My god, so great to see you. Welcome—oh, I should introduce myself. I'm Jenny Chatman, the Dean of the Haas School of Business. Thank you. We are so incredibly thrilled to kick off our first event of this semester with our new name, Leading at the Edge: The UC Berkeley Haas Dean Speaker Series. And it's even more special that we're welcoming back to campus Secretary Janet Yellen.
We're so proud that Secretary Yellen is one of our own, a Haas faculty member since 1980. She's taught thousands of students both in our undergraduate and MBA programs. Who's taking 201B? Who has taken 201B? Some of you have, right? No second-years here, right? Fall B, you'll take 201B, and Secretary Yellen taught that course for 11 semesters, and she now serves as Professor Emerita. Before Haas, Secretary Yellen began her career as a professor and economist at Harvard and then the London School of Economics. And her research is absolutely fascinating, covering a range of macroeconomic issues with a special focus on the broad implications of unemployment.
Secretary Yellen is the first person in U.S. history to have led the Council of Economic Advisers, the Federal Reserve, and the Treasury Department. I think this is—yeah, incredible! This must be the field of economics version of EGOT! But to us, she is a GOAT for sure, right? Janet steered the White House through the Asian financial crisis of 1997. She guided the Fed through the 2008 financial crisis. And as Treasury Secretary, she endorsed the American Rescue Plan of 2021, which was a post-pandemic stimulus package that was very helpful for the U.S. economy. She's a member of the American Academy of Arts and Sciences and on the Council of Foreign Relations. She's served as the president of the American Economic Association and she's currently a distinguished fellow in residence of the Hutchins Center. Secretary Yellen, thank you for coming to speak to our students and making time.
Okay, just one note before we dive in. You should all have note cards on your seat. If you have a question, please jot it down on the note card, and we have Holden and Sarah who will be walking by periodically to pick those up to bring the questions up front. We'll have time for a portion of those questions. And so let me at this point turn it over to our fantastic MBA students, Suveer Daswani and Silvia Diaz de Rada, who will lead today's discussion. Welcome.
Great. Thank you so much, Dean Chatman, for that introduction, and thank you all for being here. What an honor, honestly, what an honor. And I really just want to start by mentioning that Secretary Yellen actually just celebrated a milestone birthday. And so what better way to celebrate your birthday than being back at Haas? So please join me with a round of applause for Secretary Yellen's recent milestone birthday!
Thank you.
And I just want to say, I know Dean Chatman talked about courses. Before this event, as part of our preparation, I actually went back to bCourses, the video system, and rewatched my macroeconomics lecture, and I was doing the graphs and everything! So you might get one of those!
Fantastic, that sounds great.
But really, what an honor, thank you for being here, and thank you to all of you for being here. Let's get started, shall we?
Great. So Secretary Yellen, you have spent your career, most of your career in Washington, D.C., but there have been moments and years when you've come back to Berkeley as a professor. And so we really wanted to start by getting your perspective on what have you taken from the Berkeley classroom back to Washington, D.C., and something that the Berkeley classroom taught you that perhaps Washington policymakers could not.
Well, that's a great question. Let me just start by saying it's a thrill for me to be back at Haas, to be back at Berkeley. You know, it is my home in every way. I still have a home here. And Berkeley is really where I learned the skills that I think were necessary for me to be able to accomplish something in Washington. So first of all, the Berkeley students are just fantastic: smart, inquisitive, ready to challenge ideas that they think might not be right—politely, constructively. But I learned so much teaching at Berkeley and also working and doing research here, that I really never would have been able to do the jobs that I've had in Washington without the experience I had at Berkeley.
Because I think what you need in Washington is a strong intellectual foundation for the work that you do in the policy analysis, an ability to understand policy analysis, but most important, an ability to explain your views and to do so in a way that's really comprehensible. And that's something that Berkeley students in the classroom really want, and it's something that I learned teaching at Berkeley. So before I came to Berkeley, a lot of my research was in economic theory rather than empirical. And I found economics interesting in its own right, the logic of models and so forth. But what I found in the Berkeley classroom here at Haas was a strong desire to understand why this theory was relevant to the real world and how it could help students understand the developments that were impacting the world, their businesses, their personal lives.
And so they wanted to understand what is the relevance of this theory. And having that always be top of mind for me in my teaching and learning at Haas how to use cases, how to connect theory and real-world application through cases and through having all my students carry around that pink newspaper and talking about the stories you find in the Financial Times or the Wall Street Journal, and trying to connect theory with that has just been immensely useful to me. And I don't think I could have done any of the jobs without having developed that skill, and it is something I acquired at Berkeley.
