Chair Yellen Holds Forth on the Inequality of Opportunity

October 17th, 2014 at 12:00 pm

Just heard Fed chair Janet Yellen give this great talk on inequality of wealth, income, and importantly, opportunity. I’ll have more to say later, but do give this a read.

Some points that jumped out to me:

–It’s fundamentally important that she gave this speech, as it was when President Obama gave a speech elevating inequality as a serious challenge. The Federal Reserve is of course focused by mandate on employment and inflation, but of course inequality of opportunity is linked to economic conditions. In fact, while I thought her speech was excellent, Chair Yellen could have hit harder on this point, as I note below.

–While many of her slides will be familiar to those who follow the issue, figure 10 (below) packs in a lot of information about this issue of inequality of opportunity. It shows the inequality of debt associated with higher education by wealth class. It’s unequal, of course, but has become considerably more so over time. We also see the stable and low debt burden of the top 5%.

I’m reminded of another finding here that poor kids with high cognitive test scores in 8th grade have about the same college completion rates of low-scoring rich kids.

–Chair Yellen stressed four “…sources of economic opportunity in America–think of them as “building blocks” for the gains in income and wealth that most Americans hope are within reach of those who strive for them. The first two are widely recognized as important sources of opportunity: resources available for children and affordable higher education. The second two may come as more of a surprise: business ownership and inheritances.”

First, I must say: where’s the macroeconomy here? Where’s full employment? I recognize that we’re talking about long-term trends across the life-cycle, but surely there’s a chain of reactions between tight labor markets, more broadly shared economic gains, and greater opportunity. These opportunity dynamics are complex with lots of moving parts, but it’s not a coincidence that inequality’s growth was quiescent during the post-war decades of full employment.

Second, especially given r>g Piketty-style dynamics, I’m not sure how much traction there is in terms of increasing opportunity for those on the wrong side of the inequality equation through inheritances and business ownership.

Still, even if she didn’t make all the connections I might have liked, it’s a great advance for the chair of the Fed to take such a deep dive into these inequality issues. And while I would have liked Chair Yellen to more closely tie full employment to the inequality of both outcomes and opportunities, the fact is that she’s fighting hard to keep the focus on the remaining slack in the job market is what matters most.

No questions, these are tough times for economies across the globe but we’re lucky to have such a great Fed chair.


Source: Yellen


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5 comments in reply to "Chair Yellen Holds Forth on the Inequality of Opportunity"

  1. Peter K. says:


    As awesome (and prescient!) as Charles Evans’s speech was at the Peterson conference which Posen moderated, in response to your question he seemed to say that the Fed should focus on its congressional mandate and not dwell on questions of inequality. Members of the FOMC may be leery of overstepping or being seen as political, but I thought it was a good question. And here is Yellen discussing the issue!

    I could never envision Greenspan or even Green Shoots Bernanke making this kind of speech.

    • Peter K. says:

      Irwin has a Bernanke quote:

      “Instead of raising the possibility that a widening gap between rich and poor could be contrary to American values, here’s what Ben Bernanke said in a 2007 speech to the Great Omaha Chamber of Commerce: “I will not draw any firm conclusions about the extent to which policy should attempt to offset inequality in economic outcomes; that determination inherently depends on values and social trade-offs and is thus properly left to the political process.”

      Sounds like Evans’s response to your query. Even so Evans was might prescient about the “downside risks” to the economy and why patience is a virtue.

  2. Carl says:

    This may come off as a dumb question, but what can Janet Yellen really do about inequality, other than not raise rates and let wages rise?

    Surely she has no secret sway over fiscal, regulatory, or tax policy…?

    • Smith says:

      For 40 years, from 1967 to 2007, inflation was only 2% or below 5 years, 3% or below 13 years. I’m beginning to think 2% is a stupid target.

      Inflation rates taken from secondary source:
      Gives data source as US Bureau of Labor Statistics and Robert Shiller.

      Cool interactive chart here:

      Gives data source State of Working America:
      “Data from Economic Policy Institute, State of Working America 2012, tables 4.4, 4.5, and 4.6; click on the SOWA flag logo at right for data and source info. updated June 2013”

  3. Larry Signor says:

    The Chairwoman’s last two building blocks made zero sense to me. Without full employment, how is the widespread wealth for inheritance going to materialize? Without full employment, where is the product demand and incentive to create new small businesses? For that matter, without full employment, how can we expand access to the first two building blocks? The cornerstone of a sound and expanding economy must be full employment. Everything else is derivative.