The New Yorker Radio Hour: Janet Yellen on the Danger of a “Banana Republic” Economy. Plus, Susan B. Glasser on Why “We Are the Boiled Frog.” Release Date: July 11, 2025
Hosts: WNYC Studios and The New Yorker Hosted by: David Remnick
Introduction
In this episode of The New Yorker Radio Hour, host David Remnick engages in a revealing conversation with renowned economist Janet Yellen. The discussion centers on the newly passed Republican budget bill, its substantial impact on the U.S. economy, and the broader political ramifications. Yellen provides an in-depth analysis of the bill's provisions, particularly its effects on social services, the national debt, and the Federal Reserve's role. The episode also touches upon the Trump administration's economic strategies and the potential long-term consequences for American fiscal policy.
The Republican Budget Bill: An Overview
[00:58] David Remnick:
David Remnick introduces the topic by outlining the key elements of the Republican budget bill. He highlights significant cuts to essential social services, including Medicaid, the Children's Health Insurance Program (CHIP), and nutrition programs like SNAP. Remnick emphasizes the bill's potential to exclude 10.5 million people from Medicaid and reduce SNAP and other nutrition programs by $186 billion over the next decade.
"The budget bill, beautiful or not, includes cuts to social services that would have been unthinkable in earlier Republican administrations."
— David Remnick [00:58]
Economic Implications of the Budget Bill
[02:53] Janet Yellen:
Janet Yellen delves into the financial ramifications of the bill, pointing out that interest payments on the national debt have become the second-largest expenditure, surpassed only by defense spending. She explains how increasing the deficit by an estimated $6 trillion, as projected by the Cato Institute, will exacerbate economic challenges.
"Interest payments on this debt are now the second largest expenditure in our overall budget. Defense comes first. Interest comes next."
— Janet Yellen [02:53]
Yellen discusses how the bill's provisions will lead to higher interest rates, making housing and car loans less affordable, and increasing the burden of student debt. She warns that these measures are likely to hinder economic growth rather than stimulate it.
"Most analysts, when they look at the long term impacts of this, is something that will harm economic growth rather than stimulate it."
— Janet Yellen [02:53]
Impact on Social Services and Medicaid
[04:27] Janet Yellen:
Yellen provides a detailed account of how the budget bill will affect Medicaid. She estimates that 12 million people will lose Medicaid coverage entirely due to stricter work requirements and increased bureaucratic hurdles.
"It's estimated that 12 million people will lose Medicaid coverage entirely."
— Janet Yellen [04:27]
She critiques President Trump's portrayal of the bill, noting that despite claims that only fraudulent claims will be cut, the reality will see significant reductions in healthcare access, particularly impacting rural hospitals reliant on Medicaid funding.
Deficit Concerns and Long-Term Fiscal Health
[06:19] Janet Yellen:
Addressing the perennial issue of national deficits, Yellen acknowledges that both political parties have historically struggled with deficit reduction. She points out that demographic shifts, such as the aging population and the retirement of the baby boomers, are natural drivers of increasing mandatory spending on programs like Social Security, Medicare, and Medicaid.
"We at this point have a serious deficit problem."
— Janet Yellen [06:19]
She argues that without addressing tax policies or making difficult cuts to mandatory programs, the deficit will continue to grow, ultimately threatening economic stability.
Debate on the Severity of Deficits
[07:05] Janet Yellen:
Yellen acknowledges that there are economists who downplay the dangers of deficits, suggesting they are manageable or even beneficial in certain contexts. However, she contends that while deficits can be appropriate during times of crisis—such as World War II or the COVID-19 pandemic—they become problematic when persistent.
"If you do that and you're not willing to cut those programs, then you have to find some other way of containing the deficits, at least somewhat. And if we get ourselves in a situation where we need to reduce deficits to get our debt under control, we do the tough stuff. It's not pleasant."