But beyond that, some humility about not being too sure of yourself, being open to ideas. And Berkeley students, you know, challenge your views. They do so nicely. And you learn to be open to new ideas, to listen to people, and to understand you may have studied a lot in the field, but there's a lot to learn. And being a lifelong learner, that's something that I learned at Haas: how to have a civil discussion in which you disagree with somebody else, but you do so without being disagreeable—a critical skill in Washington. And that's also something that I learned at Berkeley. But the framework, the research that I did, the core of what you learn in 201B, it has been useful to me throughout my entire career. The work that I did on labor markets, on unemployment, has been kind of the core of what I've been concerned about during all my time in Washington.
Great, thank you. And I think most of the points that you touched upon resonate with Haas' Defining Leadership Principles around Questioning the Status Quo, Student Always, Confidence Without Attitude. And so what I'm hearing is that those DLPs can get you to Washington!
I think those principles are the right ones. I think they're excellent!
Thank you, Secretary Yellen. You are the first woman serving as Secretary of the U.S. Treasury. You're the first woman serving the Federal Reserve. You're the first woman holding both of those roles and you're the first person in history leading both the Treasury, the Federal Reserve, and the Council of Economic Advisers. Looking back, what do you think helped you reach those roles?
So if anybody had suggested to me that I might hold those roles when I was here and teaching at Berkeley, I absolutely wouldn't have—I would never have believed it. And it's certainly not something I aspired to or planned to have happen in my career. It was kind of serendipity in a way. I was always interested in policy and always wanted, although I expected to have an academic career, I thought having some opportunity to serve in the government in a policy role is something I would really enjoy. And I hoped it was something I could do. And the three agencies where a person who focuses in macroeconomics is most likely to find relevant policy experience is Council of Economic Advisers, the Federal Reserve, and the Treasury.
I had worked in the Federal Reserve after I was at Harvard as a research economist, so I was somewhat familiar with the Fed, and I knew it was an important policy organization. And also has deep intellectual expertise—there are probably 200 PhD economists sitting at the Fed in Washington. So, you know, I thought if you'd asked me what was most likely, I probably would have said maybe I could spend a year at the Council of Economic Advisers as a senior economist, take a leave of absence from Berkeley, and then I'd come back.
But amazingly enough, in 1994, the phone rang and some academic colleagues of mine who were serving on President Clinton's Council of Economic Advisers called and said would I be interested in a position as a Governor of the Fed. And, yeah, well, sure, that was a job I never expected to have! But my spouse, who was on the faculty at Berkeley all in all for 40 years, the economics department, and a wonderful partner in every way, said, 'Sure, that's something you'd love to do. We'll go. We'll make this work out.' And I did. I expected to do that for a few years and then come back to Berkeley. And just one thing led to another. And, you know, the debates were interesting, the policy issues were really important. I worked hard, I learned a lot, I found ways to contribute.
And also I would say that three presidents appointed me to these posts you mentioned: President Clinton; President Obama appointed me Chairman of the Fed and Vice Chair; and President Biden appointed me as Treasury Secretary. All of them wanted to see women increase their roles in government. They were all focused on wanting to have candidate pools that had women and have the opportunity to appoint qualified women to these roles. And I would say I certainly benefited from that, because as people started to think about, 'Yeah, we need to have some women on the list,' yeah, you know, I think I came to mind. 'Yeah, she could be qualified to do this.' And then I guess success in one role sequentially leads to other opportunities, and so I really had a succession of opportunities that I never expected.
I saw that women in business and finance and economics were really excited to see me be appointed to roles that very few women had ever filled. And that was very motivating for me. And I will say quite frankly, it raised the stress level on me, because I thought, 'I got this chance. If I screw up, that's bad not just for me, but for what women in these fields would love to see happen.' But I'm thrilled to have been given these fantastic opportunities, and I've worked hard and tried to open doors for more women, to promote diversity in all of these roles in policy.
I guess we'd have to keep our eyes wide open to opportunities and take them when they come, and I'm sure all the women in the room are very thankful for what you have done so far.
So just to switch gears a little bit. Professor Yellen, if I may, you have graded papers, exams, essays. Thankfully you didn't grade any of mine! So grading is obviously second nature. So if you had to grade the U.S. economy today, what letter grade would you give it and why? What's top of mind?
So everything about the U.S. economy? Okay. So it's hard. There are strengths and there are weaknesses. I guess I would say overall I would give it maybe a B. You know, in many ways, we're doing well, and I know many of you here must be focused on AI, and this is an incredibly exciting development. It's probably going to have major implications for the United States and for the global economy. With luck, it will really boost productivity and enable greater improved living standards, although it could be deeply disruptive to the labor market. We don't know, and that's something we're going to have to see. But the U.S. economy right now is largely being powered by AI and all of the investment that's taking place in data centers and in this area.
