Thread by @philippilk

1/ This Yellen interview will very likely be used by future historians to assess why the US continued on its present course despite many people realising where it would lead. Its worth listening carefully to what the justifications are. 🧵

2/ There’s little point in focusing on Yellen’s assertion that the current sanctions will not lead to the decline of the dollar. It is just that: an assertion without an argument. She recognises the risk, that is relevant - the forced assessment of that risk is uninteresting.

3/ Much more interesting is listening to the interview as a whole. Yellen and the Biden administration view the sanctions holistically. She starts the interview making the case that the sanctions are vastly degrading the Russian war effort.

4/ To support this argument she points first to the decline in Russian oil revenue from a year ago. Does Yellen believe this is due to sanctions and not slowing world growth and falling oil prices? I doubt she is that ill-informed.

5/ Next she talks about how Russia is unable to resupply its army due to sanctions and is stuck relying on Iran and North Korea. Yellen may believe this as it is not her field, but few serious observers would.

6/ These are talking points, not arguments. What they tell us is that the Biden administration has made a decision to prioritise its Ukraine policy over everything else. The Treasury’s job is not to question this, but to justify it. So, talking points trump analysis.

7/ The problem here is twofold. First, the foreign policy people do not understand that economics are often far more important than military force in geopolitics. This was once understood in DC; it no longer is.

8/ Second, the economists like Yellen and those who work for her are unable to communicate this to the foreign policy crowd. They may not even fully grasp it themselves - due to economics becoming overly technical - but if they do they are clearly failing to communicate it.

9/ The foreign policy people in other countries - notably China and Russia - do understand this. They view economics and foreign policy as interlinked. This gives them a huge advantage over the US, where the two are siloed.

10/ And so Yellen’s job is only to defend the sanctions using whatever talking points are at hand. When everyone is talking about the future of the dollar she must acknowledge the risk, but it can’t go further than that.

11/ Here is the interview.