WASHINGTON — WASHINGTON (AP) — Treasury Secretary Janet Yellen is arguing that a broken democracy could have destructive consequences for the economy — an indirect blow to Donald Trump.
Yellen, in a speech to be delivered Friday in Arizona, uses economic data to paint a picture of how contempt for America’s democratic processes and institutions can cause economic stagnation for decades.
Taking a rare step toward the political arena, Yellen never mentions Trump, the presumptive Republican presidential nominee, by name in her speech to the McCain Institute’s Sedona Forum, but she hints at the former president’s potential impact if he White House gets back.
Her comments serve as something of a warning to business leaders who might overlook Trump’s disdain for modern democratic norms because they favor the former president’s vision of delivering growth by cutting taxes and to abolish regulations.
Yellen acknowledges that democracy “does not seem like typical territory for a treasury secretary,” but she adds that “democracy is critical to building and sustaining a strong economy.” A copy of her speech was released in advance by her office.
“The argument from authoritarians and their defenders that dismantling democracy is a fair or even necessary trade for economic gain is deeply flawed,” she says. “Undermining democracy undermines a foundation of sustainable and inclusive growth.” She points to a study showing that democratization increases gross domestic product per capita by about 20% in the long run.
Yellen calls the January 6, 2021, insurrection a day when democracy was endangered 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 charged with conspiracy to overturn the election, one of four criminal charges he faces. He denies any wrongdoing.
And while Yellen did not specifically quote Trump’s comments, he again undermined the tradition of a peaceful transfer of power this week when he refused to commit to accepting this year’s presidential results in an interview with the Milwaukee Journal-Sentinel.
Farther from home, Yellen mentioned other global threats to democracy, such as Russia’s invasion of Ukraine.
Trump and those associated with him say they want to centralize the government’s powers within the Oval Office so he can subject people or companies who cross him to investigations, lawsuits and other punishments. This approach could undermine the rule of law that has allowed the American market economy to flourish.
In her speech, Yellen points to China as a cautionary example and warns that the country’s future growth is “far from certain.” She says the absence of some democratic pillars “will continue to pose challenges as China navigates its transition to an advanced economy.”
Yellen’s speech comes amid speculation that if Trump regains the White House, he could put political pressure on the Federal Reserve to cut interest rates, which are at a 20-year high of about 5 .3%. Fed Chairman Jerome Powell said this week that building confidence in lower interest rates “will take longer than previously expected.”
“As Chairman of the Federal Reserve, I have pushed for Fed independence and transparency because I believe it is important to financial stability and economic growth,” Yellen said in her speech. “Recent research is 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 an Associated Press request for comment.
Other leading economists and academics challenge 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 called “The Road to Freedom.” Stiglitz said in an interview that Trump has taken advantage of people’s economic insecurities after decades of inequality and the erosion of the middle class.
“The economic state creates the fertile field for these demagogues,” Stiglitz said. “If they felt like their incomes were going to rise rather than fall, I don’t think they would find Trump attractive.”
In a paper published 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 argues that stronger nonpartisan business associations are needed and that CEOs and executives must 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, policy instability, cronyism, brain drain and violence.”