17,000 gifts,
totaling $55 million dollars.
We are approaching 80% of our $70 million goal.
And I am especially grateful and proud that our donors come
from all 13 Harvard schools, 50 states, 23 countries,
and every class since 1933.
When Elizabeth Cary Agassiz founded Radcliffe
with her vision of the world's best minds leading together,
she also had the courage to imagine women
at the helm of that world.
I think she would be very pleased to see us awarding
the Radcliffe Medal today to the individual
that CNN and NBC News have called "the most powerful woman
in the world."
She went like that.
Janet Yellen was born and raised in Brooklyn, New York.
Her mother was a former teacher.
Her father was a family doctor, who
saw patients at home, a common practice at the time.
Many patients were dock workers and their families.
These working families made a deep impression
on the young Janet, because dock work, by its nature,
was vulnerable to economic fluctuation, which
meant frequent periods of unemployment.
From her earliest memories, she understood
that its effects were, in her words,
"simply terrible on the mental and physical health of workers,
on their marriages, and on their children," end quote.
The human effects of the labor market and the urge
to do something about them would go on
to shape Yellen's remarkable career.
Growing up, Janet Yellen excelled at everything.
As Editor-in-Chief of the Fort Hamilton High School newspaper,
she was charged with the duty of interviewing the senior class
valedictorian, which turned out to be a very
awkward assignment.
As you've guessed, she was the valedictorian.
So she interrogated herself.
Her first tongue-in-cheek cheek question began with,
I understand that you are a versatile,
attractive, talented, senior.
The real question was, with so much talent in so many areas,
which direction would she go?
That question was answered in her first semester
at Pembroke, which was then the women's college at Brown
University and a sister school to Radcliffe College.
In her first economics class, Janet Yellen found her calling.
Years later, she explained, "I remember sitting in that class
and learning about how there were policy decisions that
could have been taken during the Great Depression
to alleviate all that human suffering.
That was a real aha moment for me.
I realized that public policy can and should
address these problems."
Yellen graduated summa cum laude and went on
to earn her PhD in Economics from Yeah in 1971.
She was deeply influenced by her professors
there to study how government action can mitigate hardships,
especially unemployment, caused by market cycles.
Yellen was inspired to undertake scholarship
that met the highest intellectual standards
and held the potential to improve people's lives.
She adhered to that ideal as she embarked
on a career that tacked back and forth between academia
and public service.
After graduating from Yale, Yellen
taught economics here at Harvard,
until she went to work for the Federal Reserve in 1977.
One day, she met another economist, George Akerlof
in the Fed cafeteria.
They hit it off immediately, married the following year,
and took jobs at the London School of Economics.
In 1980, the couple moved to California
to teach at UC Berkeley.
There they wrote some of their most influential work,
both individually and collaboratively.
One of their most renowned jointly authored papers
analyzed why wages sometimes exceed market minimums.
Yellen and Akerlof showed, in contrast
to the standard theory, that it may
be in an employer's economic interest
to pay higher wages because workers labor
harder and do better work when they feel valued.
Another one of Yellen's and Akerlof's significant findings
grew out of a different sort of collaboration--
the birth of their son Robert.
The new parents were looking for childcare
and thinking about their budget.
Yellen remembered vividly, "when you hire a nanny, the question
you ask yourself is, what's best for my precious child?
And do you really want someone who
feels that your motive in life is to minimize the amount
you spend on your child?"
That experience taught them that hiring a nanny
is not the time to hoard your pennies,
no matter what the market dictates.
They went on to support this important insight
with a wealth of data and rigorous analysis,
but their key contribution was to show
that you can consult all the models, graphs,
and numbers that you want.
But unless you take into account both workers' and employers'
non-rational motivations, including emotions,
you will not be able to predict or explain the labor market.
In 1994, Yellen took leave from Berkeley
to join the Federal Reserve Board of Governors.
Upon arrival, she raised eyebrows
with a habit that was out of step
with other senior managers-- eating in the employee
cafeteria.
By eating there, Yellen learned what
staff members were thinking.
She also communicated an openness
and a transparency that have been hallmarks of her tenure
at the Fed.
Yellen served on the Federal Reserve Board
of Governors until 1997 and then on the White House
Council of Economic Advisers under President Bill Clinton
from 1997 to '99.
