BY Jon Schwarz

IN JUNE 1996, Janet Yellen — then a member of the Federal Reserve Board of Governors, later chair of the Fed herself, and currently secretary of the Treasury — wrote an extraordinary memo to then-Fed Chair Alan Greenspan. Anyone who wants to understand how the world works should read it, and thank Tim Barker, a historian who obtained it via the Freedom of Information Act.

What makes the memo so telling is threefold.

First, while expressed in abstruse technical language, it shares a perspective with the most radical left-wing critiques of capitalism. Yellen goes 90 percent of the way to proclaiming, “The history of all hitherto existing society is the history of class struggles.”

Second, Yellen is not, of course, calling for a proletarian revolution. Rather, as Noam Chomsky has pointed out, “vulgar Marxist rhetoric is not untypical of internal documents in the government,” just “with values reversed.” In Yellen’s case, she is making the case for, as she writes, the positive “impact of heightened job insecurity.” A rise in worker insecurity in the mid-1990s meant everyone was too scared to ask for raises, which meant businesses wouldn’t need to hike prices, which meant even with the falling unemployment at the time, the Fed didn’t need to raise interest rates to slow the economy and throw people out of work.

Third, Yellen is not a monster. Indeed, from the perspective of regular Americans, she’s about as good as it gets at the summit of power. The problem, for those of us down here on the ground, is her overall worldview. She might personally want things to be nicer but is certain the science of economics places incredibly sharp limits on the possible, and all we can do is try to make small improvements within those limits.

The memo is titled “Job Insecurity, the Natural Rate of Unemployment, and the Phillips Curve.” Barker learned of it from references in the books “Maestro” by Bob Woodward and “Empathy Economics” by Owen Ullmann. Greenspan distributed the memo to the entire Federal Open Market Committee, or FOMC — the group that decides interest rates — and it worked. As Ullmann puts it, “Yellen rescued Greenspan from his tight spot.”

Here’s the context in which Yellen was writing.

By mid-1996, unemployment had fallen to 5.3 percent. To understand the significance of this, it’s necessary to understand the standard economics model at the Fed (and the other centers of U.S. powers). There is, they believe, an inescapable trade-off between unemployment and inflation: If unemployment gets low, workers across the economy will have the bargaining power to bid up their wages, which will cause unstoppable inflation, which a few steps later will cause the rise of another Hitler. (Germany’s hyperinflation during the 1920s is generally believed to be one reason the country was open to extreme leadership.) You might think it would be nice for everyone to have jobs and good pay, but that just shows you are naïve and/or a Nazi.

Therefore, as previous Fed Chair William McChesney Martin said in 1955, the job of the Federal Reserve is to be “the chaperone who has ordered the punch bowl removed just when the party was really warming up.” They can’t let unemployment get too low, or the party will get out of hand.

With this in mind, the economics profession has developed a concept called the non-accelerating inflation rate of unemployment, or NAIRU. If you’re searching for it online, resist Google’s desire to instead search for “Nauru,” which is not an economic theory but rather a tiny island nation in Micronesia.

In 1996, NAIRU proponents generally agreed it was somewhere around 6 percent. Below that lay spiraling inflation, fascism, etc. It was therefore time for the Fed to get started slowing the economy. As Ullmann describes it, members of the FOMC were “prodding Greenspan to raise interest rates right away.” But Greenspan was resisting this; no one knew for sure where the NAIRU was.

This quasi-liberal stance was remarkable, given that Greenspan was an acolyte of Ayn Rand. In 1957, the New York Times published a letter from Greenspan in which he declared that her novel “Atlas Shrugged” was “a celebration of life and happiness. Justice is unrelenting. Creative individuals and undeviating purpose and rationality achieve joy and fulfillment. Parasites who persistently avoid either purpose or reason perish as they should.”

But Greenspan’s rationale was not that higher inflation was OK. Rather, as he eventually explained, “greater worker insecurity” had made possible a “healthy economic performance” with both low inflation and lower unemployment. This increased worker insecurity, he believed, could be measured by surveys finding that in 1991, in the middle of a recession, 25 percent of workers agreed with the statement, “I am frequently concerned about being laid off” — yet five years later, with far lower unemployment, 46 percent did.

Yellen’s memo was an attempt to provide intellectual support for Greenspan’s belief that increased worker insecurity could coexist with low unemployment. She writes in the memo that “unemployment serves as a worker-discipline device.” Therefore, even with low overall rates of unemployment, “an increase in job insecurity due to changing technology or other factors could induce a permanent decline in the natural rate of unemployment, along with a reduction in real wages and an increase in the markup of prices over unit labor costs.” (The “natural rate of unemployment” is related to but not exactly the same thing as the NAIRU.) And as Yellen describes it, there were several plausible ways in which the U.S. economy had changed structurally that could increase job insecurity.

