Secretary Statements & Remarks

Remarks by Secretary of the Treasury Janet L. Yellen at the Economic Club of New York (ECNY)

As Prepared for Delivery 

Thank you. It is a tremendous honor to receive the Peter G. Peterson Leadership Excellence Award and to join the ranks of the distinguished group of policymakers who are its previous awardees. I’m also very glad to have the chance to speak to all of you today at a venue that, since 1907, has served as one of the country’s premier fora for discussion of domestic and global issues.

I last spoke here at the Economic Club of New York in 2016 as Chair of the Federal Reserve. I discussed a topic that was then at the heart of my work: the Federal Reserve’s pursuit of maximum employment and price stability. Today, I will similarly focus on a topic I see as core to my work and to the Biden Administration’s agenda: expanding our economy’s capacity to produce over the medium and long-term and doing so in a manner that is inclusive and environmentally sound. I first spoke about this strategy, which I have called modern supply-side economics, over two years ago at Davos. Today, I’d like to reflect on how we’ve applied it since, and specifically the roles played by the public and private sectors in boosting our nation’s competitiveness and economic strength.

We have seen a historic economic recovery since the start of this Administration. Economic growth has proven resilient and strong in recent quarters. The labor market remains healthy, with low unemployment rates. Prime-age labor force participation now exceeds its pre-pandemic high. Inflation is down nearly two-thirds from its peak and we expect it to moderate further as rents and other critical price pressures stabilize.

American businesses have contributed to this recovery, starting with their role in helping distribute pandemic relief funds. As we recovered from the pandemic, business fixed investment grew even faster than our economy as a whole and now constitutes over 13 percent of our GDP. We’ve also had three record years of new business applications.

There of course remain challenges: Americans are concerned about the cost of living and too many families find it hard to make ends meet. Addressing this remains President Biden’s top priority.

As we have driven our recovery, we have also worked to strengthen financial stability and respond to urgent issues at home and abroad. Here too, the private sector has been crucial. We solicit views from business leaders in the financial sector as we finance the operations of the Federal government and pursue ongoing collaboration with the private sector to respond to cyber incidents and conduct cybersecurity exercises, as two of many examples. The U.S. business community has also been key to our response to Russia’s invasion of Ukraine, including as we continue to work to crack down on Russian sanctions evasion.

While driving a historic recovery and responding to urgent issues, the Biden Administration has also kept in mind the need to promote stronger and more inclusive growth over a longer timeframe, and as we face an increasingly complex and dynamic global economic landscape.

Our ability to compete and spur growth requires us to tackle longstanding structural challenges. Over decades, the United States saw slowing productivity growth, entrenched income inequality, and significant deindustrialization, with communities in many parts of the country becoming hollowed out. Labor force participation of prime age individuals without a college degree declined. There was a rise in deaths of despair. For too long, too many American workers and American businesses haven’t been able to reach their full potential to contribute to our country’s strength.

Throughout my career, I have seen and participated in robust debates about the proper relationship between the government and businesses in addressing the challenges we’ve faced. We have learned through experience that heavy-handed central planning through government dictates is not a sustainable economic strategy. But neither is traditional supply-side economics, which ignores the importance of public infrastructure, education and workforce training, and government-supported basic research. Traditional supply-side economics wrongly assumes that policies such as tax cuts for those at the top and deregulation will fuel growth and prosperity for the nation at large.

Instead, it’s been clear to President Biden and me that our economic strategy cannot be driven by either the public or private sector alone. Modern supply-side economics embraces government collaboration with the private sector, targeting public interventions to create a supportive environment for business and fuel private sector investments. We have also used public policy to address climate change and to encourage the private sector to reach people and places that had historically not received sufficient investment. This broad-based approach brings benefits not just for American workers and families but for businesses and the economy as a whole.

I will focus today on how we are applying modern-supply side economics to spur greater U.S. competitiveness and growth across three key areas: infrastructure, human capital and labor force participation, and investments in R&D and strategic industries.

