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Understanding Janet Yellen

I don’t know anything about Janet Yellen, the likely nominee for Secretary of the Treasury. For the purpose of this post, my ignorance is OK, even desirable, in that my goal is to try to understand mixed messages that I’m receiving.

Two constrasting views on the prospective Treasury Secretary

First, here’s Joseph Delaney:

So, I [Delaney] know that inflation is a potential menace and ignoring debt has gotten many an advanced nation into trouble. These are all reasonable things to be concerned about. But, via Yasha Levine, I want to bring your attention to the views of the frontrunner for incoming treasury secretary:

In a 2018 interview at the Charles Schwab Impact conference in Washington, Ms. Yellen said the United States’ debt path was “unsustainable” and offered a remedy: “If I had a magic wand, I would raise taxes and cut retirement spending.”

Last year, Ms. Yellen touched on the third rail of Democratic politics when she suggested more directly that cuts to Medicare, Medicaid and Social Security could be in order.

“I think it will not be solved without some additional revenues on the table, but I also find it hard to believe that it won’t be solved without some changes to those programs,” Ms. Yellen said at the National Investment Center for Seniors Housing & Care Fall Conference.

So, there are several issues all bundled together here. First, can we stop putting Medicare into the same bucket as the (less generous) Medicaid and the (quite sustainable) Social Security. The problem with Medicare, insofar as there is one, is an issue of medical cost inflation and that’s an independent policy problem that has little to do with the budget (except as a motivation to solve it). . . .

I am not saying these programs should never be considered for cuts, but that we should be very careful about not framing this as a choice to have lower revenues which require cuts. . . .

This reminded me that I’d noticed a Paul Krugman column on Yellen . . . ok, here it is:

In Praise of Janet Yellen the Economist

She never forgot that economics is about people.

It’s hard to overstate the enthusiasm among economists over Joe Biden’s selection of Janet Yellen as the next secretary of the Treasury. . . . But the good news about Yellen goes beyond her ridiculously distinguished career in public service. Before she held office, she was a serious researcher. And she was, in particular, one of the leading figures in an intellectual movement that helped save macroeconomics as a useful discipline when that usefulness was under both external and internal assault. . . .

Krugman also argues that Yellen “got it right” in 2009 by fighting against the “inflation hawks” to expand the economy.

What’s the conflict?

It seems to me that, despite both coming from the left, or the center-left, Delaney and Krumgan are painting much different pictures of Yellen. I say this because Delaney’s point—that it’s a mistake to use artificial budgetary constraints as a rationale for cutting benefits to the poor and middle class—is the kind of argument that I associate with Krugman, at least in his post-2000 incarnation. Krugman’s always saying we can afford Social Security, and he’s been pretty consistently criticizing those political figures who want to cut or otherwise restrict this retirement program. For example:

Social Security does not face a financial crisis; its long-term funding shortfall could easily be closed with modest increases in revenue.

Krugman goes on to offer a reason that some Republican politicians favor cutting Social security: “it’s all about the big money.”

So here’s the conflict.

A. Yellen wants to cut Social Security (as Delaney notes, she puts it in the “Medicare, Medicaid and Social Security” category, but that’s a separate issue we won’t get into here). Her rationale is that the debt is unsustainable and we can’t raise taxes.

B. Krugman hates, absolutely hates, people who want to cut Social Security, and he’s dismissive of the argument that the retirement program is unaffordable.

C. Krugman looooves Yellen, both as an academic economist and a policy figure.

I’m finding it difficult to hold A, B, and C in my head at the same time. Lewis Carroll might resolve the problem by just adding a fourth statement:

D. A and B are consistent with C.

Of course then I’d wonder why I should believe D, but then Carroll could posit:

E. D is true.

I guess this would pretty much cover it!

Possible explanations

OK, here are some possible resolutions to the above puzzle:

1. Maybe Yellen was misquoted and she doesn’t really want to cut Social Security?

2. Maybe Krugman wasn’t aware of Yellen’s stance on Social Security when he wrote his column the other day?

3. Maybe Krugman knows about Yellen’s stance on Social Security and doesn’t like it, but in his column he was evaluating all her positions on the economy: perhaps she agreed with him on 9 out of 10 issues and so in his column he’s focusing on the places where they agree?

4. Maybe Krugman has changed his views and now he thinks Social Security really is unsustainable? Maybe Social Security was sustainable in 2015 but not in 2020?

I’m guessing it’s #3. But I’m still baffled by how Krugman is so enthusiastic for Yellen given that they seem to disagree on such a core political and economic issue.


I’m not sure what to think here. My point is not to drag Krugman for being inconsistent. Rather, my point is how difficult it is for an outsider to evaluate policy positions.

There are lots of examples where a policymaker is on the left, and he or she is criticized from the right, or vice versa. And examples where a centrist is criticized from both sides, for example by supporting enough environmental regulations to annoy the right, but not enough to satisfy the left. I’m not saying that the centrist position is correct here; I’m just saying I understand the debate, or at least I think I do.

There are also examples of controversy arising from multidimensionality in policy positions. For example, you might agree with a policymaker’s position on China but disagree with their stance on India. Or you could agree on gun rights but not on abortion rights. I get that.

