Why Fed Chair Janet Yellen Keeps Bringing Up Education as an Economic Force — and Why Not Everyone Is Thrilled

(Photo by Mark Wilson/Getty Images)

Federal Reserve Chair Janet Yellen was two and a half hours into testimony before the House Financial Services Committee on July 12 when she veered slightly from the usual talk of inflation and interest rates.

Improving training and education in the United States is a “key focus for me,” she told Rep. John Delaney, a Democrat from Maryland who would go on two weeks later to become the first of his party to enter the 2020 presidential race.

“Education and training are absolutely central to the ability of workers to fill the new kinds of jobs that will be available,” she said in response to a question about the changing nature of work in the face of new technology.

Her answer, in which she remarked on the importance of improving education for young people and boosting training for older workers who may need new tech skills, comes on top of a string of recent remarks she has made about education, from preschool through higher education.

Yellen, who in 2014 became the first woman to chair the country’s monetary policy apparatus, mentioned the issue in at least six speeches between December 2016 and May 2017, according to a review of published remarks on the Federal Reserve’s website.

In fact, her discussion of the issue started even earlier. In late 2014, she pointed to education as one of the factors causing unequal distribution of wealth in the U.S., The New York Times reported.

Yellen’s term expires in February. President Donald Trump was asked by reporters about her on Thursday on his return flight from Florida on Air Force One.

“I like her, and I respect her,” Trump said, according to CBS News MoneyWatch.

Trump told The Wall Street Journal this summer that he was weighing whether to keep Yellen on the job or replace her with National Economic Council Director Gary Cohn. (White House staffers frequently fall in and out of favor with the president, of course. Cohn was reportedly upset with Trump’s comments in the wake of white supremacist demonstrations in Charlottesville, Va., though the White House has said he plans to stay on.)

Other Fed chairs have talked about the issue of education, but Yellen “stands out on the frequency with which she has talked about it,” said Russ Whitehurst, a senior fellow at the Brookings Institution.

Mike Madowitz, an economist with the liberal Center for American Progress, said he’s “confident” Yellen has discussed it more frequently than her predecessors.

“All economists kind of agree that education is an important, yet not super well understood, channel for making the economy grow faster, so it’s pretty much always on the radar of the central bank, but I do think she’s been somewhat unusual in being cognizant of the importance of raising it publicly,” he said.

A spokesperson for the Fed said that without reviewing all former Fed leaders’ speeches, it’s impossible to say whether Yellen discusses the issue more often than others. Both Yellen and her predecessor, Ben Bernanke, taught at the college level and hosted teacher town hall meetings at the Fed, and Bernanke taught a class at George Washington University, the spokesperson noted.

Yellen has been an advocate for “childhood and consumer education” and increasing diversity in STEM fields but “routinely abstains from making specific policy recommendations outside her area of expertise,” the spokesperson said via email, adding, “The Chair believes that education policymaking should be left to experts in that realm.”

Yellen has focused on education in no small part through the groups she’s chosen to address. Talk of the subject arises naturally in remarks honoring the 125th anniversary of women’s admission to Brown University, for instance, or a speech to a group of economics teachers.

In a commencement address late last year, an occasion more often used for bland platitudes, she discussed the changing nature of work and technology, and the benefit of completing a college education and receiving a diploma.

“Economists are not certain about many things. But we are quite certain that a college diploma or an advanced degree is a key to economic success,” she told December 2016 graduates of the University of Baltimore.

But she’s also raised the issue at times when education isn’t the immediate topic at hand, for instance remarking that “strengthening education” will help improve productivity and boost living standards, in the midst of remarks on current conditions in the U.S. economy last June.

Perhaps her most notable comments in the K-12 space came on March 28, when she addressed the National Community Reinvestment Coalition on workforce development.

“Probably the most important workforce development strategy is improving the quality of general education,” she said.

In that speech, she also discussed what is increasingly being viewed as a key driver of disparities in educational outcomes based on income — access to quality early learning programs.

“At least partially because of a lack of early childhood education and the sometimes lower quality of schools, children in these neighborhoods score substantially lower on standardized tests and drop out of high school at higher rates. Thus, a starting point is to improve access to quality education in early childhood and improve the quality of primary and secondary schooling,” she said.

Her speech also touched on disparities in college attendance based on income, and the importance of career and technical education and work experience for teenagers.

The right role?

Yellen has certainly taken up the education mantle, but experts disagree over whether that’s actually a good thing.

Whitehurst said the issue of education isn’t within the Federal Reserve’s traditional purview — it’s a long-term growth strategy that impacts relatively little of the U.S. population, compared to the Fed’s usual blunter, short-term economy-adjusting tools.

Given how complex education is, and the level of disagreement on how much education influences the economy, it’s perhaps better she stays out, he said.

“I’m not sure it does any harm, but I think it may deflect attention from the complexities of what needs to be done,” he said. “And to the extent that happens, maybe it’s better it wasn’t happening.”

Whitehurst, a frequent critic of research on the outcomes of preschool programs, in particular took issue with Yellen’s comments on early education.

“It’s as if she’s beating a drum for something that the underlying data don’t support anymore,” he said. “It’s an advocacy position rather than one that I think represents an appropriate sensitivity.”

(Research by economist James Heckman shows investments in preschool for low-income children saved money long-term, as those students were more likely to stay in school, were less likely to be incarcerated, and had better health outcomes. His research showed a 7 to 10 percent rate of return for preschool programs that start at age 3, with higher returns for programs that begin in infancy.)

Madowitz said it is a relevant and fitting role for Yellen to take. The Federal Reserve has done pretty much all it can through its short-term tools to boost the economy since the 2008 recession, and though unemployment is low, the inflation rate, the Fed’s usual economic measure, has failed to meet targets.

“If you want to think really hard about how to get that [economic growth] rate to start going up, you need things like faster population growth … [or] an expectation that the workforce in the future is going to be more productive than it is now,” he said. “Education is the clear channel for the latter.”

Issues like early childhood education pay off in the near term, by encouraging parents to remain in the workforce who might otherwise stay home to take care of children, he said. And investments in K-12 and higher education pay off exponentially in the long term, an idea called “dynamic complementarity,” he said.

Whoever the next Fed chair is, he or she is likely to discuss education less than Yellen, simply because she has focused on it so much, Madowitz predicted.

But, Madowitz added, the issue has risen in prominence and won’t totally lose its spot at the central bank.

“The nerds in the building at the Fed will win that fight and get the institution to focus on it a little more,” he said.

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