I. Physical and Digital Infrastructure

I will start with infrastructure, an important contributor to our economy’s productive capacity. According to one analysis, a 10 percent increase in the stock of core physical infrastructure increases productivity by more than 2 percent.

Yet when President Biden came into office, infrastructure investment as a share of GDP had fallen by more than 40 percent since the 1960s. We should be able to travel between major U.S. cities with ease, assume the goods we order will arrive on time, and find talent to support scaling businesses. Instead, airports became outdated, ports were constrained, and there was uneven access to high-speed internet. I have heard the business community repeatedly emphasize the obstacles these shortfalls cause and how they hinder our competitiveness. There is widespread consensus that our country’s outdated infrastructure slowed the flow of people and goods, holding back the U.S. economy.

The Biden Administration is making massive investments to change this. The Bipartisan Infrastructure Law is enabling ambitious projects to improve America’s roads, ports, and highways. It’s also our government’s largest-ever push toward affordable and universal internet access. This is in addition to the American Rescue Plan’s many investments, including a Treasury program for internet and other critical capital projects that will reach over 2 million American households and businesses. In total, state and local capital investment as a share of state and local spending grew more from 2022 to 2024 than in any two year period since 1979.

The private sector is making complementary investments. Real private spending on construction for transportation, for example, began to rise shortly after the Bipartisan Infrastructure Law was passed, arresting a years-long decline. Over the past two years, it has increased by almost 20 percent. This is the scale of investments needed to help drive our future growth.

Our investments are also advancing our core objective of reaching people and places that had been left behind. Historically, we had seen higher infrastructure investment in states with higher median household incomes. That’s not what’s happening now. Treasury analysis shows that Bipartisan Infrastructure Law funding is going in greater amounts to states with lower median household incomes and the lowest-rated infrastructure, where improvements are most needed. And funding has been spread broadly. For example, while only five states accounted for about two-thirds of investment in public transit in 2019; those five states account for only 40 percent of Bipartisan Infrastructure Law funding.

This matters not only because of fairness. Reaching people and places that had been left behind also has the potential to yield larger aggregate gains under the basic economic premise that returns to investment in any given place exhibit diminishing returns. Put simply, investing in people and places where there had not been sufficient opportunity can yield the largest bang for the buck.

II. Labor Force

Alongside infrastructure, the labor force is of course a critical factor in our economy’s capacity to produce—and therefore to our nation’s competitiveness and strength.

Here too, we’ve seen significant challenges. Labor-force participation, especially of men, has declined over the past two decades. The historic increase in women’s labor force participation was a success story—contributing meaningfully to our country’s growth—but women still face significant challenges to full participation, such as lack of affordable childcare.

There are also significant barriers to the availability and accessibility of good jobs. In the 1970s, three out of four jobs required at most a high school diploma. Now, two out of three jobs require more than a high school diploma, limiting opportunity for the majority of Americans over 25 who do not have college degrees. There also had not been enough investment in alternative pathways to good jobs. Workforce development funding to states, adjusted for inflation, declined by 30 percent from 2001 to the end of 2020.

Like poor infrastructure, inaccessibility of higher education and workforce development has not only affected the lives of individuals and families. In my engagements with businesses, I hear about the difficulty they have had finding the right talent to fuel growth.

So the Biden Administration is making generational investments and pursuing policies to change this as well. Treasury has encouraged using State and Local Fiscal Recovery Funds for workforce development. The Inflation Reduction Act provides tax incentives for companies to hire apprentices, supporting the expansion of these pathways. And, in line with modern supply-side economics, the President’s Budget proposes ambitious policies to support strengthening the labor force, from guaranteeing affordable, high-quality childcare to expanding grants to reduce the cost of college.

Across the country, these programs are being implemented and scaled with a particular focus on meeting private sector demand. In fact, potential employers are often directly engaged in developing and delivering training and then hiring from that training pool. In Milwaukee and Cleveland, Rockwell Automation offers a twelve-week program to equip veterans with technical skills for advanced manufacturing jobs. In Idaho, Micron expanded its first-ever Registered Apprenticeship program. And last month in Arizona, I visited Mesa Community College to learn about their Semiconductor Technician Quickstart program, taught by Intel employees.

As with infrastructure, we care not only about boosting the supply of a key “factor of production” but also about reaching people and places where there previously was not sufficient opportunity. Across the country, we are encouraging workforce development programs to target populations that have traditionally faced barriers to employment and emphasizing best practices such as providing wraparound services like transportation stipends and childcare. Again, this is motivated not just by a commitment to fairness but by an understanding that reaching those who had not had opportunity can bring much greater economic gains.

III. R&D and Investments in Strategic Industries

I will end with our efforts to boost spending on research and development and to bolster American competitiveness in cutting-edge industries like semiconductors and clean energy.

R&D has significant economic benefits: One recent study found that government R&D accounts for roughly one fourth of business sector productivity growth since World War II. Yet there is ample evidence it is undersupplied, including due to a significant decline in federal R&D spending. In 2020, the government’s R&D spending was less than 1 percent of GDP, half of what it was in the 1960s. And the U.S. share of global R&D has declined: It was 31 percent in 2020, compared to 69 percent in 1960.

The U.S. has more generally been widely perceived as suffering a loss of international competitiveness in key industries such as semiconductors and clean energy. This partly is a result of concerted foreign subsidy programs which have not only caused economic losses but have also exacerbated economic insecurity. Insufficient investment in key industries had also made our critical supply chains too vulnerable. We have seen the consequences of this in recent years, such as in the shortage of goods and their volatile prices in the context of the pandemic and Russia’s invasion of Ukraine.

In response to these challenges, we have pursued a strategic combination of direct investments and market-based incentives.

The CHIPS and Science Act authorized funding to restore America’s leadership in semiconductor manufacturing, including substantial investments in research and development. The Inflation Reduction Act is far and away our most ambitious effort to address the existential threat from climate change. Instead of broad-based tax cuts for top earners and corporations, it works by offering significant tax incentives to fuel private investment in the clean energy transition. Global investment in clean energy reached a record level of over $1.7 trillion in 2023, offering massive opportunities for American workers and businesses. We are providing the private sector with the stability needed over long enough time horizons to invest in clean energy, with the understanding that government intervention can then be scaled back as clean energy technologies become cost competitive. I have heard from many American businesses that these incentives are allowing them to pursue projects that otherwise would not have been viable.

We have worked to fuel private sector involvement in the transition to clean energy in other ways as well, from releasing the Principles for Net-Zero Financing and Investment last fall to guide financial institutions pursuing the transition to net zero to publishing just last month key principles to support the development of high-integrity voluntary carbon markets.

We are starting to see the impacts of our policies. There has been an especially notable surge in manufacturing construction since the IRA and CHIPS and Science Act were enacted. The composition of business investment growth has shifted dramatically, with factory construction contributing almost one third and “computer, electrical, and electronic factories” the key source of the increase. These are the industries that the CHIPS Act and the IRA support, including semiconductors and batteries for electric vehicles. And this surge in manufacturing construction is unique to the United States, suggestive evidence that the legislation is likely having its intended impact.

More generally, private companies have announced over $850 billion in manufacturing and clean energy investments since the start of this Administration. And the private sector is responding to policies designed to spur investment in a wide swathe of the United States. The IRA offers an Energy Community Bonus: a greater tax credit for projects in communities historically reliant on fossil fuels such as coal. Since the IRA was passed, $4.5 billion of investments per month has been announced in these communities, compared to $2 billion announced before the IRA. The IRA also offers a Low-Income Communities Bonus, which also seems to be having its intended impact. Since the IRA was passed, 75 percent of announced clean energy investments have been in counties with median incomes below the U.S. aggregate median income. And 84 percent have been in counties with college graduation rates below the U.S. aggregate rate. This broad reach contrasts sharply to the outcomes that we saw under traditional supply-side economics.

Our approach to increasing competitiveness in key domestic industries has been criticized as protectionist. Some see the United States as withdrawing from the global economic stage. I’d argue in response that, since the start of this Administration, we have acted on our belief that global integration, including through trade, continues to be broadly beneficial for American consumers and businesses. We do not intend to withdraw from global markets.

But there are significant risks relating to overconcentrated supply chains and we should especially respond when foreign subsidies threaten the viability of domestic firms in strategic sectors. At President Biden’s direction, I have been particularly focused on responsibly managing the U.S. economic relationship with China.

Countries around the world look to the state of our two economies, but also our interactions, because they are crucial to global growth. Together, China and the United States represent 40 percent of global output and have the two largest financial systems in the world. I believe that America’s fundamental economic strength means that the United States has nothing to fear from healthy economic competition. As I hear frequently from American businesses, China represents a huge market for American manufacturers and firms, supporting over 700,000 American jobs. President Biden and I reject the notion that “decoupling” would be in any way beneficial for the American economy. At the same time, we can only realize the potential benefits of our economic relationship if there is a level playing field.

I am particularly concerned about China’s enduring macroeconomic imbalances. China is a global outlier in terms of its very high saving rate: 45 to 50 percent of GDP for roughly 20 years. This is roughly twice the OECD average. Such high savings reflect a lack of sufficient domestic consumption demand and risk leading to an expansion in China’s external surplus. At present, China is directing an increasing share of savings into manufacturing. Specifically, China’s industrial policies channel savings into unusually high investment rates in select industries, leading to excess capacity.

This dynamic is a problem for China, as excess capacity usually indicates the presence of economic inefficiencies as resources are trapped in less productive firms and industries. Indeed, the share of firms losing money has been rapidly increasing, recently hitting a level not seen since the early 2000s. China already accounts for 30 percent of the world’s manufacturing output. It cannot rapidly grow that share without causing displacement globally. And China cannot assume that the rest of the world will rapidly absorb huge quantities of excess production to the detriment of domestic industries in other countries.

This overcapacity threatens American firms and workers, along with those around the world. We saw in the past how overcapacity can decimate businesses here at home. We are now seeing the risks of that happening again, in key industries that matter to our long-term growth, such as electric vehicles, lithium-ion batteries, and solar, but also across a range of manufacturing industries. The scale of China’s subsidies and industrial policies is hard to quantify due to lack of transparency, but even conservative estimates suggest that they far exceed that of other countries, which is why we see economies ranging from advanced to emerging markets launch trade investigations. And China’s overcapacity risks our supply chains being artificially overconcentrated, posing additional security and economic concerns. China also pursues a variety of unfair trade practices—from restrictive investment policies to economic coercion—that further undermine fair competition.

If China continues on this path, I fear that its policies may interfere significantly with our efforts to build a healthy economic relationship. I have heard these concerns from American and foreign businesses. So, even as we maintain our broad trade and investment relationship with China, I will continue to represent the interests of American workers and businesses and press my Chinese counterparts on these issues bilaterally and multilaterally. I did that during my trip to China in April and at the G7 last month. At the same time, the United States will also continue pursuing an approach I have called friendshoring, which involves deepening ties with a wide range of trusted partners and allies in order to diversify our supply chains and support long-term growth. This also creates significant opportunities for our private sector.

IV. Conclusion

Ultimately, I believe the modern supply-side economics approach, applied to the areas I’ve spoken about today and to others, is putting us on the right path to building an economy that serves us well for the long-term. Collaboration between the public and private sectors is at the heart of this approach. I have seen the potential of such collaboration throughout my career and we have worked over the past three years to realize it.

The challenges we face are deeply rooted. It will take time for the investments the public and private sectors are making to fully pay off. As we look ahead, we will continue to partner with American businesses, especially as we navigate shifts: from geopolitics, to the ongoing energy transition, to developments in cyber and artificial intelligence. I believe our efforts will help us regain our economic strength in areas where we have underinvested and extend it further in other areas, and to do so in a way that benefits all Americans. I look forward to our continued work.

Thank you again for having me and for this honor.