Treasury Secretary Janet Yellen delivered a speech in Arizona on Friday, discussing the impact of a fractured democracy on the economy. While she did not specifically mention Donald Trump, her remarks seemed to hint at the former president’s potential impact on the economy if he were to regain the White House. Yellen emphasized the importance of democracy in building and sustaining a strong economy, refuting the argument that sacrificing democratic norms for economic gains is necessary. She highlighted the connection between democracy and economic growth, citing a study that showed democratization can increase GDP per capita by 20% in the long run.
Yellen pointed to recent threats to democracy, including the insurrection on January 6, 2021, when rioters stormed the Capitol. While Trump has been charged with conspiring to overturn the election and has made false claims about the election being stolen, he continues to undermine the tradition of a peaceful transfer of power. Yellen warned of global threats to democracy, such as Russia’s invasion of Ukraine, and highlighted China as a cautionary example due to its lack of democratic pillars. She expressed concern that China’s future growth is uncertain without democracy to guide its transition to an advanced economy.
As chair of the Federal Reserve, Yellen emphasized the importance of independence and transparency in maintaining financial stability and economic growth. She acknowledged the speculation that if Trump were to return to the White House, he may pressure the Federal Reserve to lower interest rates. However, Yellen stressed the need for the Fed’s independence in setting monetary policy. Other economists, such as Nobel Prize-winning economist Joseph Stiglitz, have criticized Trump’s economic policies, suggesting that they exploit economic insecurity and inequality.
Vanessa Williamson, a senior fellow at the Urban-Brookings Tax Policy Center, highlighted the economic costs of democratic decline, including stagnation, policy instability, cronyism, brain drain, and violence. She argued that businesses should be more concerned about the rule of law and democratic values, as a move away from democracy could harm their bottom lines. Yellen’s speech served as a warning to business leaders who may prioritize economic growth over democratic norms, emphasizing the interconnectedness of democracy and economic prosperity. The implications of a fractured democracy on the economy are significant, and Yellen’s address aimed to raise awareness of these issues among policymakers and business leaders.