She returned to teaching briefly,
before becoming President and CEO of the Federal Reserve
Bank of San Francisco in 2004.
That same year she published an important paper
with Akerlof that offered a robust defense of government
action to avoid recession and to offset the effects
of economic downturn.
Now, scholars love to be timely.
But nobody realized how painfully relevant
that paper would soon prove to be.
As 2004 drew to a close, unemployment rested comfortably
between 5% and 5 and 1/2%.
The stock market ran high.
Housing market was hot.
Corporate earnings were climbing.
But as Yellen watched it all from the Federal Reserve
Bank of San Francisco, she started warning of a bubble
in the housing market.
Hers was a lonely voice.
But as we now know, she was right.
The worst financial crisis since the Great Depression unleashed
its fury in the fall of 2008, and what we now call
the Great Recession, followed.
Unemployment nearly doubled.
Stocks plummeted.
Housing prices went into free fall.
Soon nearly 1/3 of homeowners nationwide
owed more on their mortgages than their houses were worth.
The financial sector was also in big trouble.
Bear Stearns and Lehman Brothers went under.
Other firms were kept alive only by federal bailouts.
Credit disappeared.
Capital and liquidity ran dangerously low.
And so things stood in 2010, the year Yellen
became Vice Chair of the Fed, serving as second in command
to then-chair Ben Bernanke.
It may be hard to see why anyone would
want to take that job in the depths of an economic disaster.
But if we think back to the little girl who was so
touched by her father's unemployed patients
or to the young woman who decided in her first economics
class that government could and should
be an effective and trusted force for the public good,
then it makes sense that Yellen would roll up
her sleeves, determined to aid household recovery
and promote renewed economic mobility.
Normally, monetary policy's first line of defense
would be to lower short-term interest rates.
But interest rates are already at or near zero.
Facing stormy seas and fiscal headwinds,
the Fed had to right the ship with limited
access to monetary policy's usual instruments.
As Chair, Bernanke skillfully guided the Fed away
from its customary closed-mouth habits,
summed up by the slogan "never explain, never excuse,"
and toward new habits of transparency.
Yellen was crucial to fostering this new sense of openness.
She led a communications committee
with the same refreshing candor that she
had brought to lunch in the employee cafeteria.
As she put it, "I hope and trust that the days
of 'never explain, never excuse' are gone for good."
The Fed shored up consumer confidence
and prevented the crisis from worsening.
But conditions remain challenging,
as Bernanke's term as Chair drew to a close.
A woman had never chaired the Fed.
But President Barack Obama nominated Yellen.
She began her term on February 1, 2014.
With her values, her intellect, and her calm leadership,
Yellen steers our economy toward shared prosperity.
She replaces the popular Main Street versus Wall Street
dichotomy with the claim that Main Street
needs a properly regulated Wall Street, just as a healthy Wall
Street needs a thriving Main Street.
As she has pointed out time and again,
a well-supervised financial sector
fuels job creation, innovation, and inclusive economic growth.
And in turn, households capable of meeting financial goals,
such as home ownership, retirement,
and college savings, are better able to boost markets.
For Yellen, the key is careful monitoring, through capital
liquidity requirements, stress tests
for financial institutions, and living
wills for firms' orderly dissolution
in the event of insolvency.
Yellen's leadership was tested last December,
when, for the first time in over nine years,
the Federal Reserve raised interest rates.
Speculation about an increase had circulated for months.
And then, as now, the topic was fraught, to say the least.
Some commentators criticized Yellen
for not raising rates soon enough.
Other nervous voices warned that raising rates
would lead to another downturn.
Normally understated publications, like The New York
Times threw around adjectives like
"perilous" and "hazardous."
Yellen remained unflappable.
When rates rose, markets, the public, and the media all
responded calmly, thanks in large measure
to her resolute demeanor.
The economy is by no means perfect today,
but when Yellen addresses the public,
the markets usually respond with what USA Today characterizes
as a "Yellen Rally."
Through it all, Yellen steadfastly describes her role
as Fed Chair in terms that are both principled
and unpretentious.
To quote her, "the job isn't just
about fighting inflation or monitoring
the financial system.
It's about trying to help ordinary households to get back
on their feet and about creating a labor market,
where people can feel secure and work and get ahead."
In a few moments we will have the pleasure
of getting to know this extraordinary woman
a bit better.
