Democracy is critical to prosperity, Treasury secretary says

This episode explores the interconnection between democracy and economic performance, emphasizing the critical role democratic institutions play in achieving and maintaining high living standards.

1. Democracy significantly influences economic performance, with democratic countries generally seeing higher living standards.
2. The U.S. is actively investing in infrastructure and technology to compete globally, especially against China's heavily subsidized industries.
3. Current U.S. economic strategies are aimed at broad-based growth, focusing on creating opportunities for all Americans, regardless of educational background.
4. International relations, particularly with China, are pivotal in the global economic landscape and require careful diplomatic handling.
5. The U.S. administration is working to address both immediate economic challenges and long-term structural issues through legislation and policy initiatives.

1: Introduction

Kai Ryssdal outlines the episode's focus on the interplay between democracy and economic health, setting the stage for a detailed discussion with Treasury Secretary Janet Yellen. Kai Ryssdal: "Today, we delve into how democracy underpins economic prosperity with Treasury Secretary Janet Yellen."

2: Democracy and Economy

Yellen articulates the importance of democratic institutions for economic performance, stressing that robust democratic practices lead to better economic outcomes. Janet Yellen: "Democracies are better at ensuring high living standards; it's crucial for economic success."

3: U.S. and Global Economic Strategies

Discussion on U.S. economic strategies and international relations, especially concerning China, highlighting efforts to ensure fair competition and economic stability. Janet Yellen: "Our investment in clean energy and technology is vital for national security and economic stability."

4: Challenges and Future Directions

Yellen reflects on the broader challenges facing the U.S. economy and the strategic directions of current economic policies. Janet Yellen: "We are focused on overcoming the pandemic's impacts and investing in America's future to ensure economic prosperity."

1. Stay informed about how democratic institutions impact economic policies and personal finance.
2. Consider the long-term benefits of policies aimed at infrastructure and technological advancements.
3. Support policies that enhance economic fairness and competition.
4. Engage in community and political discussions to advocate for robust democratic practices.
5. Educate others about the interplay between political structures and economic outcomes.

Treasury Secretary Janet Yellen sat down with “Marketplace” host Kai Ryssdal to discuss inflation, economic growth, U.S.-China relations and why having a strong democracy matters for our economy. She also highlighted federal investments in clean energy, concerns about Chinese overproduction and more.

People

Janet Yellen, Kai Ryssdal

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Content Warnings:

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Public Investing
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Kai Ryssdal
The state of the american consumer, sino american relations and democracy, and the state of this economy, all as Janet Yellen sees them, from american public media. This is Marketplace in Washington, DC today. I'm Kai Rysdal. It is Thursday the 9 May. Good as always, always to have you along, everybody.

The way it works when you've got an interview with the treasury secretary is that you show your id to the uniformed Secret Service agent standing at the gate on Pennsylvania Avenue right outside the White House and the Treasury Department building. Then you give your id to the uniformed Secret Service agent inside the guardhouse on Pennsylvania Avenue. Then you get inside the building and you give your id to the uniformed Secret Service agent at the guard desk. A quick pass through the metal detector, up a flight of stairs, and down a long, tiled corridor into a kind of underwhelming conference room. Really, you wait for a couple of minutes and then you're on.

Madam Secretary, welcome to the program. Good to have you back. Thanks for the invitation. I want to start with inflation, just as a quickie, even though technically not your job. I get that you said a number of months ago, this is it.

We've had the soft landing and given the way inflation has been bumpy, to quote chair Powell, would you like a do over on that one? Well, look, I think the economy is doing well. We have a strong pace of job creation. Growth is running around 3% over the last year, and inflation has come down substantially. It's not yet where it needs to be, and it has been a slightly bumpy path, but I think the fundamentals are still favorable.

Janet Yellen
But look, all that said, many Americans are suffering from a cost of living that is posing challenges to them. Rent, food, other prices are high, and Americans feel challenged to make ends meet. So President Bidens top priority is doing everything he can to get the cost of living down. When you see polls, though, that show the president not getting credit for economic growth and in point of fact, credit largely going to his presumed opponent, do you look at it and say, what do we have to do to get a break? Well, I think we have to explain to the american people what we have done to create a bright future for them.

And the pandemic was a serious challenge for all Americans, and we have a lot of challenges coming out of that. But if you compare the United States with other developed economies, we are doing better. Inflation's come down, more growth is stronger. The job market is doing better. And President Biden has been focused since day one not only on recovering from the pandemic, but on investing in America in ways that would create good jobs, including for people who don't have a college education and in parts of the country that have really lacked opportunity.