Baked into the economy, Yellen says, is class conflict. “Real wage bargains,” she explains, “depend on the size of the ‘surplus’ available to be split between workers and shareholders. The bargaining power of each side determines the share of the surplus that it can extract. Bargaining power, in turn, depends on each side’s outside opportunities. As unemployment declines, other things equal, labor’s bargaining power rises, resulting in higher real wage settlements.”

But other things are not always equal, because there are factors beyond the unemployment rate that can “translate into a decline in workers’ bargaining power.”

“Improvements in the ability of firms to outsource production — domestically or internationally — [and] new labor-saving technology,” according to Yellen, “improve management’s options and serve as a threat to workers. Even if management does not actually use these options, their availability lowers workers’ bargaining power.” She does not mention the North American Free Trade Agreement, which had entered into force just a few years earlier in 1994, but this was surely part of the dynamic she describes.

Furthermore, “lower unemployment benefits or decreased unionization could similarly result in a decline in workers’ bargaining power.”

All of these points have of course been made repeatedly by various critics of capitalism. So it is quite something to hear them in Yellen’s voice, even if she is presenting them as having positive effects.

And that’s the most important thing to understand about the Yellen memo. In her view of how economics works, the insecurity that working people hate is positive for everyone, including them, because this is the best we can do without provoking catastrophe. But is she right?

To start with, is a somewhat higher level of inflation truly such a terrifying specter? Creditors hate inflation because it causes their financial assets to decline in real value. But most people might prefer that if jobs are plentiful and wages aren’t falling behind inflation (although that, of course, can happen).

Beyond that, does increased worker power necessarily lead to higher inflation? Perhaps firms could avoid increasing prices by reducing profits or executive salaries. Maybe employees would be willing to forgo higher pay in exchange for a voice in how work is organized. Certainly they’d be concerned about raising the price of their company’s product if they owned the company. Everyone would also be worried more about inflation decreasing the value of financial assets if they had more such financial assets.

But Yellen’s conventional mind will never ask such questions, and no one with a more flexible imagination will ever sit in the Treasury secretary’s chair. (Tellingly, here in 2023, she is expressing no interest in creative measures such as minting a $1 trillion platinum coin to prevent the GOP-controlled Congress from driving the U.S. government into a pointless, catastrophic default.) Her memo is a compelling demonstration that there are people at the top who are trying to make this the best of all possible worlds, but the best world they can conceive of is still terrible.

READ MORE:

https://theintercept.com/2023/01/24/unemployment-inflation-janet-yellen/?

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BY Pogos Anastasov

Following the second ever US-Africa summit in Washington (the first was in 2014), the White House launched a massive offensive against African states, attempting to force them to either abandon cooperation with Russia entirely or reshape it in ways that benefit US businesses.

US Treasury Secretary Janet Yellen embarked on an 11-day tour of African countries (Senegal, Zambia, and South Africa) in January 2023 to develop the theses that the US presented to African leaders at the December 13-15 summit. The main thrust is that Russia’s (and, of course, China’s, how could it be otherwise!) actions are allegedly exacerbating economic problems in Africa, and Russia in general has allegedly caused “untold suffering” to the world and created “global economic obstacles,” which is why African economies are being “unnecessarily squeezed.”

In trying to lure Africans, Janet Yellen claimed that the West’s cap on Russian oil prices would save African countries $6 billion per year. She urged African countries to take advantage of this fact in order to obtain significant discounts on oil.

[GUSNOTE: IT IS LIKELY THAT THE AFRICAN STATES ARE GETTER BETTER DISCOUNTS FROM RUSSIA...]

It is difficult to say what all of these rhetorical exercises contain more of: lies, hypocrisy, distortion of facts, or sheer insolence mixed with the arrogance of a world power losing its hegemony.

Start with the Russian-Ukrainian conflict, whose American interpretation underpins the entire narrative. The widely circulated Western version of this conflict, created by the United States and repeated by Kyiv, is well known in: Imperialist Russia allegedly attacked “innocent sheep” Ukraine in order to tear it apart, seize territories, and deprive it of statehood. According to allegations, Russia does not recognize the Ukrainian people’s right to self-determination and does not adhere to the principle of state territorial integrity.