The Yellen example is interesting to me because it’s not either of the above things. Delaney and Krugman have different tones (the polite statistician and the aggressive economist) but I think their political positions are pretty similar. Delaney’s on the outside and has some distrust of Ivy League economics professors, and Krugman’s an insider, so that somewhat explains their different views about a credentialed academic economist—but I don’t see that Delaney and Krugman are disagreeing on the relevant policy question.

And that brings us to the other point, which is that this does not seem to be a multidimensional issue. Delaney is suspicious of Yellen regarding Social Security—but Krugman cares about social security too!

When two people with the same views on the same issue have opposite takes on a policymaker, I’m not sure what to think. Which is why I’m saying that, for the purpose of this discussion, it’s good that I came into this knowing nothing about Yellen. I don’t really have any strong views about Social Security either, but that’s another story.

P.S. In comments, Jim offers another possibility:

Yellen’s previous comments on social security, medicare and medicaid were just thinking out loud and don’t reflect a policy position. Krugman and Yellen have probably had many conversations, so Krugman knows much more about her thinking than a few simple quotes can reflect.

That makes sense. If Krugman thinks that Yellen’s previous statements on social security or entitlement reform don’t reflect her current positions, then it would make sense for him not to get into those issues in his column.


  1. Anoneuoid says:

    The problem with Medicare, insofar as there is one, is an issue of medical cost inflation and that’s an independent policy problem

    If you create debt (print money) and start spending massive amounts of it on something prices are going to rise all down the supply chain. It isnt independent at all.

    • Eduardo says:

      I think the point is that the medical costs outpace general inflation. That if they were in line with inflation, there would not be a problem with Medicare.

      • Anoneuoid says:

        Replied below on accident. Theres a term for this though from the 16-1700s but it escapes me at the moment.

      • jim says:

        “medical costs outpace general inflation. ”

        Think about it this way: if the price of a butt implant for butt-impaired seniors goes up 20%, what’s “the government” – e.g., political leadership – going to do? Go out and tell all those butt-impaired seniors that butt replacement program costs too much and will be stopped?

        This is where the game plan that’s “spending for the poor” goes off the rails: it winds up being spending for the rich. Sure, some poor people get new butts, but the big butt winners are the butt implant makers, who just keep pushing the price up because no good politician is going to tell people they can’t have something anymore.

        And in the end their isn’t enough rich people to tax to buy all those butt implants, so taxes on the poor rise. Hence – OMG! – rising inequality!

        • Martha (Smith) says:

          Speaking as a butt-impaired senior (never had a big butt), I deal with my problem by putting a pillow on the seat of my chair. (Also helps a bit with the vertically-challenged problem — although sometimes needs to be supplemented with another pillow or footrest on the floor.)

      • Anoneuoid says:

        Cantillion effect:

        Cantillon suggested that inflation occurs gradually and that the new supply of money has a localised effect on inflation, effectively originating the concept of non-neutral money.[62] Furthermore, he posited that the original recipients of new money enjoy higher standards of living at the expense of later recipients.[63] The concept of relative inflation, or a disproportionate rise in prices among different goods in an economy, is now known as the Cantillon Effect.[64]

        • Keith E. says:

          Thank you! This was an effect that I had noticed and made a stab at a mental model of, but didn’t know how to refer to it or search for it.

          My relatively small community was ravaged by wildfires a few months ago and hundreds of families lost their homes; it’s had an interesting (read: horrible) effect on housing and rental prices. Much of it due purely to supply and demand, of course, but there’s also hundreds of millions of dollars coming in from insurance, charity, and federal aid that are distorting that market tremendously. I expect it to even out, the excess dollars moving through sectors of the local economy like a wave, eventually leaving everything just a little more expensive than before.

    • Joseph Delaney says:

      Well, I think of Medicare financing as independent of social security financing.

      SS is a relatively predictable and fixed benefits program. There are a number of small tweaks that could strengthen it and a lot of evidence that it largely self-financing, even under pessimistic projections. It’s also relatively modest compared to other retirement programs and fungible (e.g., SS payout can be used to buy medical services).

      The independence I see here is that Medicare is currently growing in cost very fast. It is doing so despite a large private medical market in the United States. This makes it unpredictable and a growing expense. So policy ideas like “bend the curve” make sense, in a way that they probably would not for social security.

      So, from a policy perspective, except insofar as they are entitlements, the policy approaches seem very different. One is the land of cautious tweaks and reasonable queries about “can-kicking”. The other is quite different. For example, if you look at medical costs as a % of GDP, in 1960 they are 5% and in 2020 they are projected to be 18% in 2020. SS is expected to increase (from 5% to 6.15 of GDP in the next 15 years) but it is a very different. Whether that is because of better care, rent-seeking, or very differential inflation is definitely a point of contention, but all of these suggest very different policy approaches than SS appears to. Thus I advocate for policy thinking of the two programs very independently from each other, as the best approaches may differ.

      • Anoneuoid says:

        I’m just saying that the medical cost inflation is a direct consequence of the government budget (ie, paying for lots of healthcare expenses) and growing debt. It is hardly a “policy problem that has little to do with the budget”.

        • Joseph Delaney says:

          So, both SS and Medicare have to do with the budget. So do many other things. It’s more that the ways to engage them are quite different, so a single category called “medicare, medicaid, and social security” is not very useful, any more than “social security and defense” would be.

          • Anoneuoid says:

            both SS and Medicare have to do with the budget

            Ok. But your statement was that the problem with medicare is one of medical cost inflation and this has little to do with the budget.

            I disagree with that statement.

            • Joseph Delaney says:

              Medical cost inflation happens even in countries with different medical systems, ones paying down the debt, and ones that are cutting medical budgets. I think there may be a non-zero effect here, but I think we disagree on mechanism. The leverage to increase prices depends on there being a union or monopoly, or else competition works as providers compete.

              Notably, medical costs increase faster for private coverage in the US.

              • Anoneuoid says:

                Its the supply of debt/dollars increasing and being largely concentrated into certain industries/assets.

                The details of how the industry is functioning have negligible importance if this is done at a large enough scale. Pump new money into it and prices will rise because the value of the currency is dropping.

                There is a numerator and denominator involved in the price of something. Dont focus on only one of them.

        • Economist says:

          Why do you believe the major driver of healthcare spending is the US National debt? While a large debt can certainly impact general characteristics of spending (and certain more specific ones, like investment), there’s not much reason to believe a high US debt would lead to high medical costs in isolation.

          While there’s certainly no single reason for high medical spending in the US, the driving forces are almost certainly rent seeking by monopolies (at all levels of the system), imperfect and inefficient bargaining processes, high spending on certain expensive procedures, a lack of “cost containment” policies (like those found in other countries for drug prices), high physician pay, high administrative costs, etc. None of which is remotely related to the national debt.

        • David J. Littleboy says:

          “medical cost inflation is a direct consequence of the government budget”

          No. Medical costs in the US are due to us not controlling prices other than Medicare, and even that’s indexed to market prices.

          Other countries don’t let their medical services providers screw them over anywhere near as badly as we let ours.

    • David J. Littleboy says:

      But in real life, inflation has been too low for decades now. Business needs some amount of inflation to prosper: if prices are staying the same, or going down, you can’t invest in new production capacity (or it’s harder to). And while inflation in the US was nasty in the 1970s, that’s ancient history. Even worse, there’s been no _industrialized_ country that’s had an inflation problem due to excessive government debt in recent years. Japan’s debt is through the roof (by other advanced country standards) and inflation is way too low. Both Japan and the US have been missing inflation targets (by large amounts) for a long time now.

      Fear of inflation strikes me as one of the dizziest bogus bugbears in human history.

      • Anoneuoid says:

        You dont see any price inflation in the healthcare industry? How about the coat of going to college?

        • David J. Littleboy says:

          Don’t forget the price of real estate in places where rich folks live: that one’s nasty, too. (If you’re neuveau riche and trying to get into the club. Do we have sympathy for such folks here?) (Including the aftermath of the CA fires mentioned elsewhere here.)

          But the official inflation numbers are based on well-defined calculations. Presumably, these three are included, or excluded for good reasons. I’m not an economist, but a lot of the discussion here is way more naive about economics than even my amateur level knowledge. But in a statistical blog, you’d think more people would be aware that anecdote isn’t data.

          Note that in the US, national debt as a percentage of GDP, pretty much every time, goes down under (drum roll) Democratic administrations and up under (yes, you guessed it, the only other option) Republican administrations. I forget if Obama was the outlier; can’t imagine his not having been since he started in the midst of the worst economic crisis since the great depression…

          Oh, yes. Paying for medical care for old folks. Alligator tears on how this expense is going to bankrupt the US due to the increasing number of elderly Americans are nuts. Japan already has a higher percentage of elderly than the US ever will (yes, ever) and will be getting much worse (better, actually: more elderly means people are living longer, a good thing) rapidly. For the nonce, Japan is doing OK on this, so the US can as well. If we bring our insane medical care provision system into line with the other industrialized countries.

          • Anoneuoid says:

            Don’t forget the price of real estate in places where rich folks live: that one’s nasty, too.

            I have a post pending below that refers to this (indirectly, but its another investment asset like stocks). It is once again the cantillon effect.

            Republicans vs democrats is an irrelevant distinction. More debt and more spying on everyone continues to expand equally under both (using different excuses) leading to ever increasing wealth inequality.

    • Chetan says:

      This is a subset of a broader policy issue:

      Stage 1: Government decides X (healthcare, housing, education…) is a right.
      Stage 2: X needs to be regulated and subsidized via debt that is government backed.
      Stage 3: Prices invariably rise due to supply constraints because of regulation + demand decoupled from prices due to government backed debt financing.
      Stage 4: Unsustainable bubble in sector (healthcare, housing, education) due to policy.
      Stage 5: Bubble pops, politicians blame capitalism for denying access to X equitably. Cycle repeats.

  2. Michael Weissman says:

    I have a strong view about SS. If Dems make any cuts at all in it, that’s political suicide. Anybody who thinks otherwise needs to get out of the damn think tanks and do some canvassing.

    • dhogaza says:

      Well, it would seem that at least one of the following must happen:

      1. revenue for SS raised, by tweaking the SS tax.
      2. benefits cut.
      3. retirement age raised.

      Now in her statement “I think it will not be solved without some additional revenues on the table, but I also find it hard to believe that it won’t be solved without some changes to those programs” she doesn’t actually say that SS must be cut. So presumably she might be talking about some mix of #1 and #3.

      Also, in the real world, she and anyone else wanting to address the problem have to address the fact that there are, indeed, Republicans in this world and in particular in the Senate, with its tradition of fillibuster.