Nobody is better suited to help us do so
than Professor Greg Mankiw.
Professor Mankiw is a Harvard economist and the teacher
of one of the college's most heavily subscribed courses, EC
10.
Like Yellen, he maintains one foot in the academic world
and the other in the policy world.
In his case, he served as Chair of the Council
of Economic Advisers under President George W. Bush.
But before Professor Mankiw's conversation with Chair Yellen,
we will have the good fortune of hearing
from the single individual who probably has the greatest
insight into Yellen's current role,
because he is only one of three people
alive who has also inhabited it.
I am speaking of former Fed Chair Ben Bernanke.
Bernanke grew up in South Carolina.
He grew up in South Carolina.
He graduated from Harvard College in 1975,
and he earned a PhD in Economics at MIT.
He taught at Stanford, before moving to Princeton in 1985.
As much as he enjoyed teaching, after nearly a quarter
century of it, Bernanke had begun
to wonder, in his own words, "what good was economics,
if it's not used to improve policymaking and therefore
make people better off?"
He has answered his own question with years of public service
on President George W. Bush's council of Economic Advisers
as well as on the Federal Reserve,
to which he was appointed by President Bush
and reappointed by President Obama.
These days Ben Bernanke is a distinguished
Fellow-in-Residence at the Hutchins Center
on Fiscal and Monetary Policy at the Brookings Institution,
returning largely to a life of scholarship.
I am delighted that we could pull him
back into the limelight today to share his reflections
on fellow economist and his successor
as Chair of the Federal Reserve, Janet Yellen.
Please join me again in warmly welcoming Ben Bernanke.
-Thank you very much. it's great to be back in Boston,
where I spent many years as a student.
And I got over the Red Sox by 2005,
when the Nationals moved to Washington.
So I'm glad to be here on this lovely day.
It's a pleasure for me to introduce Janet Yellen, someone
for whom I have the greatest admiration, respect,
and affection.
She's an outstanding policymaker, an outstanding
person, and we're lucky to have her leading the Federal
Reserve.
Of course, my appreciation for Janet
has only increased by the fact that we
are both members of a small club of current and retired Fed
Chairs.
It's a club that doesn't meet very often.
A rare exception to this rule occurred recently
in New York City, when the four of us-- Yellen,
Bernanke, Greenspan, and Volcker--
were joined the interviewed by Fareed Zakaria.
The greatest excitement came in the middle of the interview,
when Chairman Greenspan suddenly gave out a loud sneeze.
I remember thinking that if that occurred a dozen years earlier,
the cable news commentators would have spent hours
analyzing what that meant for markets.
Janet also showed central banking tendencies
kind of early.
Dean Cohen talked about the story
where she, as editor of the paper,
had to interview herself as the valedictorian of the school.
She didn't talk about the most relevant comment,
though, which was when the editor asked herself if she
enjoyed working at the paper?
She replied, no comment.
Like a good central banker, entrusted
with the nation's monetary policy,
Janet is also cautious of temperament.
There's an economist maxim that if you've never
missed an airline flight, then you're spending
too much time in airports.
Despite this wisdom, Janet reportedly
arrives hours in advance of scheduled departure times.
I've heard that her crack security team at the Fed
continuously remonstrates with her.
Janet Madam Chair, we have sirens.
We have flashing lights.
We can skip the security lines-- to no avail.
Kidding aside, verbal discipline and caution
in the face of uncertainty are indeed characteristics
of good central bankers.
But so are the ability to analyze
complex situations and the willingness
to take bold action, when circumstances demand it.
Janet has both these qualities.
I will forever be grateful to her for her support and insight
that she provided when we served together at the Fed
during some very difficult years.
In her role as President of the San Francisco Fed,
where she gained hands-on experience
in supervising banks, and later as Vice Chair,
she was consistently prescient, as the Dean described,
about the peril that an imploding financial system
posed for the economy as well as about the risk
that the economic recovery that followed
could be very slow and protracted.
Throughout the crisis and its aftermath,
her famously precise and logical analyzes were frequently
critical for clarifying the situation
and, equally important, for persuading others
about the need for action.
I recall how often, when in the meetings of the Federal Open
Market Committee, which makes monetary policy, when
it came Janet's turn to talk, how everyone
would go very silent, because everyone wanted
to hear the entire argument.
