Congress concluded that the facts supported reauthorizing the Voting Rights Act and its pre-clearance provisions for 25 years. The provisions required states and localities with a history of discrimination to have changes to voting procedures pre-cleared by either a court or the Department of Justice before they could take effect.
In Shelby County v. State legislatures in the former pre-clearance states went right to work to limit minority voter access. The Roberts Five also permitted aggressive racial and partisan gerrymandering,  limited the rights of minorities to challenge racially concentrated districts,  allowed purges of voting rolls that have been shown to disproportionately disqualify minority votes,  and permitted voting under electoral maps that a federal district court concluded were drawn with racially discriminatory intent.
Finally, starting with Harris v. Quinn in and concluding with Janus v. AFSCME in , the conservative bloc targeted a long-time Republican bugaboo: public-sector union political spending. At stake was the unanimous precedent Abood v. Respect for precedent, unanimous reaffirmance, and reliance interests all militated in favor of the Court upholding this 40 year-old precedent.
Rarely if ever has the Court overruled a decision—let alone one of this import—with so little regard for the usual principles of stare decisis. There are no special justifications for reversing Abood. It has proved workable. No recent developments have eroded its underpinnings. And it is deeply entrenched, in both the law and the real world. Reliance interests do not come any stronger than those surrounding Abood.
And likewise, judicial disruption does not get any greater than what the Court does today. In 33 cases—the largest category by far, full of hugely important decisions that rarely make front-page news—the Roberts Five have engaged in a two-front effort to insulate corporations from liability: they have limited the ability of government agencies to regulate corporate acts; and they have made it harder for individuals harmed by corporate acts to have their rights vindicated in court.
Corporations have fewer limitations on their commercial transactions thanks to the Roberts Five. Corporations have seen this conservative majority weaken the federal antitrust law to the detriment of consumers,  and make it harder for consumers and investors to obtain accurate information. Their decisions have made this an avenue for powerful and wealthy interests to systematically deny ordinary individuals, like employees and customers, access to juries of their peers when wronged.
In 14 Penn Plaza v. Jackson , the same right-wing bloc held that would-be litigants challenging an arbitration agreement as unconscionable would have to challenge the unfairness of the arbitration before the very arbitrator whose legitimacy to hear the case they disputed. Concepcion , the Robert Five prevented consumers from bringing class-action suits against corporations for low-dollar, high-volume frauds.
Italian Colors Restaurant , the Court struck again, this time , dispensing with the rule—established by a long line of Supreme Court precedent—that contractual arbitration clauses are enforceable only so far as they actually permit individuals to vindicate their rights. So much for the doctrine of originalism. Discovery can be costly, embarrassing, and often damaging to corporate defendants, giving them a strong incentive to prevent it.
The conservative majority took a big step toward insulating corporations from discovery obligations in Ashcroft v. Twombly , and signaled to lower court judges that they had a freer hand to dismiss cases before discovery.
Class action litigation has long provided redress for low-dollar, many-victim frauds. The conservative majority threw out a class action by 1. The Roberts Five have shown a persistent animosity toward civil rights and liberties, consistent with right-wing Republican priorities. A representative illustration of the eighteen cases in this category is Ledbetter v. The five conservatives have delivered similar decisions limiting the ability of public schools to use affirmative action to achieve diversity and provide access to English as a Second Language Programs;  of Native Americans to challenge the discriminatory practices of banks;  and of employees to bring age discrimination claims and employment discrimination claims.
In civil liberties cases, too, the Roberts Five repeatedly take the side of the government. They have limited First Amendment speech protections for public employees and students,  despite expanding the First Amendment for corporations at seemingly every opportunity. The final nine cases on the list advance a far-right social agenda—three of them restricting the rights of women to make choices about their reproductive health. A decades-long political effort by the National Rifle Association to expand gun rights through the Second Amendment paid off in the Heller and McDonald decisions.
Heller was a radical shift in Second Amendment jurisprudence, in which the Court inferred for the first time in our history an individual right to keep and bear firearms for self-defense. It is, however, clear to me that adherence to a policy of judicial restraint would be far wiser than the bold decision announced today. As a tide of tragic gun massacres continues to sweep this country, and with the Court set to decide another high-stakes gun case next term, Americans should keep their eyes on the Roberts Five and their pattern of victories for important interests of the Republican Party.
There is a pattern in the Roberts Era: 73 partisan decisions, in which the majority was composed of only the five Republican-appointed justices, that handed a win to big conservative and corporate interests. Quite often, these same decisions override or ignore conservative judicial principles.