— Janet Yellen [07:29]
Tax Policy and the Internal Revenue Service (IRS)
[09:41] Janet Yellen:
Yellen emphasizes the importance of addressing the tax gap—the difference between taxes owed and taxes collected—estimated at $700 billion annually. She criticizes the reduction in IRS staffing, which has led to decreased audit rates, especially among high-income individuals and corporations, thereby undermining tax enforcement.
"It's called the tax gap. And what it is, is the amount of taxes we ought to be collecting versus what we actually are Collecting...comic on these entities. And we were in the process of rebuilding the Internal Revenue Service."
— Janet Yellen [09:41]
Conflict Between the Trump Administration and the Federal Reserve
[12:14] Janet Yellen:
Yellen addresses President Trump's antagonistic stance toward Federal Reserve Chair Jerome Powell, explaining that the administration's pressure to lower interest rates is unsustainable and risks pushing the economy towards inflationary dangers akin to those experienced by "banana republics."
"The Federal Reserve's job is to keep inflation low and stable or price stability, and to try to create a strong job market, maximum employment."
— Janet Yellen [14:55]
She underscores the Federal Reserve's independence, which was established to prevent political interference in monetary policy, highlighting the historical agreement from 1950 that enshrined this autonomy.
Comparative Experiences Under Obama and Trump Administrations
[15:53] Janet Yellen:
Yellen contrasts her interactions with President Obama and President Trump, noting that while Obama sought to understand economic policies collaboratively, the Trump administration attempted to influence Federal Reserve decisions directly.
"Under Trump, I had the same set of contacts and I met a couple of times with Trump."
— Janet Yellen [15:53]
She explains that while low interest rates are sometimes necessary, they are not universally appropriate, and Powell’s resistance to political pressure is crucial for maintaining economic stability.
Political Ramifications and the Future of the Republican Party
[22:31] David Remnick & Ira Glass:
The conversation shifts to the political fallout of the budget bill. Ira Glass discusses the disconnect between the Republican leadership's decisions and the interests of their constituents, particularly those reliant on Medicaid.
"The idea that Trump is on their side even if he's not on their side."
— Ira Glass [28:27]
Glass and Remnick explore how partisan loyalty and cultural battles have overshadowed economic self-interest, potentially jeopardizing the Republican Party's future in upcoming elections.
Conclusion: The Road Ahead for U.S. Economic Policy
[36:17] Ira Glass:
In the concluding remarks, Ira Glass warns of the broader implications of undermining Federal Reserve independence and echoes concerns about the trajectory of U.S. fiscal policy.
"We're in a sort of a frenzy of self destructiveness."
— Ira Glass [32:17]
The episode ends on a cautionary note, highlighting the precarious balance between political maneuvering and economic stability, and the critical need to preserve institutional independence to safeguard against potential economic turmoil.
Key Takeaways
- Massive Cuts to Social Services: The Republican budget bill proposes significant reductions in Medicaid, CHIP, and nutrition programs, potentially affecting millions of Americans.
- Rising National Debt: Estimated to increase by $6 trillion, exacerbating the deficit and leading to higher interest payments.
- Federal Reserve Independence: Ongoing tensions between the Trump administration and the Federal Reserve risk undermining monetary policy autonomy.
- Political Consequences: Republican strategies prioritizing partisan loyalty over constituent interests may have adverse effects in future elections.
- Long-Term Economic Stability: Without addressing the structural issues of mandatory spending and tax enforcement, the U.S. faces continued fiscal challenges.
Notable Quotes:
-
"If you do that and you're not willing to cut those programs, then you have to find some other way of containing the deficits, at least somewhat."
— Janet Yellen [07:29] -
"The Federal Reserve's job is to keep inflation low and stable or price stability, and to try to create a strong job market, maximum employment."
— Janet Yellen [14:55] -
"The idea that Trump is on their side even if he's not on their side."
— Ira Glass [28:27]
This episode provides a comprehensive analysis of the Republican budget bill's economic and political implications, offering listeners an expert perspective on the challenges facing the U.S. economy and the potential long-term effects of current fiscal policies.