Life itself has long debunked this false thesis: 30 years after the collapse of the Soviet Union, Russia has sought to build constructive relations with Ukraine, pouring $400 billion in investment into the country, $200 billion of it through extremely low prices for energy resources imported by Ukraine in exchange for Moscow’s desire to ensure the rights of the Russian-speaking population and good neighborly relations. Russia was duped in both cases: as a result of the bloody 2014 Western-inspired coup in Kyiv, pure neo-Nazis came to power, burning Russians who opposed them in Odessa on May 2, 2014, and good neighborly relations were buried by enshrining in the Ukrainian constitution in 2018 the proposition that Ukraine should join NATO, which Russia vehemently opposed.

Russia offered Ukraine a federal agreement formula that would have helped secure the rights of Russians in Ukraine in an attempt to save Ukrainian statehood, but it was rejected. The palliative 2015 Minsk agreements, which were supposed to grant autonomy to the Donbass and Luhansk regions on a variety of issues, were shamelessly exploited by Ukraine and the West to arm them and turn them into a direct and immediate threat to Russian security. This was acknowledged by Russia’s Western partners, former German Chancellor Angela Merkel and former French President François Hollande, who both stated unequivocally that neither the West nor Kyiv intended to implement the agreements.

Furthermore, it became clear that the Ukrainian government intended to launch an offensive on Crimea and the Donbass to carry out ethnic cleansing and destroy any resistance to its anti-Russian plans to integrate with the West.

Russia was forced to respond to these overtly anti-Russian plans.

This is true, but it is not the truth, but rather the fabricated stories of Russian aggression that serve as the foundation of Washington’s entire foreign policy. Meanwhile, the US is illegally occupying a portion of Syria’s territory and stealing its oil, all while screaming loudly about Russian aggression causing “unspeakable suffering” to nearly the entire world. Many other facts from the recent and older history of the aggressive actions of the USA are known to all: the destruction of Libya and its leader Muammar Gaddafi, the dismemberment of Yugoslavia by the forces of NATO and the separation of its historical territories, such as Kosovo, the participation of the USA in the creation of “Al-Qaeda” and ISIS (both terrorist groups are banned in Russia), the support of the once racist regime in South Africa, not to mention the slave trade until the mid-19th century.

In banking, there is such a thing as credit history. So the US is far from having the right to accuse others of destroying statehood. Let us not forget the system of plundering nations created by Wall Street bankers, the Bretton Woods system of the IMF and the World Bank. It has created for the whole world such financial conditions of life based on the domination of the US dollar, that do not allow the supposedly independent states to develop independently and effectively. It has secured the status of African countries (and not only them) as raw material appendages of the Western world. The facts have been known for a long time: Africa produces 90% of cocoa, but receives only 11% of the profits from it. The same is true for all extractable mineral resources in Africa. Niger, for example, has the seventh-largest uranium reserves in the world, but the energy it produces lights up France, while Niger suffers from hunger, disease and lack of development. The same is true for almost all countries on the African continent.

Janet Yellen has come to Africa to defend this system, luring Africans with illusory handouts such as the $55 billion in investments promised in Washington in December for the next three years. Meanwhile, the United States and other Western countries have already provided Ukraine with real $100 billion in 11 months, and this is not the end. This money could have long ago been used to end hunger in Africa, but instead it is going to war with Russia and to the US military-industrial complex, which is profiting from the war.

There are numerous other examples of the West’s, specifically Washington’s, hypocrisy and double standards. Palestine is the most notorious example. The same zeal and enthusiasm on the part of the US to establish a Palestinian state and liberate the occupied Palestinian territories is nowhere to be seen.

In Africa, where the Soviet Union spared no effort, no money, and no soldiers’ lives to fight for independence (particularly in Angola), they can discover without the interference of Washington’s emissaries who their true friends are and who their true oppressors are. They can clearly see who really wants to maintain neocolonial power on this continent under the guise of the pseudo-fight for democracy, and opposes with all their might the unavoidable transition of the world to a qualitatively new multipolar state based on taking into account the interests of all states and peoples, and giving everyone equal opportunities for development and liberation from the Western financial domination that sucks the juice out of the absolute majority of the world’s peoples.

The United States’ efforts to maintain its already lost expansion, at least through Janet Yellen’s travels and false rhetoric to save Ukraine, which is supposedly dying because of Russia, are futile and will not result in the desired outcome.

Pogos Anastasov, Political Scientist and Orientalist, exclusively for the online journal “New Eastern Outlook”.

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https://journal-neo.org/2023/01/29/the-truth-and-lies-about-ukraine-lessons-for-africa/

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