The labor market: so to me, it's important that we have a strong labor market where people feel confident they can get jobs, can be promoted, and move when they want to. The unemployment rate is quite low by historical standards, 4.1%. We don't have a weak labor market. But on the other hand, it is not as strong a labor market in some important ways as I'd like to see. So it is a low-hire, low-fire labor market. Job openings have declined substantially. Hiring is pretty low. People are not being fired. If you have a job, you probably feel okay, but the length of unemployment spells for people who do lose a job is longer. New entrants are finding it—college grads are harder to get absorbed into the labor market.
A lot of people in America quit their jobs, a remarkable number do, usually because they've gotten better outside offers or they feel more confident that they'll be able to, if they quit one job, find another. Quits have declined substantially, and that usually tells you that there are problems in the labor market. That's usually not a good thing. It tells you that there's labor market weakness. And, of course, so many people I think are really worried now, and you can see the impact that AI is already having on new entrants into the labor force. They're finding it harder to get their first jobs where you're trained, so that's a worry.
Inflation: inflation is too high. Inflation for most of the time I was at the Fed, that was in the aftermath of the financial crisis. Inflation actually fell to levels so low, below the Fed's 2% target, that we worried we could be in for deflation and were totally focused on how could we ensure that inflation didn't chronically fall to levels that were simply too low to be healthy. So high inflation wasn't a problem we expected. But the pandemic and the fiscal stimulus that we had, which I was involved in designing, I think it caused a lot of good things to happen.
I think after the financial crisis, unemployment was so high for so long, so resistant and hard to get down, that it left a generation of people scarred, certainly new entrants to the labor market that had a really tough time getting jobs, and people who lost jobs that were really scarred, found it very difficult ever to gain work again. That did not happen in the pandemic. Unemployment rose to very high levels, but the stimulus that we provided really helped people and it supported a very rapid recovery. The Economist called the United States in a cover story saying we were the envy of the world.
But there were a lot of supply disturbances, and the fiscal stimulus interacted with those in ways that led to a pickup in inflation that I think none of us really expected. And it lasted longer and was more severe and more traumatizing to Americans, that really has created a huge problem. And it's come way down, but it's still not back to 2%. And now we have a government that is undertaking actions that are really harming the supply side of our economy: a set of tariffs against our friends and neighbors that are, I would say, accomplishing nothing good for the United States, mainly harming rather than helping businesses and consumers, and causing inflation to pick up.
Then we have a war against Iran that is producing profound supply shocks. I read this morning that diesel prices have hit the highest levels in recorded history. Of course, oil prices are up, food, fertilizer—another inflationary shock. And then on top of that, I think the AI boom is actually leading to such strong demand for semiconductors, for example, that I can't quote you exactly what's happened to the price of an iPhone, but I know it's gone up a lot and virtually everything we buy these days has electronics in it, and electricity prices in most places. So inflation remains a problem and hopefully it will come down. But those are a few areas.
I appreciate it, thank you. And I can't help but sort of take us next to—you talked about AI a lot and that's top of mind here in this room and here at Berkeley as well. And I was curious, have you noticed a change in the billboards as you drive over from SFO to Berkeley on 101 or...?
I do go up 101, and, yes, I have!
And the reason I ask is because it was fascinating to see a billboard recently that called AI the average individual. And this was an individual who was answering prompts that he was receiving as people were driving by scanning the QR code and sending prompts to a human. And I thought that was really fascinating, because in this age where we're turning to machines and models, we're also longing for that human interaction and that human connection. In fact, just yesterday, I think Ernst & Young came out with some news article around bonuses for human-like capabilities and qualities. And so I'm just curious, and I would love to dive a little deeper in the AI sort of question: What do you see as the impact of AI on the average individual in terms of wages, in terms of productivity, in terms of the labor market? Just any additional insights there would be really helpful.
So, I mean, let me start by saying I think it's highly uncertain, and economists are watching this very closely. When I talk to people who are involved in AI and you ask what impact they're expecting on productivity, 4% productivity growth is a low number for them to cite. If you talk to economists who have studied past waves of deep and important technological change, they think half a point to one point would be dramatic and profoundly beneficial. I suppose I'm with the economists, and I believe there will be a productivity improvement, but in past waves of major technological change, it's taken a long time to see at the aggregate level, to see productivity improve, because it requires organizational changes that really take time and aren't easy. It's not something that the benefits come very quickly. The way organizations run really have to be re-engineered and rethought. So I think a lot of economists expect it'll be a while before aggregate statistics show improvement. But this time may be different, I don't know. It's possible that we will see a more rapid incorporation that raises productivity.