And there has been a trifecta of legislation passed, the bipartisan Infrastructure act, the Chips and Science act, the Inflation Reduction act, which is a monumentally important set of clean energy incentives. And with these investments is coming tremendous opportunities for Americans that will boost their living standards. Let's talk about America and the global economy for a second, China specifically, which is the last time you and I spoke in Beijing. You're just back a number of weeks ago from another trip there. You said the first time you went, what you had to do was set a floor under the relationship, and we talked about that at the time.

Kai Ryssdal
And now you're building on that. Are you satisfied that the relationship is stable? I think it's decidedly improved. Over the last year. I've had three very substantial engagements with my counterpart, vice Premier He Lefeng.

Janet Yellen
I've spent a great deal of time with him, and we've had very deep and detailed discussions of the issues that we have with one another, what our priorities are. And also importantly, our relationship goes beyond just the vice premier and myself. We've deepened the relationship throughout our governments. We've formed two working groups. They've met four times, and they're really digging in and discussing issues in ways that are including around our concerns, one of which is chinese overcapacity in advanced manufacturing, exchanging papers, analyzing data.

And we're working also on joint things, especially when it comes to financial stability that will be good for the entire globe. Let me ask you about one of the focuses of that trip, which is, as you mentioned, overcapacity in advanced products, electric vehicles, batteries, all of those things. Is it possible we're just being outcompeted by the Chinese in those fields? Well, we don't think the playing field is level, and we think China is massively subsidizing investment in the set of industries that they have targeted as critical to their growth prospects. Subsidizing more than we are with our investments in the Chips act and the infrastructure law and all that?

Kai Ryssdal
Yes, because we're pouring billions. You are pouring billions in? Well, we have targeted a few industries, particularly clean energy, electric vehicles, batteries, renewables, where we're not trying to dominate the globe and be the only country in the world that supplies these goods. But we do think it's critical for national security for the sake of supply chain resilience and to create good manufacturing jobs where people can get ahead to have presence in these industries. And what we don't want to see is massive chinese subsidies to firms with huge overcapacity that will just drive our firms out of business.

Janet Yellen
I think what's happened in China is that China has a macroeconomic situation where an unusually low fraction of their output, their economy's output, is devoted to consumer spending, and they have a savings rate that's the highest, among, the highest in the world, around 45%. They used to channel that savings into infrastructure, then into real estate and property development, which has been problematic, and that sector has problems. And what to do with all of those funds? Well, their decision is, let's channel those funds that we don't need to put into property and infrastructure, into advanced manufacturing. And China has built enough capacity, for example, in solar panels, to supply twice the total global demand.

So we suffered in the late 1990s and early two thousands, what's called a China shock, in which really chinese dumping and overcapacity caused layoffs of many american workers in many parts of the country. And we don't want to see that happen again. I'm going to oversimplify here, but bear with me. Your message to the Chinese at least as reported publicly, has been. We want to engage.

Kai Ryssdal
We do not want to decouple. You've been very clear about that. But you've also said when it comes to national security, fundamentally all bets are off. Do you think they hear you when you say that they do. I think they're worried that when we say national security, that that's a very broad concept and that we're using national security to impose restrictions with the idea of harming their economic progress.

Janet Yellen
And my job is to explain to them that we are trying to carefully target restrictions to make sure that they really address national security concerns and are not harming their economy broadly and to open up a channel by which we listen to their concerns if they think that our restrictions are too broad. More from the 78th secretary of the treasury of these United States about american democracy and this economy coming up after the fold. Wall street on this Thursday, traders were in a pretty good mood. Actually, a little bit of softness in the labor market is the reason. Why should you be curious?

Kai Ryssdal
First time claims for unemployment benefits were up just a hair. And that might, emphasis on, might make the Fed more inclined to cut interest rates. Maybe we'll have the details when we do the numbers.

All right. Let's do the numbers. Dow industrial is up 331 today, more than 810 percent, 39,387. The Nasdaq added 43 points. Little over a quarter of 1% finished at 16,346.

The S and P 500 picked up 26 points, about a half percent finished at 52 and 14. A place and a palace of teenage rock and roll dreams is filed for bankruptcy. Musical instrument retailer Sam Ash. It's filed for chapter eleven bankruptcy in a federal court in New Jersey. The family owned company is closing its 42 remaining brick and mortar stores.

It was the pandemic, says the company, according to court documents, one of Sam Ash's biggest unpaid debts in that filing is to Yamaha, which is in turn one of the few musical instrument manufacturers that is publicly traded. Its shares picked up nine and three tenths per today after a strong quarterly report. Revenue up. Profit forecast looking rosy. A sweet, sweet quarter for cheesecake Factory.