      • Clyde Schechter says:

        Regardless of what one thinks about any of this, raising the retirement age IS a benefit cut. It’s just done in one fell swoop up front, rather than being spread out over time. It may be perceived somewhat differently by the public large, and raising the retirement age puts all the burden on upcoming retirees and none on current ones. But it’s still a benefit cut.

  3. Dale Lehman says:

    I think you have fallen into a trap – a trap similar to dichotomous thinking and NHST. I don’t believe Yellen either supports cutting social security or preserving it in its entirety. Social security is just too complex an issue to reduce to a simple dichotomous choice – to cut or not cut. The problem, in our politicized environment, is that we can’t have a serious discussion about the issue without declaring sides. And the sides are simplistic – either cut or don’t cut. In fact, there are many gray layers between the two. It could be made more means tested – in myriad ways. Also, your view on any particular policy change will (and should) depend on the actual alternatives available – as the population ages, how sustainable is the current model and what policy changes are required to sustain it? I can imagine circumstances under which a careful review of the evidence might lead someone to support some kind of “cuts” to social security, and other circumstances where that same person would reject such “cuts.” But, there is no way to portray this complexity by reducing it to a binary choice. As Michael Weissman’s comment above indicates, it is dichotomous thinking that takes over when we try to talk about these issues. Maybe we need a Malcolm Gladwell to reduce the complexity for us (to relate it to your prior post, which I think shares some similarities with this one).

    • Andrew says:


      I agree—but what I’m struggling with is Krugman’s take on this situation. He seemed to feel pretty strongly that “no cuts” is a good position, perhaps not so much for economic reasons as for slippery-slope political reasons.

      From a generic statistical or policy-analysis perspective: sure, I agree about the continuity. Indeed, once “no cuts” are on the table, expansion should be on the table too. One tricky aspect of all of this is, as Delaney points out, that this is tied to other issues such as health benefits and taxes. Many of the people who don’t want to cut social security also support raising taxes anyway, on the assumption that it will be rich people who are paying those taxes. And policymakers who want to cut social security might also want to cut other social programs. So it’s hard to think about any of these issues in isolation.

      • somebody says:

        I feel like this is more about understanding Paul Krugman than it is about understanding Janet Yellen.

        My best guess is that Krugman usually writes about people sniffing around the social security budget who are tied in some way to the Republican policy platform, and he hates Republicans. Or, more charitably, he’s skeptical of whether or not such people want to cut social security on solid economic grounds rather than Conservative moralism, and therefore of the details of how they’d make such a budget cut.

        • Andrew says:


          Yes, it’s a post about understanding Krugman, but that’s part of the point: The way that I, as a consumer of news, understands Yellen is through pundits such as Krugman. Or Mankiw, or Hannity, or whatever. Sure, I know that Krugman has a strong perspective: my understanding of Yellen will not be simply taken by following Krugman. The challenge here is that I’m struggling to follow Krugman’s reasoning, which in turn makes it more difficult to get a sense of Yellen’s policy positions.

          So, yes, the above post is about Krugman. But if it wasn’t about Krugman, it would be about some other pundit or intermediary from whom I triangulate to understand the world.

      • Dale Lehman says:

        If we succumb to slippery slope reasoning, then I fear that all is lost. That reasoning never worked in the past and won’t work for the future, but it is unfortunately becoming the predominant way of thinking. It reminded me of the book “Judging Science” about the benedictin decision at the Supreme Court. The issue concerned expert opinion on statistical matters. One of the briefs in support of the p=.05 standard basically make a slippery slope argument. If we abandon that standard, then we are on a slippery slope which leads to no standards at all. I know you don’t buy that logic – and neither do I – but it reiterates my view that the issue of cutting social security is actually similar to issues with NHST, as both reduce complex issues to simplistic – and counterproductive – binary thinking.

      • John Williams says:

        It seems to me that Krugman’s column is about Yellen as a New Keynesian. It mentions social security only in passing, so it isn’t a good place to look for his thinking about social security. My impression is that he does view it mostly from a political perspective, as in, and doesn’t think it has serious economic shortcomings.

    • John Hall says:

      Yes. “Janet Yellen wants to cut benefits for poor people” is not at all the same thing as “Janet Yellen wants to make some changes to entitlement programs.” Changes to the programs incorporates many different policy choices.

      Moreover, I don’t think Andrew adequately captures the difference in Janet Yellen qua Economist/Fed Chair and Janet Yellen qua Treasury Secretary. A Treasury Secretary is in a much greater political role. I highly doubt she will pursue any significant changes to those programs in a way that cut benefits to low income people.

    • Joshua says:

      I agree. This post is unfortunately hot-take-ish from Andrew. Not up to the standard I’ve come to expect.

      • Renzo Alves says:

        As Lee Cronbach (of Cronbach’s alpha fame) said, academics who dabble in political commentary are walking on thin ice.

        They have their right to have and express their opinions (like everyone else), but no special right to not be slapped down and crucified.

        • Andrew says:


          I don’t think James Watson is being crucified! He’s an academic who dabbles in political commentary (of a sort), and people call him out on it. Same with Krugman. Nobody’s crucifying the guy; he’s expressing his opinions and other people disagree with him.

          Regarding “hot takes”: Sorry, but I think that the economic policies of leaders of the U.S. government are important. They have real consequences. And, whether or not you like Krugman, he has some knowledge of this particular cabinet appointee, so I think he’s views on her policies are relevant.

