Yellen says threats to democracy put US economic growth at risk, an indirect blow to Trump

WASHINGTON – WASHINGTON (AP) — Treasury Secretary Janet Yellen argues that a fractured democracy could have destructive effects on the economy — an indirect blow to Donald Trump.

Yellen gave a speech Friday in Arizona, using economic data to paint a picture of how disregard for America’s democratic processes and institutions could cause economic stagnation for decades.

Yellen, taking a rare step into the political arena, never mentioned Trump, the presumptive Republican presidential nominee, by name in her speech at the McCain Institute’s Sedona Forum, but hinted at the former president’s potential impact if he regains the White House.

His remarks serve as something of a warning to business leaders who may ignore Trump’s disregard for modern democratic norms because they prefer the former president’s vision of achieving growth by cutting taxes and eliminating regulations.

Yellen acknowledged that democracy “doesn’t seem like typical terrain for a Treasury secretary,” but added that “democracy is critical to building and sustaining a strong economy.”

“The argument put forward by authoritarians and their defenders that destroying democracy is a fair or even necessary tradeoff for economic gain is deeply flawed,” she said. She pointed to a study that suggests democratization increases per capita gross domestic product by about 20% in the long run.

Yellen cited the January 6, 2021, insurrection as a day when democracy came under threat when “rioters, spurred on by a lie, stormed the Capitol.” Trump, who made false claims that the 2020 election was stolen from him, has been accused of conspiring to overturn the election, among four criminal charges he faces. He denies any wrongdoing.

And although Yellen did not specifically cite Trump’s comments, this week she again undermined the tradition of a peaceful transfer of power when she refused to commit to accepting this year’s presidential results in an interview with the Milwaukee Journal-Sentinel.

Further away from home, Yellen cited other global threats to democracy, such as Russia’s invasion of Ukraine.

Trump and those associated with him say they want to centralize government powers within the Oval Office so that he can subject people or companies that cross him to investigations, lawsuits and other penalties. This approach could undermine the rule of law that has allowed the American market-based economy to thrive.

In her speech, Yellen pointed to China as a cautionary example and warned that its future growth is “far from certain”. She said the absence of some democratic pillars “will continue to pose challenges as China navigates the transition to an advanced economy.”

Yellen’s speech comes at a time when there is speculation that, if Trump regains the White House, he could exert political pressure on the Federal Reserve to reduce its benchmark interest rate, which is at a two-decade high of around of 5.3%. Fed Chairman Jerome Powell said this week that gaining confidence to cut rates “will take longer than previously expected.”

“As chair of the Federal Reserve, I have insisted on the Fed’s independence and transparency because I believe this is important for financial stability and economic growth,” Yellen said in her speech. “Recent research has been consistent with my belief: it has shown that greater central bank independence is associated with greater price stability, which contributes significantly to long-term growth.”

A representative for the Trump campaign did not respond to a request for comment from The Associated Press.

Other leading economists and scholars are challenging the right’s claims to the mantles of economic growth and freedom.

Nobel Prize-winning economist Joseph Stiglitz, a friend of Yellen, published a book last month titled “The Road to Freedom.” Stiglitz, in an interview, said Trump took advantage of people’s economic insecurities after decades of inequality and erosion of the middle class.

“The economic state is what creates the breeding ground for these demagogues,” said Stiglitz. “If they felt like their income was increasing instead of decreasing, I don’t think they would find Trump attractive.”

In an article released this week, Vanessa Williamson, a senior fellow at the Urban-Brookings Tax Policy Center, said companies should be more concerned about the rule of law and democratic values.

She argued that there is a need for stronger nonpartisan business associations and that CEOs and executives need to be fully aware of how a move away from democracy can harm their bottom line.

There is “indisputable evidence of the economic costs of democratic decline,” she said. “These costs include stagnation, political instability, cronyism, brain drain and violence.”