Policies of Scale: Efficient Global Policy

Janet Yellen: Maybe Not What You Would Expect

If two similar things with the same theme can be considered a “series,” then last night Reuters put out the second interview in what I’m dubbing the “Inside An Economist’s Brain” series. If you did not see the first one, I was interviewed about a month ago on a psychological profile I conducted of Larry Summers, one of the two favorites for the next Federal Reserve position, for my blog on the EconoMonitor. The piece apparently did well enough to warrant a similar piece on Janet Yellen, the other favorite, and Reuters asked if I would conduct the same study on Yellen.

The videos for both Summers and Yellen capture the most important aspect of the profiles, namely, the results, and the do so while preserving the integrity of the data. But there is more to the study than what the interviews covered. I actually conducted the Summers study prior to the request for interview from Reuters, and the details of the study can be found here (and, for that matter, a Ben Bernanke profile here that includes a thorough explanation of the methodology). Therefore, I thought it would be interesting to spend a few paragraphs going over a fascinating observation from the Yellen study.

The results of the studies on Bernanke, Summers, and Yellen suggest that all three are what the methodology calls “reactive” and “opportunistic” leaders. This classification stems from their strong nature to focus on solving problems, accept constraints, and be open to a wide variety of information. For this kind of expedient leader, their strategy revolves around finding consensus through bargaining as they assess what is possible in the situation given the nature of the problem and what the relevant constituencies will allow.

Taking a step back, it is interesting to evaluate Bernanke on these characteristics because we have a lot of history to judge. Does this sound like Bernanke? Has Bernanke respected the constraints of the Fed? Has, under his leadership, the Fed not authorized round after round of massive quantitative easing that has expanded the role of the organization beyond its established boundaries? Rhetorically, no, no, and yes. So what gives?

Bernanke’s score for task orientation, which measures whether and to what extent the subject is motivated by problems or by relationships he has people, is heavily tilted toward the problem end of the scale. He registered a 0.82 (scale of 0.0 to 1.0), which put him nearly three standard deviations above the norming group average (n=284). That is very high. Meanwhile, the scores that tell us about his respect for constraints suggest his tendency to bow to boundaries is weaker (though still above average). The assessment therefore suggests that while Bernanke was uncomfortable with pushing the boundaries of the Fed (how many times did he condemn Congress for not acting themselves, and therefore forcing his hand?), he nevertheless did so because his desire to help the economy (to address a problem) was overwhelming.

The working assumption among most observers I’ve read is that Janet Yellen will, if nominated and confirmed, bring the Fed’s policies back to the organization’s historic norms because, though a dove, she has a “conservative” decision-making nature. And, for what it is worth, my study mostly confirms this. She is very team-oriented, and also very open to new information from a wide array of sources. Further, she appears to not need a lot of credit, and works to enable others. As these characteristics play out within the office of someone who respects constraints and acts with measure, it seems fairly obvious she would level out the Fed. This set of traits stands out when compared to Summers, who while open to information needs more credit and leads a smaller team with a more dominating personality.

But there is a good reason to caveat these findings. Like Bernanke, she respects constraints, and like Bernanke, she has a high task orientation. But, her task orientation score is even higher than Bernanke’s, as in about 1.5 standard deviations higher (0.91 for Yellen versus 0.82 for Bernanke). If Bernanke’s is very high, Yellen’s is incredibly high. This means that if Federal Reserve Chairwoman Janet Yellen were to look at the state of the economy in 2014 and feel that it needs continued government stimulus, and looks at Congress and the Administration and feels they are not doing enough, she could, just like Bernanke, decide to continue the Fed’s extraterritorial policies.

The assumption is that Summers would be the more aggressive leader, and indeed his profile suggests he is a more decisive leader then Yellen. However, it would be unwise to underestimate Yellen’s drive and focus to fix things, and her ability to overlook constraints in the pursuit of solutions.

2 Responses to “Janet Yellen: Maybe Not What You Would Expect”

terrySeptember 3rd, 2013 at 9:49 am

It's all politics so wake up and don't worry who is best for the job. Who will take best care of the banksters?????? Summers………..

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