          Look. I like the hot hand as much as anybody does. But once in awhile we talk about politics on this blog too. I think politics is important. If I didn’t, I wouldn’t have become a political scientist. And if I didn’t think blogs were important, I wouldn’t be responding to blog commenters.

        • Joshua says:

          I certainly don’t object to discussion of politics, let alone YOUR discussion of POLITICS, which I usually find interesting and well thought out.

          I just thought that this post was hot take-ish because the premise was thin. I don’t think that there’s much solid info on which to have a reasonable estimate of (1) Yellen’s views on policies she’ll be advocating for addressing the debt or (2) Krugman’s views on Yellen’s views of those policies.

  4. Anoneuoid says:

    Healthcare (and education) outpaces general inflation because its closer to the source of new debt/money. The treasury issues bonds then the government pays out a couple trillion dollars to medicare, medicade, and social security that is largely spent on healthcare. Then the people in those industries spend on other stuff in a less concerted fashion.

    • jim says:

      I disagree.

      As long as the gov is bumping up the size of the pot to keep pace with rising prices, prices will keep rising. Pretty simple.

      • Anoneuoid says:

        I dont see what you are disagreeing with.

        • jim says:

          I want to frame it in terms of a well known economic principle: supply and demand. The gov is creating massive demand. Hence the price rises.

          • Anoneuoid says:

            The way they do that is by creating debt/money. And they are increasing the supply of money directed to the healthcare industry, which is the same thing as “demand” for the services but a less confusing way to talk about it.

            But yes it is simple supply and demand.

          • An Economist says:

            Unfortunately, unlike what’s commonly told to first year undergraduates taking an econ101 class, a basic supply and demand graph (without substantial additional revisions) is often insufficient for understanding complex problems. To take an easy, relevant example: how are healthcare prices set? There’s no generally observable market, and often different insurance companies will end up paying different reimbursement rates to practitioners. Why? Because prices are set through a process of negotiation, with many possible equilibrium prices. Moreover, often starting points for these negotiations are based on the previous agreement, meaning (unlike a traditional market) the outcomes show substantial history-dependence.

            While the “well known economic principle: supply and demand” might be ok for many settings, it simply doesn’t accurately reflect a lot of the driving forces behind high healthcare prices in the United States. Of course, these forces are present and impactful, but unfortunately, they don’t provide sufficient detail to accurately capture the mechanisms of interest.

            • Thanks for saying it so I don’t have to.

            • jim says:

              As far as I can see nothing you have said contradicts the demand argument.

              My discipline is geology. Just imagine for a moment the complex interplay of forces on, for example, a bend in a major strike-slip zone like the San Andreas. Yet when we zoom out to the global level, the driving forces are still simple: three primary force directions acting on a plane at some angle, forcing two large crustal blocks past one another.

              Sure, some buddy who’s research is in the dynamics of microasperities in fault zones will rush in and say “whoa, it’s just *not* that simple!”

            • Anoneuoid says:

              Did you predict a price inflation in medical costs based on your understanding of how it works?

            • Supply, demand, and price only come into “equilibrium” when there is a liquid market.

              So suppose there’s exactly 10 paintings by Jackson Pollock still remaining, and they’re owned by 2 different organizations, and one of them is a nonprofit trust that is required by law to maintain them and offer them for viewing to the public in a museum… What is the “supply” and what is the “demand” at any given price? It’s not really a meaningful discussion. If some organization were willing to pay a trillion dollars for a painting, could the trust bribe legal officials enough to let them break their legal requirements so they could get a trillion dollars? Or maybe get some kind of fake made so they could pretend to still have it in their museum? yeah probably, but it’s more about legal and social and forgery questions than supply and demand.

              Healthcare is a lot like that, it’s complicated because the people demanding the services aren’t paying for them, and the prices that are eventually paid are “secret” and negotiated between third parties… and negotiated dramatically different between different third parties etc. So, yes by pouring money into healthcare sector generally prices have gone up, but there were policies we could have put in place that would have prevented that too.. it’s really more about those policies than about supply and demand.

              • Anoneuoid says:

                Its not really increased demand for healthcare services though (there is due to aging baby boomer cohort of course but its relatively minor).

                Its that the supply of debt/dollars is increasing at an accelerating pace:


                The price inflation primarily shows up where that new money/debt goes first. The organizations that get it first are the US government and primary dealer banks. Next is large corporations, well-connected wealthy people, etc.

                Thats why healthcare, higher education (due to gov backed student loans), and stocks (along w similar investment assets) are where the inflation shows up most.

                Its really about the denominator, the details of the numerator are negligible in comparison.

              • If your point is that rich people have figured out how to get the govt to print money and give it to them and this is distorting the entire economy then I’m with you wholeheartedly. Calling out healthcare as special was the part I disagreed with :)

              • Anoneuoid says:

                My point is that rising healthcare costs is due to the government issuing ever increasing amount of new debt to pay for it. It is very close to the new money being created so inflation shows up there first.

                If instead they issued new debt and sent out $10k stimulus checks to everyone, it would show up wherever people decided to spend the money.

                Its the supply of dollars increasing, The inflation shows up wherever they are spent first, healthcare being one example.

                So price inflation in healthcare is decidedly not independent of the US budget.

              • somebody says:

                Beyond that, also that any economists wondering “we printed all this QE, why is there no inflation” just aren’t looking in the right places. There’s lots of inflation, and what’s more in all the most important goods. High rents and really cheap corn based food products can average out to a wash in a CPI deflator, but unfortunately do not in real life.