Ticker symbol come on. This one's too easy. Come on, come on, come on, come on. Cake, cake. Revenues feed analyst estimates and shares rose six and two tenths percent today.

Same story for Krispy Kreme. Ticker symbol. This one's a little trickier, d nut. But it managed to pocket just one and eight tenths percent. Bonds rose yield on the ten year t note 4.45%.

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Kai Ryssdal
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This is Marketplace. I'm Kai Rysdal. We talked, Secretary Yellen and I did, for 15 or so minutes today, eight ish of it. You already heard big picture economic issues, american consumers, the China relationship, and then I made a turn. Here you go new subject.

You gave a speech last Friday in Arizona in which you, by your own words, sort of went where treasury secretaries don't usually go, and you started talking about the importance of democracy to the american economy and democratic institutions to the importance of this economy, among them, rule of law, regulation, the right of appeal, all of those things. Do you believe that the rule of law is under threat in this country right now? And what will that mean for this economy? Well, we have seen attacks on institutions, american institutions, independent institutions like the Federal Reserve. And, of course, January 6 was a huge attack on american democracy and something that was frightening.

Janet Yellen
So I think we do have to worry about the state of american democracy. And when we look around the world, we see similar, similar threats in a number of countries and some questioning of whether or not democracies can actually deliver and address the challenges that people face. You did what economists do in that speech, and you gave some data and some case studies, and it was, I recommend people read it or go listen to it on the stream. I want to know why you decided it was important to give that speech now. Well, President Biden has also talked about the importance of the.

Kai Ryssdal
Not the president, ma'am, you right. These are words coming out of your mouth. Oh, sure. Well, you know, from my standpoint, I think it's important for Americans to understand how critical democracy is to economic performance. Of course, democracy is important in and of itself.

Janet Yellen
But I thought what I can add is to elucidate the relevance of democracy to good economic performance and to fight back against the idea that democracies just aren't an efficient way to help people get ahead. And you sometimes hear this in countries like China that say, well, you know, we have an authoritarian government. We decide to do something, and we can move quickly. And look how slow it is for sometimes democracies to move. But the research suggests that democracy is actually critical to high living standards on average.

Other things, equal income is 20% higher in democracies. And there are very good reasons. It's important for Americans to understand that. Did you clear that speech with the White House? I always share remarks I'm going to give with my colleagues in the administration.

Kai Ryssdal
When we were in China, and you were, you know, you got the red carpet treatment, you came down the stairs, and ambassadors and dignitaries were there to welcome you, and I asked you if you were a diplomat now in what you thought of that. And it was an interesting answer. I guess the, the corollary question now is, it's not really a question. You're kind of a politician now? Well, I want to be clear.

Janet Yellen
My, what I say and do is governed by the hatch act. I'm not allowed to get into electoral politics. Absolutely. But it is really important for me to explain what President Biden's economic strategy is and how we see that as helping Americans prosper over time. And there are a lot of different dimensions to that.

And one of them, I believe, is to explain why the policies we're putting into place are the appropriate ones to address a lot of longstanding structural issues. Look, you know, we've seen in this country over decades that the typical American who does not have a four year college degree has barely seen any increase in their real or inflation adjusted wages, really, in 40 or 50 years. And there's been deindustrialization through many parts of the country that have reduced job opportunities. And what do we see? Even rising death rates, deaths of despair in parts of the country where jobs have dried up and Americans feel that that's an economy that's not working for them.

And President Biden, the Biden Harris administration, is focused on changing that and developed a strategy that first succeeded in generating a rapid recovery from the pandemic and is now investing for the medium and longer run. We were talking on the way over here, Nancy, my producer and I, and we realized that depending on how this election goes, this might be the last chance we have to sit down with you. So I'm going to ask you the legacy question, and it goes like this. I did an event with Chair Powell in San Francisco six weeks ago. We were at the San Francisco Fed, which you ran for a long time.

Kai Ryssdal
And in point of fact, we were in the Janet Yellen conference Center at the San Francisco Fed. And so I used that as well. There you go. And it's lovely. I recommend you swing by and take a visit.

