In remarks to a World Economic Forum virtual session, Yellen asserted that the new strategy is superior to the traditional definition of supply-side economics championed by Republicans, prioritizing tax cuts and aggressive deregulation.
"Our new approach is far more promising than the old supply-side economics, which I see as having been a failed strategy for increasing growth," Yellen went on to say. "Significant tax cuts on capital have not achieved their promised gains. And deregulation has a similarly poor track record in general and with respect to environmental policies — especially so with respect to curbing CO2 emissions."
The current modification of strategy and nomenclature emphasizes the Administration's mounting efforts to expand the U.S. workforce and increase productivity. These forces could help quell inflationary pressures while supporting a stronger growth rate.
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The shift comes as the Biden Administration attempts to persuade Americans and moderate Democrats in Congress to support a pared-back version of its "Build Back Better" social spending and climate investment plan, which stalled in December.
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Yellen described two years of universal early childhood education, and an expanded earned income tax credit as "core" components of the plan. The Administration is trying to blunt the political fallout from soaring inflation last year, which hit 7% amid labor, housing, and goods shortages, the most considerable annual increase in nearly 40 years.
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"Modern supply-side economics seeks to spur economic growth by both boosting labor supply and raising productivity, while reducing inequality and environmental damage," Yellen pointed out. "Essentially, we aren’t just focused on achieving a high topline growth number that is unsustainable — we are instead aiming for growth that is inclusive and green."
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She conceded that potential GDP growth in the United States has been constrained by a declining workforce, while productivity growth has been hurt by underinvestment in public infrastructure and education.
Yellen acknowledged that inadequate paid leave and high child care costs have kept many people out of the workforce. She believes this can be remedied by the Administration's proposed two years of universal early childhood education and expanded child and elder care spending.
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