And when it did come time for action, as ultimately it
always did, She was a forceful advocate
of doing whatever it takes, to coin a phrase, to protect
our economy and, in particular, to put Americans back to work.
She was a terrific colleague and invaluable ally.
Of course, now Janet is at the leadership role in the Fed,
where she's continuing her outstanding work.
When it became apparent in 2013 that she was a leading
candidate for the position, she came
to talk to me in my office about whether she should
take the job, if offered.
Now, we both knew that there could
be no doubt about her qualifications
for the position.
In her multiple previous roles at the Fed, as an economist,
as a board member, as a reserve bank president,
and finally as vice chair, as well as
in her lifetime of study of monetary and macroeconomic
issues, Janet probably had more direct relevant experience
than any other previous chair.
Nevertheless, as I talked to her about the job,
I wasn't entirely encouraging.
It's a tough job, I said, and it can be pretty thankless.
Well, Janet recognized those difficulties, I think,
very honestly.
And she understood the stress that the position would
put on her and on her family.
But she, of course, ultimately agreed to serve.
It seemed to me, at the time, that she
had several motivations for accepting the president's offer
to be nominated, including her lifelong commitment
to using what she had learned as an economist
to improve the lives of average people.
But I perceived that she was also
thinking about the historic significance
of being the first woman in this prominent post.
I think Janet well understood that by taking this position
and applying her considerable talents,
she could provide a valuable role
model for future generations of young women, who
might otherwise not engage with economics
or economic policy-making.
That is, in itself, a great contribution
on top of all the others that she has made.
Again let me join the Dean in honoring Janet.
I'm very pleased and honored myself
to have been asked to join this ceremony.
She's an extraordinary individual and certainly
well-deserving of today's recognition.
What I'd like to do now is ask Janet and Greg Mankiw, who
is a Harvard Professor of Economics,
of course, and also a long time friend and colleague of mine,
to come up to the podium-- Janet, Greg.
-Well, welcome back to Harvard.
-Thank you.
-It's a great delight and honor to be talking with you.
Ben said that central banking is a thankless job.
So let me begin by thanking you for all that you do
and have done for this country.
I thought I'd start off with a little bit of biography.
I've been an economist for many years, and in all those years
I've never met a five-year-old who comes up to me and says,
when I grow up, I want to be an economist.
But some of them do grow up and become economists, and so there
always some moment where they say, aha,
this is a career for me.
So at what point in your life did
you say, aha, I think I'm going to be an economist, and why?
-OK, let me answer that.
But I'd first like to express my great gratitude to Dean Cohen
and to Ben for their wonderful remarks.
I'm really touched and honored by this award.
And Ben is a good friend and colleague.
And let me just say that America owes him
an enormous debt of gratitude.
-OK, so when did you decide to become an economist?
-So as Dean Cohen mentioned in her introduction,
I became hooked on economics when I took Econ 1 or Econ 10
here.
And I think, in part, I'd always been interested in math,
always enjoyed math.
And I saw economics as a field that
uses math and uses quantitative techniques
but for an important social purpose.
And that is advancing human welfare and understanding
problems that keep people from fulfilling their lives.
So it was the social welfare implications of economics,
plus the analytic rigor that it involved, was a combination
that appeals to me.
Also, in my first macroeconomics class,
I studied the Great Depression and business
cycles more generally.
It was my first exposure really to Keynesian economics,
to the general theory.
And I think I came to appreciate that, although I don't think
anyone's ever invented a better economic system
than capitalism, and it works very
well for a large number of purposes,
it is capable of breakdowns periodically,
in which one has mass unemployment-- the Great
Depression, the Great Recession, fortunately
not nearly so serious, but nevertheless a very
difficult episode.
And I saw that monetary and fiscal policy
were tools that could be used to address unemployment
and improve people's lives.
And that attracted me and it's continued to be my motivation.
-Well, as a teacher of Principles of Economics
here at Harvard, I'm actually great to hear
that stat course can be so transformative
in such important lives.
Now, you mention Keynesian economics.
I'm going to talk about your own intellectual pedigree.
When you went to Yale as a grad student,
you studied with James Tobin.
You know this.
But just to give the audience a little bit of background,
James Tobin was one of the great macroeconomists
of the 20th century, a Nobel Prize winner.
He studied here at Harvard under Alvin Hansen,
who was one of the early Keynesian economists.
