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The War on Cash Threatens Freedom More than Crime
The War on Cash Threatens Freedom More than Crime
St. Louis Federal Reserve Bank Vice-President and economist Stephen D. Williamson has written a critical review of Kenneth Rogoff's The Curse of Cash. I use the word "critical" in the sense we academics use it: a balanced critique that looks at pluses and minuses.
I haven't read Rogoff's book yet, although I did edit an Econlib article, "In Defense of Cash," by Pierre Lemieux, who did read Rogoff's book thoroughly.
While Williamson's piece is balanced, I want to focus on one area in which he too easily accepts Rogoff's thinking about crime and another area in which, if I understand him correctly, Williamson seems to make a basic error in economic reasoning.
Crime
Williamson writes:
Why is cash a "curse?" As Rogoff explains, one of currency's advantages for the user is privacy. But people who want privacy include those who distribute illegal drugs, evade taxation, bribe government officials, and promote terrorism, among other nefarious activities. Currency - and particularly currency in large denominations - is thus an aid to criminals. Indeed, as Rogoff points out, the quantity of U.S. currency in existence is currently about $4,200 per U.S. resident. But Greene et al. (2016) find in surveys that the typical law-abiding consumer holds $207 in cash, on average. This, and the fact that about 80% of the value of U.S. currency outstanding is in $100 notes, suggest that the majority of cash in the U.S. is not used for anything we would characterize as legitimate. Rogoff makes a convincing case that eliminating large-denomination currency would significantly reduce crime, and increase tax revenues. One of the nice features of Rogoff's book is his marshalling of the available evidence to provide ballpark estimates of the effects of the policies he is recommending. The gains from reforming currency issue for the United States appear to be significant - certainly not small potatoes."
Let's look at those four activities cited. Using large denomination bills to promote, or, even worse, carry out, terrorism is clearcut bad. So score one for Rogoff and Williamson.
How about the other three? What you think of them will depend on how you think about these issues. Consider them in turn.
Distributing Illegal Drugs
One of the major costs of the drug war, which gets far too little attention, is that it raises the cost of illegal drugs to those who want them. We, including me, often write about the costs to innocent parties whose property is stolen by drug users. But we typically leave out the costs to drug users, including those who don't steal. The drug war has destroyed a huge amount of consumer surplus for drug users. In any legitimate cost/benefit analysis, those losses should count too. I supervised a thesis on this in 2002: Marvin H. McGuire and Steven M. Carroll, "The economics of the drug war : effective federal policy or missed opportunity?"
To continue reading please click link https://fee.org/articles/the-war-on-cash-threatens-freedom-more-than-crime/