  5. Wonks Anonymous says:

    Here’s one way to reconcile the positions: Yellen wasn’t singling out Social Security as something particularly deserving of cuts, she was simply lumping together all the entitlement programs. And a reason to do that is because funding for them is automatic rather than part of a discretionary budget. If we just cut Medicare, as Delaney (and one might assume Krugman) wants, that would cut the aggregate of all three programs and would satisfy Yellen. If Krugman’s reasons for not wanting to cut SS are not strictly economic but also a matter of political strategy, then it’s not that odd for an economist he praises to not be focused on political strategy.

  6. Matt Skaggs says:

    “If we succumb to slippery slope reasoning, then I fear that all is lost.”


    Quit doing that!

    Actually I like it so much that I am going to add it to my Douglas Hofstadter memorial.

  7. jim says:

    Here’s another take:

    Yellen’s previous comments on social security, medicare and medicaid were just thinking out loud and don’t reflect a policy position. Krugman and Yellen have probably had many conversations, so Krugman knows much more about her thinking than a few simple quotes can reflect.

    • elin says:

      People have to be able to explore ideas. People also have to be able to change their thinking as the situation changes or they learn more.

    • Joseph Delaney says:

      Yes, that is pretty close to my own take on why Paul Krugman and I might differ on our takes on Janet Yellen. I am weighting her more recent comments and “Fix the Debt” has pretty well known policy preferences. But Dr. Krugman has a much longer history of engagement with her, and so may have the advantage of non-public knowledge as to her goals and policy preferences.

      This is part of why I multi-sourced her positions, to make sure I was not completely out to lunch.

  8. Joshua says:

    Andrew –

    You just skipped over the first part of this statement:

    > “If I had a magic wand, I would raise taxes and cut retirement spending

    She doesn’t have a magic wand. As such, she will seek more realistic policies to address shortcomings of the current situation.

    This is in line with Jim’s comment that you highlight above.

    • jim says:

      In Andrew’s defense, it is common for the punditry to take anything any public figure says as a firm policy position. And I guess in a partial retraction of my own statement, Yellen knows this very well having been chair of the Fed, where extreme caution about saying anything too firm is legendary, so in some respects it might be surprising that she would wander intellectually in a public statement.

  9. Dave says:

    This isn’t the first time Krugman has been inconsistent on Social Security, as can be seen by this article written in 2007:

    Also, you can find all sorts of inconsistencies from Krugman’s writing by googling “krugman vs krugman”. I’m sure not all of those are valid, but I’ve seen plenty that are. He stopped being an economist a couple of decades ago.

  10. Biden’s Presidential bid has premised on helping the lower and middle economic class. So let’s see how this goes down after January.

    I don’t see anyone at the forefront of influence like the late Paul Volcker. Who qualifies as such today? Then again I haven’t followed the subject.

  11. Garrett M says:

    “But I’m still baffled by how Krugman is so enthusiastic for Yellen given that they seem to disagree on such a core political and economic issue.”

    “Delaney’s on the outside and has some distrust of Ivy League economics professors, and Krugman’s an insider, so that somewhat explains their different views about a credentialed academic economist—but I don’t see that Delaney and Krugman are disagreeing on the relevant policy question.”

    I think what’s going on is that there aren’t really that many “core political and economic issues.” People defend those in their tribe and attack those outside their tribe.

  12. Carlos Ungil says:

    “In the New York Times in August 2002, Paul Krugman writes: ‘To fight this recession the Fed needs more than a snapback; it needs soaring household spending to offset moribund business investment. And to do that, as Paul McCulley of Pimco put it, Alan Greenspan needs to create a housing bubble to replace the Nasdaq bubble’ (Krugman 2002).

    “In blog and newspaper pieces around that time Krugman is encouraging the Federal Reserve to achieve such stimulus through looser monetary policy. For example, he argues: ‘It’s still not clear that Mr. Greenspan has caught up with the curve — let’s have at least one more rate cut, please.’ (Krugman 2001). Yet half a decade later he argues: ‘If there are two guys that I blame for this crisis it would be, in order, Alan Greenspan and Phil Gramm.’ (Krugman 2008a)

    “It is reasonable enough to change one’s mind. But to change one’s mind without explanation, and to compound the aggravation by damning those who implemented the very policy that one favoured at the time, is extraordinary.

    “Not content to leave this well alone Krugman disingenuously explains in regard to his 2002 piece quoted above, that: ‘It wasn’t a piece of policy advocacy, it was just economic analysis.’ (Krugman 2009a)”

  13. Jonathan (another one) says:

    I realize that you don’t want to use this thread as just another method of piling on Krugman, but I have to say that my take is that expecting Krugman to take either other people or his own previous positions seriously is a mug’s game. From yesterday: ‘When Joe Biden is inaugurated, he will immediately be confronted with an unprecedented challenge… he’ll be the first modern US president trying to govern in the face of an opposition that refuses to accept his legitimacy. And no, Democrats never said Donald Trump was illegitimate, just that he was incompetent and dangerous.’

    Really? How about Krugman himself in 2016? ‘But the result was nonetheless illegitimate in important ways; the victor was rejected by the public, and won the Electoral College only thanks to foreign intervention and grotesquely inappropriate, partisan behavior on the part of domestic law enforcement… nothing that happened on Election Day or is happening now is normal. Democratic norms have been and continue to be violated, and anyone who refuses to acknowledge this reality is, in effect, complicit in the degradation of our republic.’