He's one of the first people in the United States
to take Keynes very seriously and bring
a lot of the ideas of the general theory
to the United States.
So you can see that intellectual trajectory from Keynes
to Hansen to Tobin to you.
And I actually I learned at lunch today
that you taught Alan Garber.
-I did.
-So you can see it continues to today.
Can you tell us a little bit about your relationship
with Tobin and how that worked?
-Well, I went to Yale, and I chose Yale as a place
to get my PhD because I was so impressed by Tobin.
I took his course in monetary economics.
I served as his teaching assistant
in the core graduate macro class.
He was certainly an important mentor to me and a friend.
And later on, when I went to serve at the Federal Reserve
and at the Council of Economic Advisers,
he would visit me in Washington and give me the benefit
of his policy advice.
But Tobin, to me, was more than just a teacher.
He was really an inspiration.
And what inspired me so about Tobin
was that he had a passion for social justice
and a moral compass that pointed straight north.
And to him, sometimes economists are
accused of working on highly mathematical models,
that the applicability of them is questionable.
For Tobin, that was never the case.
Economics was always important because the policy applications
of it had the potential to make people's lives better.
As you indicated, he studied here at Harvard,
read the general theory shortly after it was published,
lived through the Depression, saw not
only the horrific economic toll it took on our nation,
but also the political and social repercussions of that
for many, many years.
And he was determined to make sure that our country never
suffered through such a situation
again, when there were policy tools that could be deployed.
And that was exactly the focus that I've
had throughout my career.
-Yeah, I had noticed, by the way,
as a macroeconomist, that recessions
do have one positive byproduct is they to generate
a lot of macroeconomists.
So the Great Depression generated a whole generation,
including Tobin's generation.
I went to grad school during the '82 recession.
A lot of people were interested in macro.
And this recent recession, the financial crisis,
has got a lot of people interested in macroeconomics
again.
So there's one little upside to economic downturns.
So I'm going to think about the evolution of economic thought.
If you think about what you learned how the economy works
as a student, both at Brown and Yale, and what we know today,
what do we know today that we think
is really fundamental, important,
that they didn't know back when you were a student?
-Well, macroeconomics as a field, I think,
is absolutely continued to advance.
And Dean Cohen in her remarks talked about what I'll refer to
was the microeconomic foundations of macroeconomics.
This is something that not only did I work on, but, Greg,
you've have made important contributions to as well.
-Thank you.
-Macroeconomic theory, I think, was
criticized that wage and price stickiness or rigidity played
an important role in understanding unemployment.
But the economic foundations, the micro foundations
for why are wages and prices sticky
hadn't been well understood.
And I think we've really made a lot of progress
in advancing that.
And, Greg, as you mentioned, when
there is a financial crisis or a period of high unemployment,
it does stimulate people to think about macroeconomics
and to take off in new directions.
And I think that's happened since this financial crisis.
And, in particular, I would point
to a growing body of work that's at the board of finance theory
and macroeconomics that's really helping us understand
the nature of systemic risk, the way in which it can arise
and propagate itself, what to look
for as we monitor the economy.
Obviously, we don't want to have another financial crisis.
We want to do everything in our power
to spot developments that could produce a financial crisis.
And I think this work is going to help us understand that.
But I would say that-- you asked me about Tobin's work
and what's new and changed.
But I would say Tobin's work continues
to have great relevance to the problems we face today.
So as Ben well remembers, it was December 2008.
We had lowered our overnight short-term interest rate
to zero.
Unemployment was still high and looked
like it could linger for many, many years.
And we were searching for new things
that we could do to get the economy going.
And one of the things that we ended up doing,
and other central banks have as well,
was engaging in large-scale purchases
of longer-term assets, in our case, long-term treasury bonds
and mortgage-backed securities.
And the theory of that was, in part,
that by removing these long-term assets from the portfolio
with the public, we would put downward pressure
on longer-term interest rates, at a time when
there was no more to be accomplished in the short end.
And really a lot of Tobin's work on portfolio choice
and portfolio modeling, trying to understand what determines
the relative rates of return on different financial assets,
how demand and supply mattered to that
was, in effect, intellectual foundations
for those policies and comparable ones
that are being used in other parts of the world.
-It's maybe apocryphal, but it's a legend,
an old Chinese curse that says may
you live in interesting times.
