Treasury Secretary Janet Yellen delivered a speech in Arizona on Friday, emphasizing the crucial link between democracy and a robust economy, indirectly alluding to the potential ramifications of a fractured democracy under former President Donald Trump.
Yellen’s address at the McCain Institute’s Sedona Forum did not explicitly mention Trump by name, but her remarks appeared to caution against the economic consequences of undermining democratic norms and institutions.
While acknowledging that discussing democracy might seem unusual for a Treasury secretary, Yellen stressed its pivotal role in fostering sustainable and inclusive economic growth. She referenced a study indicating that democratization could lead to a long-term increase of approximately 20% in gross domestic product per capita.
Pointing to the January 6, 2021, Capitol riot as a moment when democracy faced a significant threat, Yellen highlighted the dangers of eroding democratic principles. She also cited global challenges to democracy, such as Russia’s invasion of Ukraine.
Yellen cautioned against overlooking China’s potential economic hurdles, warning that the absence of democratic pillars might impede its transition to an advanced economy.
Speculation has arisen regarding the possibility of Trump exerting political pressure on the Federal Reserve to lower interest rates if he were to return to the White House. Yellen emphasized the importance of the Fed’s independence, citing research suggesting that greater central bank autonomy contributes to long-term growth and price stability.
While the Trump campaign did not respond to requests for comment, other economists and academics are also questioning the relationship between economic growth and democratic values. Vanessa Williamson, a senior fellow at the Urban-Brookings Tax Policy Center, underscored the significance of the rule of law and democratic principles for businesses, advocating for stronger nonpartisan business associations and increased awareness among CEOs and executives about the potential negative impact of democratic erosion on corporate interests.