It is hard to review this pattern and conclude that the outcomes are attributable to coincidence and not design. When big conservative and corporate interests are at stake, the Roberts Five readily overturn precedent, invalidate statutes passed by wide bipartisan margins, and opine on broad constitutional issues they need not reach. Modesty, originalism, stare decisis, and even federalism—all supposedly conservative judicial principles—have been jettisoned when necessary to deliver these seventy-three partisan Republican wins. The Chamber represents big corporate interests and supports Republican candidates.
Since , when the Roberts Five conservative bloc first solidified, the Chamber has won 70 percent of the time, compared with a win rate of 56 percent from to Court of Appeals for the D. Circuit suggests this trend will continue now that he has joined the Five. This undeniable pattern helps explain the mad scramble by right-wing interest groups and their Republican allies in the Senate to protect the Roberts Five at all costs, whether by refusing to even consider Chief Judge Merrick Garland, a moderate jurist nominated by a Democratic president, or by breaking longstanding Senate norms and traditions to ram through Judge Kavanaugh, a flawed Trump nominee, eighteen months later.
To the extent its funders are public many are secret , they come as no surprise: the U. Once nominees are selected, the Judicial Crisis Network, funded as far as can be determined by big business and partisan groups, runs dark-money political campaigns to influence senators to support confirmation. Who exactly pays millions of dollars for that, and what their expectations and understandings are, is another secret. Once the nominee is on the Court, business front groups with ties to funders of the Republican political machine file amicus briefs to signal their wishes to the Roberts Five.
Janus , and its forebear Friedrichs v. California Teachers Association , show how conservative amici work in lockstep and fundraise off their efforts. Many resurfaced in Janus. In out-of-court statements, these amici trumpeted their confidence in a pre-ordained outcome. We have reached the point where it appears the same set of big-money players is selecting nominees to our highest court, then spending millions of dollars to campaign for their confirmation, and then funding amicus briefs designed to signal a preferred outcome to those nominees once they have ascended to the bench.
The pattern apparent in the spending and amicus presence of big Republican donor interests intersects in ominous ways with the pattern of those 73 partisan decisions by the Roberts Five giving wins to key conservative and corporate interests. Americans deserve to understand how that rigged game works. Further light must be shed. While we do not yet have a complete view of the ways these interests have captured the conservative bloc of the Court—many are still hidden in the shadow of dark money—the overall picture is coming into the light. It is a picture in which money, influence, and partisanship, rather than objective legal analysis and interpretation, are reshaping some of the most important areas of the law in the United States.
Although the pattern of special-interest funding is still indistinct, the pattern of 73 partisan decisions under Chief Justice Roberts is undeniable. The following 73 cases are those in which a majority opinion by the Roberts Five Justices Roberts, Alito, Kennedy, Thomas, and Scalia or Gorsuch served one of the following conservative interests: 1 controlling the political process to benefit conservative candidates and policies; 2 protecting corporations from liability and letting polluters pollute; 3 restricting civil rights and condoning discrimination; and 4 advancing a far-right social agenda.
Where appropriate the appendix also identifies the judicial principles these conservative justice generally espouse, but which they arguably disregarded in these cases to achieve a desired outcome, including: 1 stare decisis; 2 judicial restraint; 3 originalism; 4 textualism; and 5 aversion to fact finding. Full Appendix here.
In the United States Senate, Sheldon Whitehouse has fought to strengthen campaign finance laws, increase transparency in government, and defend the rule of law. April 13, May 5, November 17, November 13, March 20, Retrieved August 21, Supreme Court of United". Archived from the original on October 31, Businesses" , Policy Analysis no. The Washington Post. August 12, Archived from the original on June 1, Retrieved April 28, April 1, Government Climate Report". Scientific American.
Retrieved February 5, Archived from the original PDF on April 6, Retrieved July 4, National Review Online. Retrieved May 27, Chicago Sun-Times. Environmental Encyclopedia. Archived from the original on April 2, Retrieved December 16, CATO Institute. Dividend Payouts after the Bush Tax Cut".
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Retrieved June 25, Retrieved July 8, February 8, Retrieved February 8, TC Palm. Stuart, FL. Sarasota, FL. Encyclopaedia Judica 2nd ed. Thomson Gale. Retrieved April 13, Tribune Company. May 19, Retrieved December 23, Associated Press. Archived from the original on November 5, Cato Policy Report. July — August Archived from the original on July 26, April 23, Archived from the original on July 2, Archived from the original on May 2, Retrieved April 21, Retrieved May 22, Retrieved May 11, Retrieved January 11, Retrieved February 24, State Policy Network.