And that certainly applies to central bankers,
and you've lived in very interesting times.
Looking back over the past decade,
we've experienced a tremendous financial crisis,
fear that that crisis would turn into a Great Depression, which
it did not.
It turned into a Great Recession.
The unemployment reached 10%, but not the 25%
that we saw in the 1930s.
So it sort of wasn't great news, but it wasn't as bad
as it might have been.
So looking back at your time at the Fed Federal Reserve system,
not just in your current job, what
did the Fed do right, and what did it do wrong?
-Well I think the Fed's handling of the financial crisis,
once it was upon us, was nothing short of magnificent.
And the credit here goes to Ben.
He was the right person with the right intellectual background
and the courage to think outside-the-box.
Two, he saw in the height of the financial crisis,
credit just drying up in the economy,
something that would end up crippling businesses
and households and could've ended us up
in another great recession.
And the immediate problem that he and we in the Fed,
more generally, faced was how to get credit flowing back
into the economy to avoid that kind of outcome?
And although the Fed tends to be a slow-moving and pretty
conservative institution, Ben encouraged blue-sky thinking.
And he tasked everybody around him
with being as inventive, as innovative as they possibly
could to come up with programs, some of them
might work some of them might be rejected, might not work,
but to throw everything we had at it,
to try to keep credit flowing to the American economy.
We invented a whole bunch of programs
with an alphabet of mnemonics.
I won't recall all of them for you.
But I think that really stemmed what was a very deep and severe
financial crisis.
And then after that, the programs
that we adopted-- asset purchases
and forward guidance-- have made a difference
and gotten the economy back on its feet.
So I think those are things that the Fed can feel very proud of.
Ben was immensely courageous in doing
this in the face of a great deal of criticism,
and it was a huge contribution.
-I agree with you completely, that Ben's
an absolute hero of this era.
But [INAUDIBLE] push you just little bit on that.
Is there anything you look back and say, I
wish we done that particular thing differently?
I For example, I wish we had saved Lehman?
Well, I will say that we didn't see
the financial crisis coming.
Dean Cohen mentioned my prescience,
which thank you for that, in seeing the house price
bubble, which I did, and I think others did as well.
But I don't think we saw-- and this
is true for the regulators, and, frankly,
it's true of economists generally
and the private sector.
None of us saw-- well, we saw trees.
The house price overvaluation or bubble was the tree.
There was growing leverage in the shadow banking sector.
Some people saw that.
But putting it all together, how this
would come together, create systemic risk,
erupt into a very severe financial crisis,
the rule of derivatives, how they fit into that--
we really didn't see that coming.
And, in that sense, I would say we're really trying now
to do a better job of that.
It's a high priority.
-Well, that exactly brings me to my next question,
because financial regulation is obviously
an important part of what the Fed does
and the federal government more generally does, not
just the Fed.
Are we doing a better job of financial regulation
today than we did before the financial crisis?
-Absolutely.
I mean the short answer is definitely, yes.
And the starting point for why we're doing a better job
is that we're focused on systemic risk.
We're focused on financial stability
and wanting to spot emerging conditions that
could potentially result in another financial crisis.
And I think we have a better understanding of how
to look for those conditions, and we're
putting a lot of resources and intellectual effort
into doing just that.
We now have an entire division of financial stability
at the Fed.
With respect to our supervision of the banking system,
really the most important thing is
we're bringing a new mindset to how we supervise the largest
and most systemic firms.
That, instead of taking a tree sort of approach,
is this institution individually look safe and sound?
We're thinking about the interconnections
among these firms and their connections
with other parts of the financial system.
This is sometimes called a macroprudential approach,
rather than a microprudential approach.
Beyond that, in terms of regulating the financial sector
and making the banking system safer and sounder,
I think we've accomplished a lot.
The amount of capital in the banking system-- and this
is particularly true for the largest and most
systemic firms-- has increased enormously.
The quality of that capital is greatly improved.
The amount of liquidity that we're
requiring large banking organizations to hold
is greatly increased.
And with greater liquidity, there
are less chance that if one firm encounters stress,
that will end up mushrooming into a liquidity
shortage for the system as a whole and a financial crisis.
We're also putting a great deal of work into thinking how
to resolve the systemic firm, if one were to fail or encounter
serious losses, without its imposing costs on the taxpayer,
the so-called too-big-to-fail problem.
