venerdì 26 febbraio 2016

Cancel currency? By John H. Cochrane

Cancel currency? By John H. Cochrane
  • Perchè abolire il contante. Ken has two basic points: The zero bound, and tax evasion / illegal economy.
  • Zero bound
  • Many economists would like the Federal Reserve to be able to set a negative interest rate... As long as you--and more importantly, banks -- can hold cash, which pays a zero interest rate, the Fed can't impose a negative interest
  • This has led to a number of creative proposals....Willem Buiter.. has discussed ... devices for paying negative interest rates on currency... stamp taxes......Mankiw (2009) points out that the central bank could effectively tax currency by holding lotteries based on serial numbers... the ultimate version of this idea: get rid of cash
  • Suppose we have substantially negative interest rates -- -5% or -10%, say, and lasting a while. But there is no currency. How else can you ensure yourself a zero riskless nominal return?
  • Prepay taxes.
  • Gift cards.
  • stored value cards,
  • Prepay bills.
  • Prepay rent
  • Businesses: prepay suppliers and leases.
  • Now in each case, you might say this can be changed. The IRS could refuse pre-payments
  • So, bottom line, we cannot have strongly negative nominal rates without a legal revolution essentially negative-indexing the entire economy
  • "Illegal" transactions, regulations, and tax evasion
  • Paper currency facilitates making transactions anonymous,
  • Though anonymity facilitates evasion of "good" taxes and necessary regulations, the ability to transact anonymously is an important safety valve that protects our economy and many others around the world from a welter of "bad" taxes, laws, and overly intrusive regulations. How much of each we have now, and how desirable strict enforcement is depends on where you sit. I imagine opinions differ at Harvard vs. Cato or Mercatus.
  • Big companies and wealthy people who pay most of the taxes in the US don't have to cheat; they just hire good lawyers and lobbyists.
  • In the U.S., eliminating cash would heavily impact the poor. The U.S. has 11 million undocumented immigrants, most working and transacting in cash....What little entrepreneurship and activity exists in many poor parts of inner cities survives on cash,
  • A lot of "tax evasion" using currency consists of quite poor people evading the astronomical marginal tax rates implicit in social programs. People on social security disability, and medicaid, say, who would lose lots of benefits if they reported income... Do we really want them to obey all the rules strictly -- not work at all?
  • The world in which the Federal Government must pre-approve every employment strikes me as a nightmare .
  • Estimates for Europe put the "shadow economy" at least 20% of GDP, and a larger fraction of employment especially for young people....It's not obvious that eliminating cash and cash transactions in Europe would raise tax revenue, rather than simply lowering actual GDP and employment by 20% or more.
  • we already have lost a great deal of the ability to transact anonymously, and the current technological and policy trend is entirely in the other direction.
  • Liberty
  • More deeply, a world in which the Federal Government can observe every single transaction made by every single person and corporation, and thereby reconstruct the size and composition of every person's wealth, strikes me as an Orwellian nightmare.
  • Imagine what J. Edgar Hoover could have done to the civil rights and anti-war movements with the ability to see every transaction in the country.
  • Substitutes and a chilling ending:
  • Last but not least, if any country attempts to unilaterally reduce the use of its currency, there is a risk that another country’s currency would be used within domestic borders.
  • Bitcoin, though very imperfect in a lot of dimensions, shows the strong demand for anonymous transactions and wealth holding.