Threats to democracy risk economic growth, Yellen warns
WASHINGTON — Treasury Secretary Janet Yellen is arguing that a fractured democracy can have destructive effects on the economy — an indirect jab at former President Donald Trump.
Yellen, in an address prepared for delivery Friday in Arizona, uses economic data to paint a picture of how disregard for America’s democratic processes and institutions can cause economic stagnation for decades.
Yellen, taking a rare step toward the political arena, never mentions Trump, the presumptive Republican presidential nominee, by name in her speech for the McCain Institute’s Sedona Forum, but she hints at the former president’s potential impact if he regains the White House.
Her remarks serve as a sort of warning for business leaders who may overlook Trump’s disregard for modern democratic norms because they prefer the former president’s vision of achieving growth by slashing taxes and stripping away regulations.
Yellen acknowledges that democracy “doesn’t seem like typical terrain for a treasury secretary” but adds that “democracy is critical to building and sustaining a strong economy.” A copy of her speech was released in advance by her office.
“The argument made by authoritarians and their defenders that chipping away at democracy is a fair or even necessary trade for economic gains is deeply flawed,” she says. “Undercutting democracy undercuts a foundation of sustainable and inclusive growth.” She points to a study suggesting that democratization increases gross domestic product per capita by around 20% in the long run.
Yellen cites the insurrection Jan. 6, 2021, as a day when democracy came under threat as “rioters, spurred on by a lie, stormed the Capitol.” Trump, who made false claims that the 2020 election was stolen from him, has been charged with conspiring to overturn that election, among four criminal cases he is facing. He denies wrongdoing.
And though Yellen didn’t specifically cite Trump’s comments, he again undermined the tradition of a peaceful transfer of power this week when he refused in an interview with the Milwaukee Journal-Sentinel to commit to accepting this year’s presidential results.
Farther from home, Yellen cited other global threats to democracy such as Russia’s invasion of Ukraine.
Trump and those associated with him say they want to centralize the government’s powers within the Oval Office, such that he might subject people or companies that cross him to investigations, lawsuits and other penalties. That approach could undermine the rule of law that has enabled America’s marketbased economy to thrive.
In her speech, Yellen points to China as a cautionary example and warns that its future growth is “far from certain.” She says the absence of some democratic pillars will “continue to pose challenges as China navigates the transition to an advanced economy.”
Yellen’s speech comes when there is speculation that if Trump regains the White House, he may put political pressure on the Federal Reserve to lower its benchmark interest rate, which stands at a two-decade-high of roughly 5.3%. Fed Chair Jerome Powell this week said gaining confidence to lower rates “will take longer than previously expected.”
“As chair of the Federal Reserve, I insisted on the Fed’s independence and transparency because I believe it matters for financial stability and economic growth,” Yellen says in her speech. “Recent research has been consistent with my belief: It has shown that greater central bank independence is associated with greater price stability, which contributes significantly to long-term growth.”
A representative from the Trump campaign did not respond to a request for comment.
Other leading economists and academics are challenging the right’s claims to the mantles of economic growth and liberty.
Nobel Prize-winning economist Joseph Stiglitz, a friend of Yellen’s, last month published a book titled “The Road to Freedom.” Stiglitz, in an interview, said Trump has preyed on people’s economic insecurities after decades of inequality and the erosion of the middle class.