U.S. Treasury Secretary Janet Yellen delivered a compelling speech to the Economic Club of New York, emphasising the critical role of public investments in attracting private capital to foster sustainable and inclusive economic growth. Yellen’s address underscored the need for a balanced economic strategy that diverges significantly from both traditional Republican supply-side economics and the heavy-handed industrial subsidies practised by China.
Yellen took the opportunity to critique the long-standing Republican model of supply-side economics, which primarily relies on tax cuts to spur investment. She argued that this approach has failed to deliver widespread benefits, particularly for American workers. “Tax cuts for the wealthy and deregulation have not fueled growth and prosperity for the nation at large,” Yellen stated, pointing out the inadequacies of relying solely on this model.
Her remarks come as a rebuttal to Republican Presidential candidate Donald Trump’s expected presentation to U.S. CEOs in Washington, where he is likely to outline his economic vision for a potential second term. Trump has been advocatingfor further tax cuts, deregulation, and increased fossil-fuel energy production while opposing President Joe Biden’s clean energy initiatives. In contrast, Yellen emphasised the importance of public infrastructure, education, workforce training, and government-supported research as essential components of a robust economic strategy.
Highlighting the Biden administration’s accomplishments, Yellen pointed to the 2021 infrastructure law, semiconductor investments, and clean energy tax credits passed in 2022. Since Biden took office, these legislative initiatives have not only trained workers but have also spurred $850 billion worth of new private-sector manufacturing investments in the United States. “Neither the public nor the private sector alone can drive our economic strategy,” Yellen asserted, promoting her concept of “modern supply-side economics.” This doctrine calls for public interventions to create a conducive environment for business and stimulate private-sector investments.
Yellen contrasted the U.S. approach with China’s model of massive state industrial subsidies. She criticised China’s excessive government support for strategic industries, which has led to overproduction and weak domestic demand. This overcapacity, Yellen warned, results in a flood of exports that threatens jobs globally and prompts new trade barriers. “China cannot assume that the rest of the world will rapidly absorb huge quantities of excess production to the detriment of domestic industries in other countries,” she cautioned.
Despite these criticisms, Yellen reiterated her stance against decoupling the U.S. and Chinese economies, warning that such a move would be detrimental to American interests. “If China continues on this path, I fear that its policies may interfere significantly with our efforts to build a healthy economic relationship,” she said.
Yellen’s speech underscores a broader vision for a balanced economic approach that leverages both public investment and private capital to achieve sustainable growth. Her critique of supply-side economics and China’s subsidy model highlights the need for a middle path that incorporates infrastructure, education, and research as foundational elements of economic policy. This balanced approach aims to create a supportive environment for business, ensuring that economic growth benefits all segments of society.
As the U.S. navigates the complexities of global economic competition and domestic policy challenges, Yellen’s call for modern supply-side economics presents a compelling framework for sustainable and inclusive growth.
