Economic Statecraft, Women and the Fed

Economic Statecraft, Women and the Fed

The New York Times
Economix / Explaining the Science of Everyday Life
September 26, 2013

Simon Johnson

The United States has a long and generally successful track record of
using `economic statecraft’ to advance its positions and values in the
world. It helped rebuild Europe and Japan after World War II, with a
judicious mixture of aid and access to the United States
markets. Similarly, as the Iron Curtain fell after 1989, the United
States stepped in with targeted financial support and general
encouragement to converge on the European Union’s political and
economic institutions. The International Monetary Fund and the World
Bank, where the United States has a big voice, have also played
positive roles in many instances over the last 70 years.

No policy is perfect or without controversy. But surely this approach
is better than relying primarily on military power in the way
preferred by former dominant powers – think of Rome, the Ottomans or
even the British Empire (where there was commerce but also a lot of

Can the United States continue to apply the same economics-first
approach to the next frontier in economic development – women’s
rights? Whether Janet Yellen becomes the chairwoman of the Federal
Reserve will provide some insight into the answer.

Analysts of economic development often point to `human capital’ –
education, skills and abilities – as a key determinant of which
countries become rich. Similarly, entrepreneurs typically stress the
importance of skilled labor in determining where they situate and
build their companies. And there is no question that technological
change has increased the advantages, in the United States and around
the world, of people skilled at working with computers (see this
recent commentary by David Autor, my colleague at the Massachusetts
Institute of Technology, and David Dorn).

With skills at such a premium, we should perhaps expect countries to
put as many resources as possible into bringing everyone as much
education as possible. But this is not what we see, particularly with
regard to girls and women in many places.

Women work hard everywhere. One question is whether this work is
remunerated and picked up in official gross domestic product
statistics. The bigger issue is whether women have access to all
available opportunities, including in the school system – as
emphasized by Heidi Crebo-Rediker, former chief economist at the State
Department (see my column about her June speech).

Telling a country it must suddenly find jobs for a lot more people
would obviously not make sense, and that is not what this policy is
about. But increasing the ability to women to become entrepreneurs and
create jobs is not just a smart way to promote medium-term growth, it
is also completely sensible and long overdue economic policy. This
recent report from the Global Entrepreneurship Monitor shows where
female entrepreneurship is already strong and where a boost could make
a difference over the next 10 to 20 years. The numbers for the Middle
East and North Africa are striking.

Under the leadership of Christine Lagarde, the I.M.F. has taken this
issue on board and is working with governments to make sure fiscal and
social support systems are more balanced across the sexes – for
example, flagging and discouraging penalties in the tax system when
spouses work. Public investment in child care often makes a great deal
of sense also, and this has been embraced, at least on paper, by the
current government in Japan. If women’s participation in the labor
force grows, and if these women get good jobs at good wages, this will
greatly help with the fiscal costs associated with a declining and
aging population in Japan.

Perhaps the I.M.F. can develop and regularly publish a set of
indicators, along the lines of the World Bank’s Doing Business
reports, which focus on the varieties of fiscal discrimination that
all kinds of groups face (including but not limited to women).

I subscribe to Daron Acemoglu’s view that the `root causes’ of
economic growth include creating opportunities for meaningful
participation – with property rights and a fair legal system – by a
broad cross-section of society (Professor Acemoglu and I are
co-authors of a number of papers that make this point). In this
context, it makes complete sense to bring transparency and pressure on
all parts of the tax code that discourage women from working.

The State Department says economic statecraft `means harnessing global
economic forces to advance America’s foreign policy and employing the
tools of foreign policy to shore up our economic strength.’

But any sensible economic policy begins at home, with steps including
the creation of role models. (Of course, the tax code also needs to be
addressed; see my post in June for more details)

As one very specific but topical example, consider the Federal Reserve
System. Beginning in 1913, the first 55 people appointed as Federal
Reserve governors were men. Nancy H. Teeters was the first woman
appointed governor, in 1978, and Martha R. Seger was the second,
serving from 1984 to 1991. There have been 89 governors, of whom just
eight have been women.

There has been a shift toward more female participation in the last
two decades, when six women (of the eight total) have become
governors: Susan M. Phillips (1991-98); Janet L. Yellen (1994-97 and
again, as vice chairwoman, from October 2010); Alice M. Rivlin
(1996-99); Susan S. Bies (2001-7); Elizabeth A. Duke (2008-13), and
Sarah B. Raskin (from 2010). Because three of the seven governors have
been women until recently, it would be a surprise if President Obama
allows female participation on the board to drop sharply. (Ms. Duke
left the board at the end of August; Ms. Raskin is the nominee to
become deputy Treasury secretary – a brilliant appointment but one
that creates a definite gap in Fed leadership.)

President Obama should nominate Ms. Yellen as chairwoman of the
Fed. She is the most qualified candidate ever, in my view. As well as
overwhelming support from Democratic senators, leading Republicans may
heed Sheila Bair’s advice and throw their weight behind Ms. Yellen.

Americans can talk all they want about what others around the world
should do. Ultimately, people assess the United States – and follow
its leadership or not – based on what they see done here.

Simon Johnson, former chief economist of the International Monetary
Fund, is the Ronald A. Kurtz Professor of Entrepreneurship at the
M.I.T. Sloan School of Management and co-author of `White House
Burning: The Founding Fathers, Our National Debt, and Why It Matters
to You.’

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