I asked Chair Powell what his legacy was based on, your legacy in the San Francisco fed being that conference room. But bigger picture, what's the first line of your New York Times opit? That I tried to work with President Biden and in other ways through out my life to create economic conditions that make Americans feel they're getting ahead and enjoying good lives, that they have opportunity and that they're able to realize their dreams. And we can do that by earlier in my career through a monetary policy that is geared toward keeping the economy operating near full employment with stable prices, and in this phase, working with President Biden to put in place fiscal policies that create important job opportunities for people, regardless of whether they have a college education that give them the training and create the opportunities they need to succeed and feel they're getting ahead and creating good and better lives for their children. Madam secretary, thanks for your time, ma'am.

Janet Yellen
Thank you very much, Clyde.

Kai Ryssdal
As you heard from Secretary Yellen, the US China economic relationship is complicated. But you get away from the high level controversies, down to the doing business, nuts and bolts, and it all comes down to a person having a good idea that the market likes. True, most of the time. Not true for a guy who came up with one of the hottest toys in all of China last summer. Marketplace.

Jennifer Pack has that one. In the central chinese city of Wuhan, college student Zhou Wenhao studies marine engineering by day. By night, he's tinkering with 3d printers. Two years ago, he designed a mini toy switchblade and called it a carrot knife. Because the plastic blade is orange, he films it and posts it on the video platform.

Jennifer Pak
Billy. Billy.

Zhou Wenhao
In the first two weeks, the video didnt get much traction. Then it got hundreds of thousands of views, and I sold a couple hundred carrot knives. Orders started to fizzle. Zhou Wenhao moved on to other designs. And last summer, at the urging of a friend, he uploaded the carrot knife video again, this time on another platform, TikTok's chinese sister site, Douyin.

It got 5 million views. Then some manufacturers started hyping the toy. Online, among them manufacturer and seller Yu Ping hai. He says the carrot knife was a good idea, so he wanted to copy it. He hesitated at first because the design was pretty simple.

Yu Ping Hai
If the technical barrier is very low, there would be lots of other imitators and the price would go down till there would be no profit. I didnt want to join the price war, so I normally wouldnt do it. But he didnt have any other product on hand, so he took the carrot knife design. It was just a coincidence in luck that I became one of the first to manufacture the carrot knife. And I sold a lot.

Jennifer Pak
He did so because hes some 400 miles east of Wuhan in Yiwu city. Factories there are known for producing all things small. Again, inventor Zhou Wenhao. When the carrot knife went viral, manufacturers and sellers in Yiwu didnt care about copyright. A lot of them just skimmed his design.

This didnt bother him at first because he was busy with orders for another one of his products. I had no time for new orders. Besides, I thought the carrot knife was an old product and would not last long on the market. He was very wrong.

News reports say carrot knives were all the rage last summer. Among elementary students, a customer base he didn't think to target because his carrot knives retail at $4, whereas ones from Yiwu less than $1.50 each from making plastic mows. Manufacturing and logistics, it's all concentrated in one area. That's why Yiwu's production cost is so cheap. These industrial clusters are the reason you have a lot of toys selling for cheap on Amazon.

Chinese factories make money by selling a lot and moving quickly again. Toy manufacturer Yu Ping Hai in the. Yiwu business circle, information spreads fast. Production of the carrot knife lasted two to three months.

But by last fall, news reports were questioning the safety of carrot knives, and sales collapsed. Inventor Zhou Wenhao estimates between ten and 100 million carat knives were sold. Of those, he made maybe 500. I earned less than $900 from the carat knife. He did try to work with the factory, but one of the partners ran away with all the money over a meal of braised fish.

He says a patent would not have helped him in time. In the Internet error, things can be easily amplified, but things that come fast can go just as fast. He says the best way to earn money is to control the manufacturing and sales process yourself and somehow not get swallowed up by China's manufacturing machine. In Wuhan, I'm Jennifer Pak for marketplace.

Kai Ryssdal
If you need, and I know you do, an early start to your business day. All the economic news you need to know comes to you from David Brancaccio and the gang at the marketplace. Morning report. Check it out.

This final note on the way out today, the last word of the day from Secretary Yellen. One more China question. You get all kinds of social media love for your food choices when you go to China. Your chopstick skills are apparently impeccable. I'm glad to hear that.

What do you make of that?

Janet Yellen
You know, I think the Chinese are happy to see a person who appreciates chinese culture and is a regular person that they can identify with is that. You'Re a regular person. Yeah, I think so. John Buckley, John Gordon, Noya Carr, Diantha Parker, Amanda Petron, Stephanie Sik are all regular people as well. They're the marketplace editing staff.

Kai Ryssdal
Amir Bibawe, also a regular person, is the managing editor. I'm Kai Rizdahl. We will see you tomorrow. Everybody.

This is APM.

Rima Grace
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