    And of course his statement current characterizes not just his opinion, but that of other Democrats, The number of Democrats who can be cited to say that Trump’s victory in 2016 were illegitimate are legion… I will list some if anyone is interested.

  14. David Marcus says:

    While Krugman is generally sensible, he seems to have become enamored of the establishment/corporate Democrats (Hillary, etc.) even though his economic views are more in tune with the progressive Democrats. For example, see, It isn’t clear how progressive Yellen really is.

  15. Anonymous says:

    Cant you just ask him?

    • Andrew says:


      After the above post appeared, I did send it to Delaney and Krugman asking for their thoughts. But I wanted to post without doing that, because my main point was the difficulty of assessing policy positions from the outside, given available information. Once I get Krugman’s response, I’m an insider. Krugman’s response is relevant to the goal of understanding Yellen’s positions but not so relevant for the goal of pointing out the current state of confusion.

  16. Oncodoc says:

    Yellen has a track record. She was chair of the Fed. The Fed is supposed to use monetary policy to create high employment levels, low interest rates, and stability of prices. How well did she do? Her style was to be out of view for the most part. Is that good or bad? Personally, I would find a discussion on these questions more interesting than whether we can dig out selfcontradictory statements in Dr. Krugman’s ouevre. I think that the more you write, the higher the likelihood of saying something stupid, and Krugman writes a lot.

  17. Peter Dorman says:

    I think there’s an additional aspect that no one has mentioned yet, that policy proposals serve a function as bargaining chips in higher level political horse-trading. This is especially the case with SS, which was bundled into the “grand bargain” that Obama was at least temporarily interested in. Yellen has been a player in these circles. I suspect that vaguely indicative public comments about SS might have been part of a larger positioning strategy for which she might anticipate some future quid pro quos. This would be consistent with a reluctance to be specific about benefit/eligibility cuts, since as Dale L has said, there are lots of policy parameters one could tweak.

    What the 2018 quote is definitely *not* consistent with is the view that JL supports an SS expansion. This is, I think, Krugman’s position today and is shared by much of the progressive policy community. (For those interested, the most knowledgeable and influential progressive analyst of retirement policy options is Teresa Ghilarducci.) But it may be that in a different political context, Yellen would be in favor of expansion.

  18. LEL in Wheat Ridge says:

    It won’t resolve the question of conflicting view and statements on the three programs, but it would help to distinguish among three programs with completely different missions and with differing revenue bases. As a start, lets characterize the missions. Social security, the oldest program of the three, is a generalized income security program based on intergenerational transfers. Current earners and their employers are taxed, and the funds are transferred to retirement-age recipients. It isn’t means tested. Though amended since enactment in 1935, it is a principal legacy of New Deal liberalism. Medicaid and Medicare are products of LBJ era, Great Society initiatives. Medicaid, begun by the Social Security Act of 1965, is an insurance program for low income persons of any age and others of limited resources. State funding is primary in Medicaid; the federal government provides matching funds to states and sets requirements for services. States do not have to participate in Medicaid. It is means tested, and recent controversy over Obamacare’s Medicaid amendments included argument over how low income should be before qualifying. Medicare, which dates from 1966, is a national insurance program for, mainly, persons over 65, plus the younger and disabled. There three main funding streams: payroll tax, recipient premiums, and general federal revenue. Medicare is not means tested. The programs are similar in that entitled participants must opt in (apply and qualify for) participation. Let the policy debate continue.

  19. jonathan says:

    I give you credit for being intelligent enough to know that Yellen could have meant many things. (In giving you credit, I’m not taking any for myself! No matter how you originally worded this, the intent that you meant an intelligent remark came through.) And you know Krugman isnt likely to point out differences when he’s selling the Democratic nominee. We can assume that reflects a conscious suppression. And that’s a tilt, an effect of the party priors as those intersect with his more personal or intellectual priors.

    I find this kind of thing interesting, not because it exposes some underlying hypocrisy, but because it shows how perspective over a complex space imparts a spin to the way you not only see things but resolve them. I think of it as directions around a complex rotation, so if you’re a Democrat you run the perspective over the top in the positive, and you see the GOP positions as the negative. The GOP does the same thing, and they also think they’re in the positive and the Democrats the negative. And we think seeing the other side is easy! Most of the time we think we see the other side, but we’re seeing a negative image generated as the inversion of our positive. And then we impose that view so that becomes, ‘This is how you think!’ and ‘This is what you are!’

    In other words, a resolution is to view Krugman and Yellen as allies who share the same spin, that they rotate through the complexity of these issues from the Democratic perspective, and so therefore whatever these differences, and whatever she said, when the process enacts into policy, those policies will reflect the Democratic spin, and that will be good or would be good if only the Republicans would give up their perspective!

