Finance

Rogoff and the Cashless Society: the Wild Imaginings of an Economist Playing Crime Expert

Money is the mother of all evil. People kill for it, lie for it, steal for it and a big wad of cash seems to justify the most heinous attitudes in our fellow men. How to stem this bad human habit, and suppress cupidity and its dire consequences, has been one of the great aims of societies. Not only have we so far failed to quell this phenomenon, but we have often made things worse by trying to. Coming up next is Rogoff’s plan to eliminate crime from the world by depriving it of cash.

Rogoff’s plan is to phase out all physical currency from the economy, with the possible and temporary exception of the smallest notes and coins.  His first motive for championing this idea, along with many other promoters, is to enhance the power of governments to drive monetary policies. As an economist, it only makes sense that Rogoff would try to increase the size of his playground. The second motive, however, is way out of his depth. Rogoff considers that every other cash transaction in the world is precisely carried out using paper money in order to escape government control over the illegal activities they finance.

“Paper currency facilitates making transactions anonymous, helping conceal activities from the government in a way that might help agents avoid laws, regulations, and taxes. This is a big difference from most forms of electronic money that, in principle, can be traced by the government”, he stated at the 2014 NBER economics conference.  These illegal activities range from simply dodging taxes to outright human trafficking, with every unsavory line of business in between. Destroying cash would, in his mind, make crime disappear from our societies because criminals would then conduct their business using credit cards and checks, thus facilitating the law’s capacity to track them down and arrest them.

What lies behind the plan boils down to this: inject more government control into modern societies. In a way, he’s sure to be on the right side of the gun. History advances as agendas are pushed: whichever agenda is pushed better and harder becomes history, and the other falls into oblivion. States are very good at pushing agendas, in all sorts of different ways, and they tend to push the agendas which give them more power and control. By promoting the all-inclusive State control of economies, Rogoff probably made a lot of friends in Washington, London, Paris, and Berlin.

Rogoff may be a fine economist, but he is no crime expert or sociologist. And he is making the same mistake many experts make: thinking that because they have a firm command of their science, that gives complete knowledge. Corruption, crime, and poverty are not only a matter for economists. Crime is a matter for criminal experts to tackle, just as a country’s entrepreneurial spirit is probably more a matter for historians and sociologists to address. Through the Eurozone crisis, the Greeks showed their lack of inclination for paying taxes, for example. They evaded taxes when the country was poor, and they continued evading taxes when the EU injected billions into their country, and they continued to refuse to pay taxes when the bill came up.

This lack of fiscal consent has little to do with the mechanics of an economy, it has to do with the identity of a people: the very same recipe was applied to other nations in Europe, and it worked perfectly well. Remi Adekoya wrote for the Guardian”A year before accession, Poland generated an annual GDP of £130bn; by 2013, that figure had grown to £305bn. Meanwhile, GDP per capita has risen from 44% of the EU average on accession to 67% today and is forecast to reach 74% by 2020.” The same economic principles were applied in both countries, but the different natures of the two peoples produced diverging results. And this divergence has nothing to do with economics: it has to do with some people agreeing with the idea of paying taxes, and other people less.

By assuring that the deletion of cash would reduce poverty through increased government control, Rogoff hopes to make humanity’s dream come true: killing off poverty and the ability of wealthy people and corporations to take advantage of it. Feliz Solomon wrote for Fortune: “Rogoff says that if implemented slowly and with the appropriate infrastructure in place, going cashless could even help to remedy exploitation of migrant laborers working in more developed countries, who often receive under-the-table payments that leave employers unaccountable. But a quick look into history books will show that, even when States had gigantic liberty-killing powers to ensure social justice, the end result was counter-productive. Venezuela made the bitter experience just recently. The Venezuelan people entrusted their government with complete and limitless monitoring powers of the economy, to preserve the people’s interest. Within a few years, and despite the government’s best efforts, the shelves were empty in the shops. In their drastic attempt to destroy poverty, they made it widespread.

Per se, Kenneth Rogoff has a point. He is, after all, a Harvard-graduated and renowned economist. However, economics is not all nations boil down to – that would be a short-sighted point of view. Nations, with their woes and successes, are a subtle mix of economics, tradition, identity, values, history, and demographics. Because one expert is right in his field does not mean that he is right on the general perspective. And perspective, no matter how valid his economic theory is, is precisely what Kenneth Rogoff’s theory lacks.

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