We have forced firms to produce living wills that
would show how they could be safely dismantled,
using tools at our disposal.
And we're working very closely with foreign regulators,
particularly in England and in Europe,
to handle tricky cross-border issues
and making sure that we're all prepared.
So I do think things have improved enormously.
-Let's turn to sort of current economic conditions.
We've been in a recovery stage for a while.
But it's been kind of a slow recovery,
by historical standards.
How do you think economy's doing right now?
-So it has been a slow recovery.
But we've made a great deal of progress.
The unemployment rate peaked at over 10%, and it's down to 5%
now.
Just over the last year, we have created
around 2.7 million new jobs, over 14 million
since the lowest point for employment.
And more generally, the labor market,
on almost any metric that you could use to evaluate it,
is really improved.
Labor force participation has moved up
some over the last year, which is an encouraging development.
Because in a society that's aging with more retirees,
there is a persistent downward negative trend
in labor force participation.
So people who became discouraged about finding work
have moved back into the labor force.
So I definitely think we have made a lot of progress.
But that said, I think the further gains are possible.
So we're close to an unemployment rate
that, I think, most economists would associate
with our full employment goal.
But the number of individuals working part time,
who would like to have full-time jobs, is unusually high.
And we've really not seen much improvement
in wage growth, which is suggestive
of some slack in the labor market.
Now, with the labor markets improved,
a notable and less positive development is
that the growth of output has been remarkably slow,
something like 2% on average over the last several years.
And when you have a lot of jobs being created
in the face of not much output growth,
unfortunately, that means that productivity growth,
which is the growth in output per worker, is very slow.
Over the last five years, productivity growth
has averaged only half a percent per year,
and that's a really very miserable pace
in historical context.
Since productivity growth ultimately
determines the pace of improvement
in living standards for society as a whole,
that's a serious and negative development.
Finally I would say with respect to inflation,
that inflation, for a number of years now,
has been running below the Fed's 2% objective.
This last year, our measure of inflation that we look at
increased only 8/10 of a percent.
But very important reasons for the shortfall are first of all,
the plunge we have seen in oil prices,
and second of all, a marked appreciation
of the dollar that's pushed down import prices.
Those factors seem like they're roughly
stabilizing at this point.
And my own expectation is that, although inflation is lower
than our objective, if we continue to see stability
there and an improving labor market,
that inflation will move back up over the next couple of years
to our 2% objective.
-I've been told that a bunch of money managers in New York
have delayed their trip to the Hamptons
this afternoon, so they could listen to your talk
here today, in case it moves markets.
So this is your chance to move markets.
Do you want to tell us anything about the path
of monetary policy going forward?
You're welcome to say no.
And if you do say no, they'll leave for the Hamptons.
-Well, let me say a few sentences,
so I won't delay them very long.
So the economy is continuing to improve.
We saw weak growth in the first quarter
of the year and relatively weak growth at the end of last year.
Growth looks to be picking up from the various data
that we monitor.
And if that continues, and if the labor market continues
to improve, and I expect those things will occur,
we'll continue to monitor incoming data,
and also we'll assess risks to the outlook.
But it's appropriate-- and I've said this
in the past-- I think for the Fed
to gradually and cautiously increase our overnight interest
rate over time.
And probably in the coming months
such a move would be appropriate.
-Great.
You can go to the Hamptons now.
-That's it.
-One of the interesting challenges
that the Feds faced recently is the zero lower bound.
In fact, interest rates have basically gone to rock bottom.
They've stayed there.
And some of the rules of thumb, like a Taylor rule,
would suggest deeply negative rates.
Now, we're not in a situation now where it's a big concerned.
But people are worried.
I think Doug Elmendorf raised this issue at this morning's
panel, that if we have another recessionary shock
in the future, that the Feds won't have many tools left.
How much does that worry you?
What do you imagine doing in that sort of scenario?
Could you imagine going with negative interest rates,
as some European countries have been trying?
How do you think about that?
-So let me agree with what Doug said this morning.
It is a concern.
We have very limited scope at this point
to use our traditional technique, namely lowering
overnight interest rates, to support the economy
if there is an adverse shock.
Even if we go for some time without an adverse shock,
and even if you take a reasonably optimistic scenario,
participants in the FOMC are asked to write down,
every three months, what they regard
as a normal longer-run level of short-term interest rates.