    It is fascinating the degree to which underlying identity imparts spin. Being Jewish with a Germanic past and last name, but also a student of Latin, it’s fascinating to see how that expresses in the fundamental Germanic mythology of the Battle of the Teutoberg Forest. (In brief: a German raised by Rome, rose through the Roman ranks, was trusted, then turned on them and ambushed the legions using his knowledge.) To Germans, it was the primal German identity expressing its truth after year of exposure to Rome. To the Romans, it was the failure of their belief in the civilizing power of Rome. That is why Augustus was so upset; not the loss of legions, because Rome had lost to Hannibal and others, but rather the loss of trust in their process. So you have two literal opposites. And here’s the point: this has consequences that our people have suffered. The German mythology incorporates betrayal from within because it relies on the loyalty of the person to the deepest identity. Hitler used that: the Germans lost because their pure German spirit was constrained, and who constrained them, who perverted them, who caused them to lose but the betrayer within. In other words, they take the thing they see within themselves and impose that on others, so they treated the Jews as disloyal because they believed they would be disloyal if their identity allegiance demanded that.

    So this stuff really matters. It isnt a small bit about inconsistency; it’s about how perspective constrains your ability to see outside your perspective, how it convinces you of your correctness – a constant thorn in your side – and how it distorts your view of other perspectives. We see daily that this often goes to the point of demonization.

    It really attaches to Wansink. He believed in his work so he had his people fish for evidence that supported those beliefs. Those people not only go through the data, but that is a complex rotation, meaning they use their brains to see the facets they need to see to create the case they want to make. I’m highly familiar with that process because lawyer are trained to do that; you find the facets glittering and make a gem of them which you hope glitters so much no one looks at the other side’s case without thinking yours is better.

  20. Commenter says:

    Yellen has not had much involvement with Social Security policy, and her casual remarks reflect the conventional Washington habit of lumping together the “entitlement” programs as something to be addressed in bulk. “Washington” here includes much of the Obama administration, the Washington Post, and the Committee for a Responsible Federal Budget, of which Yellen is on the Board. Krugman also used to think like this, but his thinking has evolved as he became more familiar with the mechanics of the Social Security system.

    Social Security really is a separately financed system, and as long as Social Security policy alternatives continue to address self-financed solutions to trust fund solvency – such as increasing the payroll tax or the cap on taxes or reducing benefits – it continues to be self-financed, and really does not affect the debt of the rest of the government at all. (The trust funds park their temporary surpluses in government bonds, but those bonds represent debt of the rest of the government that occurs anyway; it the trust funds didn’t hold that part of the debt, the public would.)

    I am not a Krugman fan, but on this point at least his views seem more responsible than the conventional Democratic position (or what used to be the conventional position). Social Security taxes and benefits need adjusting, but this is an adjustment that will be made sooner or later anyway under self-financing. The deficit of the rest of the government is a separate issue, and to think that it can be addressed by increasing Social Security taxes or decreasing benefits is a delusion. An increase in the Social Security surplus does reduce the net public deficit (which reduces the deficit of the rest of the government by the amount of the Social Security surplus), but it does nothing to reduce the debt of the rest of the government, which is the debt that must be covered by future income taxes or reductions in spending on government programs other than Social Security.

  21. Peter Gerdes says:

    Isn’t there a kinda obvious potential solution. Perhaps in her speech Yellen wasn’t indicating a belief that cutting these programs was the desirable path but that it was better than the alternatives given what she sees as binding political constraints.

    Now Krugman may well want to loudly point out that we don’t have to cut these programs and can raise revenue instead because, in speaking to the public, he hopes to push the compromise further towards the new revenue side (all the way if he could) but it doesn’t follow that he disagrees with the claim that if it turns out to be politically impossible to raise revenue cutting these programs is better than just increasing debt. He might think it unwise of Yellen to admit this openly but it could resolve the problem.

    More likely, however, is that particularized agreement is something he values less than the belief that the individual is smart, capable and has the same general framework for evaluating problems and the same values in picking solutions.

  22. Anonymous says:

    Just saw this so i’m late to the party. Two adages:

    1) The perfect is the enemy of the good.
    During her tenure as Fed chairman, Yellen arguably a) raised rates too early, and b) targeted inflation at too high a level, (at an *average* of 2% even though inflation had been substantially below 2% target for extended periods) As an academic economist, Yellen knew better but acted to appease Congress and Wall Street. Recall, at the time, Republicans were reconsidering the independence of the Fed. She remained effective and lived to fight another day – as a result she’ll probably get confirmed easily, even by a McConnell controlled Senate.
    Re her comments on social programs: Yes, the correct answer is to raise taxes, as she acknowledged at the time, and debt fear mongering is scam, given real interest rates have been close to zero (currently negative) since the ’08 crisis – Remember the Reinhart-Rogoff fiasco of 2010! She knew all this, and she knew people like Krugman knew she knew all this, and yet did not dismiss out of hand the cutting if social programs. if she had, she would have been finished as an “acceptable” public servant.
    2) A foolish consistency is the hobgoblin of little minds, adored by little statesmen and philosophers and divines.
    I have followed the work of Krugman closely for the last twenty-five years or so. He is brilliant. Has he been wrong? Hells yeah, as he regularly acknowledges. And, dare I say, maybe not so wrong outside the standard error of his chosen field. He can be dismissive and acerbic, as are many brilliant people. My reading of his comments is that he respects Yellen as an economist, and knows her heart is in the right place.

    It’s probably useful to consider a counterfactual here: Assume Yellen had said she was categorically opposed cutting social programs. Chances are she would not have had a career as a senior public servant; would probably not have been Fed Chair, would not be confirmable as Treasury Secretary in a bipartisan fashion. We would have someone else, but that person too would have to be an insider, palatable to both sides. Recall, even with a 60 seat majority in the Senate, Obama picked Geithner! Yellen should be orders of magnitude better

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