Let's Discontinue Kenneth Rogoff's Commentary, Not the $100 Bill

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In a recent opinion piece for the Wall Street Journal, Harvard economist Kenneth Rogoff declared that there's "little debate among law-enforcement agencies that paper currency, especially large notes such as the $100 bill, facilitates crime." Rogoff would like to discontinue the $100 in order to - try not to laugh - reduce crime.

Can the eminent economist really be so naïve as to presume that the disappearance of a piece of paper would prove effective at making the U.S. (and the world) more honest and safe? Apparently he does, while lightly acknowledging what economists refer to as the "substitution effect."  If $100 Federal Reserve notes prove scarce, then similar euro and Pound bills will do the job, as will 10,000 yen notes. If $100 bills simplify big criminal transactions, wouldn't little gold coins simplify crime even more?

While Rogoff is fully focused on the problems presented by $100 bills for government, he ignores how problematic it is that our government is so large and intrusive as to want to take away something that we the people (law abiding and not) find convenient. Did it ever occur to Rogoff that maybe there are too many laws and too many crimes as opposed to too many $100 bills? To you the reader, if cocaine and heroin are legalized tomorrow, will you become users?

As opposed to wanting to abolish the $100 bill in order to increase our individual freedoms, Rogoff seeks an end to the $100 to increase the size and scope of government. A principle reason Rogoff is in favor of abolishing the C-note is because "Cash is also deeply implicated in tax evasion, which costs the federal government some $500 billion a year in revenue." Lower federal revenues are apparently bad in the eyes of Rogoff and his ilk, but they're surely good for the rest of us. Ignored by Rogoff, or worse, understood by the Keynesian thinker, is that a dollar collected by the IRS is an extra dollar for Congress to spend.

The above matters simply because the only true "multiplier" in economics concerns government spending: once Congress spends on anything, whether it works or not the spending increases by many multiples in future years and decades. Medicare began as a $3 billion program, one paid for by a revenue surge that sprung from the 1964 tax cuts. By 2020, this program will cost U.S. taxpayers $1 trillion annually despite it having routinely failed to secure universal medical care for the very elderly it was intended to help.

Stated simply, rising federal revenues beget more government spending, and yes, more borrowing from Treasury. Governments can only spend what they've taxed or borrowed from the private sector first. All of this in mind, the last thing the already overburdened American taxpayer needs is for an already-too-large federal government to be able to tap into yet another revenue stream that will increase the burden that is government even more.

Rogoff asserts that "Cash also lies at the core of the illegal immigration problem in the U.S. If American employers couldn't so easily pay illegal workers off the books in cash, the lure of jobs would abate, and the flow of illegal immigrants would shrink drastically." But as he later acknowledges, "many low income workers still rely heavily on cash." Illegal immigrants are most often "low income" workers. They're probably not being paid with $100 bills. So if we ignore the undeniable good that immigrants bring to the U.S. in terms of culture and economic growth, thus begging the question of why we'd want to limit their arrival in the first place, the abolishment of the $100 bill is not likely to shrink hiring of illegal immigrants "dramatically."

Having solved (in Rogoff's mind, at least) crime, immigration, and apparently too little revenue collection for the U.S. Treasury, the ever-confident Rogoff proceeded to explain how abolishment of what is paper would shrink the size and length of recessions. Really, he wrote this. Please read on.

As Rogoff put it, "In principle, cutting interest rates below zero ought to stimulate consumption and investment in the same way as normal monetary policy by encouraging borrowing." Rogoff is apparently unfamiliar with Japan's failure to stimulate consumption and investment through the Bank of Japan's various stabs at price control at the zero rate. Also apparently lost on Rogoff is that for every borrower there must be a saver first. Wouldn't zero rates cause fewer people to save? If rent controls below the market rate lead to apartment scarcity, wouldn't interest rates at zero lead to credit scarcity?

The good news is that most lending and investment takes place well away from the dated world of banking (15 percent of total U.S. lending, and falling) that Rogoff and the central banking crowd he interacts with focus on. In the real world of credit well away from vanilla bank loans and government borrowing on the backs of the productive, the cost of credit reflects actual reality. We know this because in Hollywood, even the best producers have their projects refused with great frequency, in Silicon Valley entrepreneurs have to hand over big portions of their start-ups to VCs in return for funding, and then Donald Trump hasn't been able to secure a loan from a U.S. bank seemingly in decades....Only in the academic world populated by Rogoff is there such thing as "easy" credit. This may explain his musings on credit and the economy that have little to do with reality.

The above revealed itself most comically with Rogoff's alleged insight (about which he's clearly proud) that if our government "Take[s] cash away, or make[s] the cost of hoarding high enough, and central banks would be free to drive rates as deep into negative territory as they needed in a severe recession." Rogoff gets it backwards. Missed by the economist is that recessions are healthy. They signal market forces reversing misuses of labor, bad investments and lousy companies that are holding down growth to begin with.

To simplify it for a profession so deluded as to believe that economic slowdowns would be perpetual without its wise academic minds protecting us from market forces, recessions are the sign that ex-Michigan and Alabama head coaches Brady Hoke and Mike Shula are being starved of resources so that they can be replaced by Jim Harbaugh and Nick Saban. Without recessions, you can't have growth. Or wins. It's that simple. Rogoff is quite literally promoting government intervention that would in college football terms perpetuate the employment of Hoke and Shula at the expense of Harbaugh and Saban.

In a rare instance of false modesty related to his odd stance, Rogoff acknowledges that "Perhaps the most challenging fundamental objection to getting rid of cash has to do with privacy - with our ability to spend anonymously. But where does one draw the line between this individual right and the government's need to tax and regulate and to enforce the law." To Rogoff, seemingly any infringement on our individual rights is ok so long as it empowers government.

Rogoff's latest commentary brings to mind the old ad against drunk driving: "friends don't let friends drive drunk." So true. Rogoff's friends and colleagues would reveal grand compassion if they applied this to Rogoff. Friends, and most certainly economists, don't let Kenneth Rogoff go public with his "observations." It's not fair to Rogoff's good reputation (his book with Carmen Reinhart was pretty informative at times), and certainly not fair to the reputation of his profession.


John Tamny is editor of RealClearMarkets, Director of the Center for Economic Freedom at FreedomWorks, and a senior economic adviser to Toreador Research and Trading (www.trtadvisors.com). He's the author of Who Needs the Fed? (Encounter Books, 2016), along with Popular Economics (Regnery, 2015).  His next book, set for release in May of 2018, is titled The End of Work (Regnery).  It chronicles the exciting explosion of remunerative jobs that don't feel at all like work.  

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