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Using our methodology changes the order of state rankings considerably. Many states in New England and the Upper Midwest fall in the rankings, whereas many states in the South and Southwest score much higher-than they do in conventional rankings. Furthermore, we create another set of rankings on the efficiency of education spending. In these efficiency rankings, achieving successful outcomes while economizing on education expenditures is considered better than doing so through lavish spending.
These efficiency rankings cause a further increase in the rankings of southern and western states and a decline in the rankings of northern states. Finally, our regression results indicate that unionization has a powerful negative influence on educational outcomes, and that, given current spending levels, additional spending has little effect. We also find no evidence of a relationship between student performance and teacher-pupil ratios or private school enrollment, but some evidence that charter school enrollment has a positive effect. Central bankers and mainstream monetary economists have become intrigued with the idea of reducing, or even entirely eliminating, hand-to-hand currency.
Advocates of these proposals rely on two primary arguments. First, because cash is widely used in underground economic activities, they believe the elimination of large-denomination notes would help to significantly diminish criminal activities such as tax evasion, the illicit drug trade, illegal immigration, money laundering, human trafficking, bribery of government officials, and even possibly terrorism.
They also often contend that suppressing such activities would have the additional advantage of increasing government tax revenue. The second argument relates to monetary policy. Yet the arguments for phasing out cash or confining it to small denomination bills are, when not entirely mistaken, extremely weak.
They ignore or significantly understate the clear benefits from much underground production. They cannot provide any good quantitative evidence about how much of the underground economy constitutes harmful criminal acts, nor to what extent predatory activity would actually be curtailed by phasing out cash.
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They cannot even demonstrate that there will be net revenue gains for governments. With regard to macroeconomic stability, the proponents of restricting cash fail to grasp all the implications of negative interest rates, which would essentially entail a comprehensive tax on money holdings. Here again they are unable to make a convincing case that the policy is even needed, much less that it would work. Above all, these proposals entirely ignore any political-economy considerations and are far too optimistic about the overall benevolence and competence of governments. Ignored are the public-choice dynamics of the myriad regulations these proposals require.
The advocates remain willing to rely entirely upon the foresightedness of policymakers, having apparently learned no cautionary lessons from the numerous and repeated policy failures of the past and around the world today. In short, they appreciably oversell any advantages to restricting cash and ignore or understate the severe disadvantages.
Central bankers and mainstream monetary economists, both in the United States and abroad, have become intrigued with the idea of reducing, or even entirely eliminating, hand-to-hand currency. This idea was first put forward by Kenneth S. Rogoff in a article in Economic Policy. Summers, former U. Haldane, has also seriously explored the option, albeit without fully endorsing it. Because Rogoff stands out as having presented the most comprehensive and careful case for restricting hand-to-hand currency, the details of his scheme are worth attention. The advocates of this or similar proposals rely on two primary arguments.
First, because cash is widely used in underground economic activity, they believe the elimination of large-denomination notes would help to significantly diminish criminal activities such as tax evasion, the illicit drug trade, illegal immigration, money laundering, human trafficking, bribery of government officials, and possibly even terrorism. Not all who promote limits on cash adhere to both arguments. Proposals for phasing out cash have attracted the support of certain business interests as well.
The BCTA lists as members 24 nation-states in the developing world and 21 international organizations. However, it does not shy away from aggressive government measures that would compel people to abandon cash. As we shall see, even at their most cautious and scholarly, the arguments for phasing out cash or confining it to small denominations are, when not entirely mistaken, extremely weak.
The proponents fail to provide a credible case that countries doing so would enjoy benefits that exceeded costs, or even that their governments would reap net revenue gains. Nor are the advocates of negative interest rates able to demonstrate that such a policy is needed, much less that it would work. Finally, these proposals raise grave political-economy concerns that advocates hardly ever address or even recognize. In short, they appreciably oversell any advantages from restricting cash and ignore or understate the severe disadvantages.
The remainder of this policy analysis consists of four sections. Will phasing out cash generate any significant revenue for the government or produce a net welfare gain for the economy? And how will suppression of the underground economy affect the poorer and disadvantaged?
The second section discusses seigniorage: that is, government revenue from issuing cash. What will be the effect on foreign users of U. The third section looks at negative interest rates as a tax on money. Are government-imposed negative interest rates needed? Would that policy be more effective than alternatives for achieving the same goal, and would it avoid additional downsides that would make negative rates risky or dangerous?
The final section will take up the broader public-choice aspects of phasing out cash. