UNIDENTIFIED PERSON, BYLINE: NPR.
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STACEY VANEK SMITH, HOST:
Hey, everyone. Cardiff and Stacey here. This is THE INDICATOR FROM PLANET MONEY. Today on the show, we are speaking with Janet Yellen, who was the chair of the Federal Reserve, aka the Fed, from 2014 to 2018. She was the first woman to ever hold the job. And, you know, both Republicans and Democrats have said, in many forum, that they thought she was great at it. In the economics world, Janet Yellen is, you know, about as big as it gets. She's a really big deal.
CARDIFF GARCIA, HOST:
She's kind of a big deal. She is kind of a big deal, yeah.
VANEK SMITH: She's kind of a big deal.
GARCIA: And today, along with economist Jared Bernstein, another old friend of the show, she has an op-ed in The New York Times arguing that what the economy really needs now is a boost from fiscal policy. This is money that goes directly to people and businesses from the U.S. government, like back in March, when the government passed a bill that, among other things, expanded unemployment benefits by $600 a week.
VANEK SMITH: But those benefits and other provisions of that bill have now expired. And after the break, Janet Yellen explains why, if the government does not pass another bill to keep supporting the U.S. economy, she thinks economic growth might soon come to a stop.
GARCIA: Janet Yellen, former chair of the Fed, thanks so much for joining us.
JANET YELLEN: My pleasure. Thanks for inviting me.
GARCIA: So in this new op-ed, you write that if there is no new fiscal aid or stimulus bill, then the U.S. economy will, and I'm quoting here, "likely downshift from its current slow rebound in growth to no growth at all," unquote. That's a frightening prospect. Why is that?
YELLEN: Well, what I'm very concerned about now is that unemployment insurance payments - the extra $600 that have been going out - that came to an end at the end of July. And that was supporting a great deal of spending that was creating jobs in the economy. Those extra $600 a week payments were supporting something like $15 billion or $16 billion a week to unemployed workers. And they have ended now. And their spending was supporting jobs throughout the economy. So this loss in fiscal support is what I'm tremendously afraid is going to lead to retrenchment in the economy or a complete petering out of growth.
GARCIA: And do you think that any new bill should effectively echo that earlier bill from the end of March that included those expanded unemployment benefits? It included checks to a number of individuals. Or do you think that there should be some new provisions in any new bill?
YELLEN: Well, I definitely think that the additional unemployment insurance benefits are tremendously important. On top of that, food assistance through the SNAP program, food stamps, is extremely important as well. So I'm very focused on trying to get more money into the pockets of the people who need it the most and will spend the most creating jobs in the economy.
I'd also mention federal aid to state and local governments. State and local governments face tremendous budget deficits going forward because their tax revenues have been decimated by the pandemic. And these are entities that have to balance their budgets. And when they face that kind of shortfall in revenues, what they're doing and planning more of is spending cuts and layoffs. And that's going to add to the economy's woes and create more unemployment throughout the economy. So I would very much like to see aid to state and local governments part of a new bill that Congress agrees to.
GARCIA: And, you know, when the CARES Act was passed back in late March, by historical standards, it was quite a large bill, in the trillions of dollars. And yet here we are at the end of the summer with the potential of the recovery slowing down already. So what's a good way to think about how much is the right amount of new fiscal stimulus in aid for the economy so that we can judge whether it's too little, just the right amount or even too much?
YELLEN: We need enough spending in the economy to support jobs so that there's enough demand for the goods and services that the economy is capable of producing. I don't have a number to give you, but estimates that I've seen suggest that something on the order of a trillion dollars would be too little to keep the economy just going where it is or growing and recovering slowly.
GARCIA: Let me shift gears to ask a question about the Fed now.
YELLEN: Yes, sure.
GARCIA: Yeah. There have been some critiques about a couple of the Fed's emergency lending facilities, two in particular. One is the facility that's meant to get more lending to small and mid-sized businesses. And the other facility - you mentioned a second ago, state and local governments. There's another emergency lending facility that's also meant to get more funding for state and local governments. Those facilities haven't been used a lot, and it seems to be because the logistics of setting them up are tricky - that's done in collaboration between the Fed and the Treasury - and because the terms might be to onerous, too stringent. How big of a problem do you think that is, and how should it be fixed?
YELLEN: So it is absolutely true that this requires agreement between the Fed and the Treasury. These are joint programs. You should not assume that a program isn't working because it's not paying out a lot of money or being used heavily. A lot of the programs the Fed set up are essentially backstops that assure private lenders that markets won't be subject to dysfunction and that they'll continue to work. And that's provided them the assurance that they need to lend. And so we've seen, for example, that many borrowing rates in mid-March began to spike. The credit was drying up from the private sector to borrowers.
But when the Fed put these programs into place, although they weren't much use - that's generally been true for most of the programs - private borrowing began to pick up. So the Fed programs were working, even though they didn't do a lot of business.
You know, one thing that Chair Powell often says that we have to keep in mind is, the Fed can lend but not spend. And some entities - this is true of some state and local governments and also some businesses. This pandemic is causing such losses to them that they really need subsidies to survive. And it's important to have loans available, but loans have to be repaid in the future, and in some cases, what we need are grants.
I hope that the bill that's eventually passed by Congress will also have more support for small businesses that are in a position of, yes, they need access to loans, but they very much need subsidies also in order to be able to survive this.
GARCIA: Yeah. And then, finally, how have you and your family been riding out the time of the pandemic? Is everybody OK? Is everybody safe?
YELLEN: Well, thanks for asking. We are being extremely careful. We're at home, and I consider us among the lucky people who are able to do our jobs from our homes. We're all working very hard but staying safe and being very careful not to expose ourselves.
GARCIA: And have you found ways to have fun? Or is it that economic analysis is so much fun that that's how you're entertaining yourself?
YELLEN: We enjoy one another's company. And, you know, given that we're eating at home all the time, cooking is a nice and relaxing hobby, and we're trying to treat ourselves to some good things to eat.
GARCIA: That's great. Janet Yellen, thank you so much for joining us today.
YELLEN: You bet. Thank you for having me.
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VANEK SMITH: This episode of THE INDICATOR was produced by Nick Fountain, fact-checked by Brittany Cronin. Our editor is Paddy Hirsch, and THE INDICATOR is a production of NPR.
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