This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Why Wall Street's Afraid of Janet Yellen's Husband

NEW YORK (TheStreet) -- George Akerlof is a 2001 Nobel laureate because of his 1970 paper titled "The Market for Lemons" about asymmetric information in the market for used cars.

For inflation hawks on Wall Street, he may be the most dangerous man in America.

Ever since Paul Volcker replaced the now forgotten G. William Miller as Federal Reserve chairman in 1979, it has been conventional wisdom on Wall Street that the Fed's main job is to enforce price stability, and that doing anything else is dangerous.

The failure of Keynesian economists to explain the stagflation of the 1970s caused their theories to be overthrown by a new classical economics, marked by such concepts as a "natural rate of unemployment" and the idea of "rational expectations." The economics of Milton Friedman overthrew those of Keynes.

Upon accepting his Nobel, for a paper opposed to rational expectations, Akerlof delivered a lecture that directly challenged the natural rate theory.

Drawing on sources as diverse as children's book author Richard Scarry and Britain's Oliver Cromwell, he practically begged the new classicial economists to "think it possible you may be mistaken." He even called Fed governors obsessed with inflation "dangerous drivers."

Inflation hawks may be thinking hard about this today, when new Fed Chairwoman Janet Yellen takes her first press conference, with economists and investors alike sifting through each remark for signs of future Federal Reserve policy.

That's because Akerlof and Yellen have been man and wife since 1978. They actually met at the Fed, at an overflow table during a lunch for visiting speakers.

Although former Chairman Ben Bernanke used Friedman's monetarist theories in fighting the Great Recession, Akerlof and the New Keynesians believe that competition is imperfect, that government can use both fiscal and monetary policy to stabilize markets.

Austrian economists deride all this as a "pink dream." Thomas Sowell has called Yellen a "return to Keynes." Those predicting imminent disaster for the economy, such as Paul Craig Roberts and Peter Schiff, base their belief on an assumption that the economics of Akerlof and, thus Yellen, must be wrong.

1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
AAPL $118.98 0.99%
FB $104.21 -1.20%
GOOG $747.25 -0.40%
TSLA $229.94 -0.72%
YHOO $33.12 0.56%


Chart of I:DJI
DOW 17,793.02 -5.47 -0.03%
S&P 500 2,088.50 -1.61 -0.08%
NASDAQ 5,112.7990 -14.7260 -0.29%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs