Why America Needs Marvin Goodfriend on the Federal Reserve Board

                                                    Link to the article above

                                                   Link to the article above

We need Marvin Goodfriend on the Federal Reserve Board to help insure that we don't suffer another Great Recession. I urge the Senate to confirm Marvin Goodfriend. Of anyone who has ever been nominated for the Federal Reserve Board or served as President of one of the regional Federal Reserve Banks, Marvin Goodfriend has the deepest understanding of negative interest rate policy and is the strongest advocate of negative interest rate policy.

On how negative interest rates can stop a rerun of the Great Recession, see

Rand Paul has misguided views on monetary policy, but he understands that the real issue in whether to confirm Marvin Goodfriend is that Marvin would be the greatest expert on negative interest rate policy ever to sit on the FOMC, the US's monetary policy committee. Binyamin Applebaum writes this in his February 9, 2018 Wall Street Journal article "Unexpected Opposition Imperils Federal Reserve Nominee":

Mr. Paul’s opposition has very different roots. He said Thursday that he was concerned about a paper Mr. Goodfriend wrote in 2000 proposing that the government put magnetic strips on money so it could, under certain circumstances, impose a tax on cash. The proposal was intended to help the government encourage spending during periods of low inflation and low interest rates.

“That doesn’t sound very exciting to me,” Mr. Paul, a libertarian, said Thursday.

Mr. Goodfriend has since abandoned the specific proposal, but in his academic writings he has continued to advocate other forms of “negative interest rates” — policies that make it expensive to hold money when the government wants to encourage spending.

It is Democratic senators who don't seem to understand that having someone on the Federal Reserve Board who knows how to stop another Great Recession in its tracks with negative interest rate policy is much, much more important than any other aspect of Marvin Goodfriend's monetary policy views. It may be that in normal times, Marvin would lean toward monetary policy that is too tight. This is small beer compared to Marvin's role as an insurance policy against the worst case scenario of another Great Recession, or even secular stagnation. And anything Democrats disagree with over Marvin's views on issues other than negative interest rate policy are things they are likely to disagree with over the views of whoever the next nominee by Donald Trump would be. This is a golden opportunity to get someone on the Federal Reserve Board who brings something no other Donald Trump nominee is likely to bring: being fully prepared for a true economic emergency.  

To understand Marvin's views on negative interest rate policy and his deep insight into it, see "Some Selections Related to Negative Interest Rate Policy from the General Discussions at the 2016 Jackson Hole Symposium on 'Designing Resilient Monetary Policy Frameworks for the Future'" and the paper Marvin presented there: "The Case for Unencumbering Interest Rate Policy at the Zero Bound." What you will see there is fully consistent with the views Marvin has expressed in one-on-one conversations I have had with him. I am a bit more of an optimist than Marvin that the key move to enable deep negative interest rates can be done methodically and smoothly. That key move is having paper currency going off par with reserves at the Fed. (In this context, I have often referred to reserves as "electronic money" or "bank money.") Marvin's paper "The Case for Unencumbering Interest Rate Policy at the Zero Bound," envisions paper currency going off par with reserves suddenly, in a crisis atmosphere. 

My knowledge of Marvin's views on other aspects of monetary policy is limited to what I read in the news. Sam Bell has a series of tweets on Marvin's views here and here. For the record, you can see my views on aspects of monetary policy other than negative interest rate policy in "Next Generation Monetary Policy" and in my monetary policy subblog.

My Views on Other Plausible Nominees to the Fed: Past, Present and Future. If we had a Democratic president, two plausible nominees to turn to with a good understanding of negative interest rate policy would be Larry Summers and Seth Carpenter. Of plausible nominees by a Republican president, the only other person I can think of who would be comparable in understanding of negative interest rate policy to Marvin Goodfriend would be Greg Mankiw. I am biased in Greg's favor because he was my PhD dissertation advisor, but there is general agreement that Greg is fearsomely smart and scientifically broad-minded. 

In monetary policy appointments that are not under the control of Donald Trump, one of the best for the sake of financial stability would be to appoint Anat Admati as President of the New York Fed. This is a powerful position with a big role in both monetary policy and financial regulation. Anat would really make a difference for financial stability. I am joined in recommending Anat Admati for President of the New York Fed by Pedro da Costa. See his Business Insider piece "America’s Next Bankruptcy."

I am not always positive about nominees to the Fed. See "Contra Randal Quarles." I would have preferred to see Janet Yellen reappointed, but Jerome Powell is a reasonable choice as Chair of the Fed. On Jerome Powell, see A New Era for the Fed" and "Podcast: Miles Kimball on the Fed's New Jerome Powell Era." In particular, I trust Jerome Powell as Chair of the Fed more than I would John Taylor, due to the kinds of issues I raise in my 2013 post "Contra John Taylor." Based on what I know, I think Richard Clarida is a very good choice as Vice Chair of the Fed among plausible Republican nominees. 

Conclusion. For Democrats and Republicans alike, Donald Trump's nomination of Marvin Goodfriend to the Federal Reserve Board is a huge opportunity to make America's monetary policy better in the worst case scenarios that could be around the corner. That is the big picture.