Friday, September 2, 2016
Some on the left are proposing the elimination of currency bills larger than $10. This may seem like an insignificant matter, but if adopted, the proposal would be a giant step in the direction of totalitarianism.
By forcing Americans to use an electronic means of payment, government would gain the power to monitor and manipulate every aspect of one's finances. Washington would know what you buy, where and when you buy it, where you travel and eat, and whom you associate with. Granting government this kind of power is madness unless you're one of the political elite. They seem to be lining up in favor of a cashless society.
In a recent article, "The Sinister Side of Cash," Harvard economist Kenneth Rogoff argued the case for drastically reducing the supply of cash currency – eliminating all bills above $10 and thereby forcing consumers and businesses to rely on electronic exchange. Rogoff claims that his plan would reduce money-laundering and thereby reduce crime while at the same time exposing tax cheats who deal in cash payments.
The elimination of large bills would also have the "advantage" of further enabling the central bankers to manipulate interest rates since holders of electronic funds could be more easily pressured by negative interest rates and other central bank schemes. Holding cash in a money market fund would produce a loss under negative rates; holding cash would not.
In light of recent fiscal history, the argument that a cashless society would grant more power to the Federal Reserve to control the economy seems laughable. Negative rates as now practiced in most of Europe and in Japan have hardly shown themselves to be effective. Rather, they have facilitated the refusal of large economies to engage in meaningful economic and political reform.
As I see it, Rogoff's argument for a cashless society is nothing less than creepy. As Rogoff himself admits, eliminating the supply of cash would raise privacy issues since information about electronic transactions can easily be recorded and stored. Beyond that, the very "advantages" that Rogoff lists should be a matter of deep concern. Taken together, the potential for government abuse is practically unlimited.
Consider the idea that eliminating the ubiquitous $100 bill would reduce crime. Only an Ivy League academic could believe such a thing. Criminals can easily shift from U.S. cash to euros, yen, or other currencies or to alternative currencies such as bitcoin. Reducing the supply of cash in circulation might inconvenience the mafia, but it won't shut them down.
Then there is the so-called advantage that eliminating large bills would allow the IRS and state treasuries to collect taxes on more of the transactions in the gray economy. Anyone who believes that government needs more revenue – as much as $700 billion annually by Rogoff's estimate – is off base to begin with. Government revenues need to be reduced by 90%, not increased by another 20%. The goal should be the elimination of the IRS, not the granting of more power to it.
One can argue, as did CNBC in 2013, that the only thing the Obama economy has going for it is the gray market, without which America would have been in deep recession these past eight years. Taxing that $2-trillion market out of existence is the last thing we need. The guys mowing your yard and doing odd jobs don't need the IRS fishing through their electronic payment records. Nor do those who provide child care services or the families that run small retail outlets.
A rational proposal would be the elimination of all taxes on enterprises of this sort. Exempting small businesses from taxation would spur an explosion in economic growth. Not only would businesses have more money to re-invest, but they would be spared the wasted effort of recordkeeping or the fear of prosecution.
Tax cuts targeting small businesses in Kansas and other states prove how effective cuts can be. Cutting an estimated $4.5 billion over six years beginning in 2012, Kansas has already begun to grow nonfarm jobs faster than neighboring Missouri, though as the Tax Foundation points out, small businesses are simply businesses that have not yet become large. Why not eliminate or greatly reduce taxes on all businesses?
The left's idea of a cashless society would not cut taxes for anyone. It would raise them, concentrating more power in government. That power would make possible further assaults on the free market.
Most importantly, there is the matter of privacy and the threat to our liberties posed by a cashless society. That's a topic that proponents of a cashless society are loath to examine. Maybe I have a legitimate reason for not wanting an electronic record of all of my transactions. Maybe my reason is not legit. It doesn't matter. I have the right to live my life free from government surveillance.
That right is guaranteed under the Fourth Amendment: The right of the people to be secure in their persons, houses, papers, and effects, against unreasonable searches and seizures, shall not be violated[.] "Papers, and effects" includes currency – and government has no right to force an accounting of those "effects" by eliminating a practical means of cash transactions.
Make no mistake: government will always abuse the powers citizens cede to it. Government has already stepped vastly beyond its constitutional limits. The Obama administration has not even made a pretense of constitutionality for many of its executive actions. The elimination of cash currency would be another large step, along with repeal of the Second Amendment, in the direction of totalitarianism.
Kenneth Rogoff is a respected economist who has written well about many aspects of the economy, but on the cashless society, he is simply wrong. Granting government more power to increase surveillance, raise taxes, and manipulate interest rates isn't much of an argument for eliminating large bills. Just the opposite, in fact. The Treasury needs to make sure there are plenty of $100s in circulation just to keep the economy rolling.
But, how would Obama pay off the Iranians?