The government shutdown wasn’t long enough to delay the nomination hearing for an economist who could be considered to be one of the “worst Fed nominees of all time.” While most of the headlines generated from Marvin Goodfriend’s testimony before the Senate today focused on the grilling he received from Senate Dems, there is one curious part of his testimony that has been largely overlooked: he flat out lied about his past support for taxing cash.
Unfortunately this issue that would directly impact every single American wasn’t brought up until well over an hour into this testimony. It was then that Nevada Senator Catherine Cortez Masto asked Mr. Goodfriend about his past advocacy on “taxing currency” and whether he would support such a policy today.
After assuring Senator Cortez Masto that he wouldn’t, he went on to say:
I wrote a paper in 1999 for a Federal Reserve System conference which asked what would happen if interest rates went to zero, and what could the Federal Reserve do. I didn’t propose that, that was an academic paper showing what could be done….It was not a proposal. It was an emergency matter we considered as a matter of thinking about these things before anyone ever imagined anything could happen like that.
This is simply false.
While it is true that that Mr. Goodfriend authored a paper for the Federal Reserve in 1999 titled, “Overcoming the Zero Bound on Interest Rate Policy”, this was not the last time he has written on the subject. In 2016, he spoke at the Federal Reserve’s Jackson Hole conference at a symposium on “Designing Resilient Monetary Policy Frameworks for the Future.”
In that paper, he describes the global low interest rate environment and argues that it is important for central banks to be able to be “unencumbered” in a pursuit for negative interest rates – should they be necessary in the face of another financial crisis. He goes on to state:
The zero interest bound is an encumbrance on monetary policy to be removed, much as the gold standard and the fixed foreign exchange rate encumbrances were removed in the 20th century.
After arguing the absolute necessity of enabling central banks to pursue negative interest rates – which are themselves a form of taxing bank accounts – he goes on to make policy recommendations that would empower them to do so. Since we’ve repeatedly seen citizens in negative-interest rate countries move their savings into cash and hold them outside the traditional banking sector, his policy prescription makes perfect since: central banks should eliminate cash.
Since eliminating cash overnight may create problems both logistically and politically, Goodfriend goes on to propose an easier way to accomplish this goal – make cash worth less.
As he puts it:
The deposit price of paper currency would adjust flexibly much as floating exchange rates adjust to equilibrate the foreign exchange market when international interest rates differ from each other.
In other words, he wants the Fed to have the power to make your $10 bill now be worth $9 dollars. That certainly sounds like a tax on cash. All with the goal of eliminating Americans’ ability to protect themselves if the Fed decides to tax bank accounts.
It’s also important to point out that this isn’t an idea unique to Marvin Goodfriend. Economists and central bankers around the world have embraced the logic of the war on cash and have taken steps to implement it. So this isn’t some interesting thought experiment – this is a very real and ongoing policy discussion, and one in which Goodfriend has made it perfectly clear where he stands.
Now perhaps Mr. Goodfriend is telling the truth when he says that he doesn’t consider a tax on cash to be an appropriate policy today. There are a number of factors that could impact his opinion on current monetary policy. Unfortunately there are two problems here.
One, Mr. Goodfriend is nominated for a position that he would hold for 14 years. Who knows what we may see during that term? Secondly, and most importantly, Mr. Goodfriend’s response to Senator Cortez Masto blatantly contradicts the views he has expressed publicly, and thoroughly.
If Marvin Goodfriend’s dangerous views on monetary policy didn’t disqualify him from the Fed, certainly his dishonest testimony today should.