But what worries me is what does this mean about the labor market. And it certainly could cause big changes in the nature of labor demand and lead to job loss. We're already seeing in entry-level work that software, customer service, there's been a substantial decline in hiring in those areas. At the aggregate level at this point, you don't see much, but it could cause readjustments in what people need to do. And the United States has never been good at providing retraining opportunities, support for people who are displaced. When China was admitted to the World Trade Organization and there was a surge in Chinese exports to the United States, researchers have documented that something like 2 million jobs were lost, mainly in manufacturing, importantly in the Midwest. And it took communities a very long time to recover; some still haven't recovered from it. And it's produced profound political changes in the country, and it colors the attitudes of Americans towards globalization and towards trade.
So aggregate productivity growth goes up, but who's going to get the benefits? And if they're not widely shared, there can be profound negative political consequences. And I'm less confident that they will. What we're seeing at an aggregate level in the United States is a redistribution of income away from workers and towards owners of capital. And many people think, and you can see how this could happen, that the AI revolution could intensify that. And I think that could be profoundly disturbing. And I've not yet seen the country try to come to terms with that yet.
No, thank you for sharing, and super interesting times. And you also talked about inflation and tariffs, and I know...
...the focus is again on tariffs. Actually, the current Secretary mentioned since the...
The U.S. raised the tariff wall, and many other countries have had to put more attention on how to protect industries from Chinese imports, as you were saying. But you have in the past also warned about the economic cost of tariffs, while supporters say they are a requirement to protect national industries and build resilient supply chains. What is your stand regarding tariffs?
So, in general, I think tariffs create more harm both to consumers and also to industry that relies on inputs that face tariffs, and the consequences tend to be negative. So my starting point is I want to see if there is a problem that requires a tariff, if a tariff is the best solution to that problem. So I wouldn't say I could never see a reason for a tariff. And, you know, for example, during the Biden administration, I was supportive of the U.S. having tariffs on Chinese electric vehicles and solar panels, because I think clean energy is an industry that is going to be tremendously important. It is an industry the United States could be competitive and innovative in, and it's an industry where China has done massive subsidization that's led to enormous oversupply of these goods.
With respect to China, the problem in a way goes deeper than subsidization. China is a country where consumer spending is a very low share of GDP in comparison with any other advanced country that I can think of. So if a country is capable of producing a large quantity of goods, and as a policy decision it has made the decision it only wants a small share of those goods to be devoted to domestic consumers, the question then becomes, what happens to the rest of those goods? Because the country can't be at full employment unless it finds a way to sell the rest of those goods. And for China, for a very long time, the answer was investment spending. It was a poor country, it had this massively high saving rate, so consumption was small, and it invested massively in infrastructure, in industry, and then in housing. And initially, the payoffs were very high, and they grew very rapidly.
But then the need for infrastructure began to be exhausted. The returns were no longer high. So then there was massive real estate investment, and that got pushed to the point where that was a problem rather than something that could continue. And so what's to happen to all of these extra goods? And the answer became subsidize the most advanced set of industries in the world and sell all of this stuff to the rest of the world. And there are huge subsidies. And these are industries of the future that a lot of countries want to play a role in—we do, Europe does. And in a sense, this Chinese macroeconomic policy is driving what really amounts to dumping of advanced goods throughout the world, Europe, and the United States, if we didn't have some protection.
I engaged in economic dialogue with the Chinese when I was Treasury Secretary, and this was mainly the situation that we discussed. The United States should not be levying tariffs on Europe and on Canada and on our friends in Latin America and all around the world. We should be sitting down with Europe and working together. Together we have real leverage against China, and I think we should be addressing these practices. And one could argue—I mean, economists sitting here would think—look, it's in China's interest to have more of the fruits of its progress flowing through to Chinese consumers. They can be better off, and that would enable all of us to play a role in the industries of the future, where I think it will be to our disadvantage.
You mentioned national security. We saw during the pandemic that supply chains weren't resilient, and that's a danger. Globalization led to huge improvements in efficiency, but when something happens, in some cases, they were simply too concentrated. And in some cases, like semiconductors or critical minerals, rare earths, that dependence can be used as leverage. And that's currently what's happening with China and the United States. We have our own sources of leverage on the financial side, but national security considerations play a broader role. And I do think there's a case maybe not for tariffs—maybe tariffs need to be part of it—but industrial policy. I think more people are thinking seriously about a role for industrial policy in countries like the United States and Europe.
Thank you. And I just want to make sure—we have a couple of follow-ups from a timing perspective. Can we do one more? One more, okay. So we wanted to actually conclude our time with you with something unique for this first session with you, and we're calling this segment "Answering at the Edge." And so we're going to give you a couple "this or that" options, and we request, if possible and where possible, that your answers are limited to one word or two words maybe, if that's okay.
I'll give it a shot! I can't promise!
