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Yellen, unlike Greenspan or a pre-2008 Bernanke, is probably the last person you’d hear repeating one of Reagan’s favorite jokes: “The nine scariest words in the English language are: ‘I’m from the government, and I’m here to help.’ ” According to more than a half-dozen longtime friends and colleagues, she has two grand passions that will require government to help in a very big way: reducing chronically high unemployment—which is the focus of her life’s work and is probably the single biggest economic problem in America today—and reining in Wall Street’s excesses. Yellen already appears to be settling the Fed’s eternal debate about the relative threats of unemployment and inflation; she declared bluntly in her testimony that joblessness is the issue of the moment. Based on her past positions, she is also likely to try to alter the discussion in Washington on issues ranging from the size and power of the big banks to the need for a higher minimum wage and extended jobless benefits. And at a time when Obama has declared that income inequality is “the defining challenge of our time,” and polls show that a majority of Americans no longer believe their country offers equal opportunity to all, Yellen brings a raft of well-thought-out—and decidedly activist—views to these issues.

She has devoted much of her career to showing why markets fail so often and therefore government intervention is needed, says Nobel Prize-winning economist Joseph Stig­litz, her former teacher at Yale and a longtime friend. Far more than previous Fed chiefs, Yellen also embraces the young field of behavioral economics, which posits that people often don’t act rationally the way economic models say they should. Yellen knows that the Fed’s traditional powers are limited now because the economy may be caught in a “liquidity trap,” with interest rates already so low that additional injections of cash by the central bank will do little or nothing to stimulate the economy. But she is constantly on the hunt for novel interventionist solutions; “out of the box” is one of her favorite phrases. “She knows that labor markets don’t work perfectly; capital markets don’t work perfectly,” Stig­litz says. He adds that Yellen understands that monetary policy is itself the best proof of this thesis—because it wouldn’t be needed at all if markets always worked correctly.

Already she is describing the central bank’s job in ways that have stunned some traditional Fed watchers—and made them uneasy. Yellen’s very first statement after Obama nominated her in October suggested she intends to extend Bernanke’s revolutionary expansion of the Fed’s role, not ratchet it back. “While we have made progress, we have further to go,” she said, adding that the Fed’s job was not just to keep the dollar sound but “to serve all the American people … [and] ensure that everyone has the ability to work hard and build a better life.”

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