At Yale, Treasury Secretary Yellen emphasizes nexus of research and policy

When U.S. Treasury Secretary Janet Yellen ’71 Ph.D. arrived at Yale as a graduate student in 1967, she was excited to work with the economist James Tobin. A distinguished teacher and renowned economist who would go on to win the Nobel Prize, Tobin strongly believed in the importance of public service and advised students that macroeconomic research “should be about something” — it should benefit the public welfare.

Yellen, the first woman to serve as treasury secretary, returned to the university April 3 to discuss her own public service. As the capstone to a day spent with Yale’s Tobin Center for Economics Policy, Yellen sat down with President Peter Salovey for a “fireside chat” about modern supply side economics, a novel economic strategy that has been a defining characteristic of her tenure as secretary.

In Yellen’s formulation, the modern supply side approach seeks “to boost economic growth by increasing labor supply, raising productivity, and reducing inequality and environmental damage.”

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During the conversation — available as a special episode of the president’s Yale Talk podcast — Yellen and Salovey explored the concept of modern supply side economics in the context of the Tobin Center’s “research to impact” policy accomplishments, as well as several newly announced initiatives and partnerships. The campus hub for data-driven, policy-oriented economic research is named for her late mentor and thesis advisor, James Tobin, who taught her that academic inquiry can produce polices that improve people’s lives.

Speaking before a capacity crowd in Zhang Auditorium at the Yale School of Management, Yellen recalled marveling at how Professor Tobin seamlessly married economic theory with data while tackling policy-relevant questions.

“I thought to myself that is the kind of work I would like to be able to do, and came to Yale,” said Yellen. “To me, Tobin was a brilliant teacher, but he was also an inspiration because he had an incredibly strong sense of social justice, and it came through in everything he did.”

Yellen introduced her own vision for modern supply side economics in January 2022 in a speech at the World Economic Forum in Davos, Switzerland. Before the Yale audience, she expanded on that vision, explaining that it emphasizes strategies to promote economic growth while also mitigating inequality and tackling environmental threats. This version of supply side economics further aims to improve the economy’s resilience so it is better able to adapt to economic crises.

“It’s a strategy that is pro-growth but inclusive and green,” she said.

Her conception contrasts with traditional supply-side economics, which emphasizes strategies to promote the creation of private capital and boost investment spending through tax cuts and deregulation. This traditional approach, Yellen said, neglects other factors that are part of the economy’s supply side and influence economic productivity, including education, child care, infrastructure, and research and development.

She said elements of modern supply side economics are present in three major pieces of legislation recently passed by Congress: the Infrastructure Investment and Jobs Act, meant to improve the nation’s crumbling infrastructure; the CHIPS and Science Act, designed to boost domestic manufacturing of semiconductors; and the Inflation Reduction Act, which included major investments in clean-energy production.

During their conversation, Salovey asked about “the component of the modern supply side that has not been the subject of [successful] legislation”: social programs that Yellen says expand labor supply and productivity, such as child care, community college, social supports and workforce training. Salovey described a framing of the issue offered by David Wilkinson, the Tobin Center’s executive director, which contends that a modern supply side agenda, even lacking new social program resources, might “emphasize the use of data and evidence to deploy most effectively [the] billions in current human capital investments, and reduce program frictions that impede economic mobility.”

“These,” Salovey noted, “may be areas where academic economists may bring value to policymakers.”

Yellen added, “As a strategy, it may be that the best investments are in areas that are underserved and directed at people who have been excluded and had access to adequate investment.”

Founded in 2018, the Tobin Center — a key part of the university’s multidisciplinary social-science initiatives — is supporting several new data-driven research efforts intended to help policymakers advance modern supply side economics’ goal of promoting growth while protecting the environment and reducing inequality, Salovey said.

Those efforts include new research on the connection between child care and workforce participation, as well as efforts to enhance health programs, help parents navigate Pre-K systems, and increase government capacity to use data to more effectively support program participants. In addition, researchers at Yale and the Tobin Center are providing insights into the effects of climate change policy.

During the conversation, Salovey announced that the Tobin Center is launching a major new program on climate economics in support of Yale’s Planetary Solutions Project, a signature university-wide initiative. As part of this, Steven Berry, the center’s inaugural Jeffrey Talpins Faculty Director, and colleagues will build on Yale’s strengths in climate economic modeling, Salovey said.

After Yellen's visit, Connecticut Gov. Ned Lamont also announced several initiatives with the Tobin Center, including a study to be conducted with the New Haven Public Schools, in response to her call for states to implement inclusive and green policies and for academic economists to deploy their skills in support of state efforts.

Yellen welcomed such efforts.

“Yale and the Tobin Center have been very important in doing the fundamental work to let us understand what the impact of climate-change policy will be,” said Yellen, who previously served on the center’s advisory board.

Another Yale-based research effort is especially relevant to Yellen’s vision: The center is launching an initiative to focus on the concept of modern supply side economics itself as a subject of study.

Citing James Tobin’s emphasis on the importance of public service, Salovey asked Yellen if she had advice for students on how they can serve society, both locally and globally.

“I think studying economics, as a start, is invaluable,” she said to applause from the many economics students in the crowd.

She added that the Tobin Center, which emphasizes a data-driven, nonpartisan approach to economic policymaking, offers “an extremely useful and valuable perspective.”

“Tobin said very strongly, if you’re called to serve, the answer should be ‘yes,’” she said. “… I think what you’ll find is that government is really filled with very strongly motivated people who are really trying to do their best to make a difference.”