And so this is something that they
might expect to prevail, say, five to seven years from now,
so quite a ways down the road.
They write down the number now, like 3% or 3 and 1/4%
is the median.
So even if we were to go for a number of years
without encountering and adverse shock,
and the short-term rates got back to that level,
that's lower than a lower level of rates
than we have seen historically.
We don't even know for sure that the level of normal or neutral
rates will rise that high.
And in the typical-- I think Doug mentioned this morning.
In a typical recession, when the Fed wants to respond,
we would cut short-term interest rates by maybe 400 or 500 basis
points.
So we don't have that scope.
Now, we did invent other tools to address
stimulating the economy.
We use these longer-term asset purchases.
And we try to shape market expectations
about the path of short-term interest rates
through our communications and so-called forward guidance.
I think we would resort to those tools again.
Negative interest rates is something
we considered briefly.
We were concerned, at the time, that there
could be a number of negative repercussions from lowering
negative interest rates, from lowering interest rates to zero
or a negative territory.
And so we didn't really pursue that.
And it's not something that we're really
thinking a great deal about now, although other countries have
used it.
But this is a concern.
One of the reasons I believe it's important for us
to be cautious in raising interest rates
is precisely because if we were to raise interest rates too
steeply and we were to trigger a downturn
or contribute to a downturn, we have limited scope
for responding.
And it is an important reason for caution.
I would like to see-- Doug and others
talked about this morning-- that there
should be greater scope for fiscal policy in the future,
to be usable to address economic weakness.
And if we were to take steps to raise productivity
growth-- and our panelists talked
about a number of important things-- education, children,
investment in infrastructure, investment in innovation.
If we had faster productivity growth,
that would probably push up the normal level of interest rates
in the economy and give us a bit more scope there as well.
-Great.
I have one final question.
I'm assuming out here in the audience there's some students.
And I'm sure there's some students who
are looking at you, and they're saying, wow,
she's had a really cool career.
I want to do something like that.
What advice would you give that student?
-So I think the starting point for me, as I've said
and others have commented, was finding
a subject I loved and have been able to feel
passionate about over all these years of my career,
namely economics.
And obviously, it's not going to be economics for everybody.
But finding some field, some interest
that you want to get up every day, you want to work on.
Obviously, a successful career it does require hard work,
and it's a lot less hard if what you're working on
is something you're really interested in.
So to me, that's key.
I guess I would also say that something that's
been important to me-- in thinking
about a career-- I know I've achieved a remarkable position.
But it's not just the endpoint of one's career that matters.
A satisfying career is about what
you do all the way throughout your working years,
leading up to wherever it ends.
And for me, when I think back on all the stages,
I've enjoyed them all.
They've all been satisfying, partly
because I love economics.
But also I'll mention two or three things.
One thing, I think it's really important to affiliate yourself
with organizations that you really feel identified
with their mission, that you feel proud that you
work for the organization.
I've certainly felt that way at the various universities.
I've been at.
And I felt that way very much working
in the federal government.
Several of our panelists this morning
talked about public service.
And I will say that some of the finest, smartest,
most dedicated, most passionate people that I've worked with
have been at the Federal Reserve and in the federal government.
But throughout, finding people to work with that
you brainstorm together.
You have to figure out what are we
going to do about this problem?
And coming into work and having a group of people you
feel these are people I want to hang out with.
I feel proud to have these people as my colleagues.
That's always been important to me--
so the people you work with and choosing organizations.
Somebody says, where do you work?
I work at the Federal Reserve.
I feel proud of that.
I feel it's an important organization.
It's devoted to the well-being of America.
-Well, thank you very much.
Thank you.
-Thank you very much, Greg, for leading us
in such a stimulating conversation.
I think we've all had a great tutorial today.
And it will stick with us, I think, for a long time.
And to Chair Yellen, thank you for sharing
your time, your experiences, and your wisdom with us today.
Now the moment has come to confer upon you the 2016
Radcliffe Medal.
She unites scholarship and leadership for the public good.
She brings candor and collegiality
to solving complex problems.
She strives to build an economy in which all Americans can
thrive.
Chair Janet Yellen, I bestow upon you this Radcliffe Medal,
with the deepest admiration for a lifetime
of visionary and principled service.
-Thank you.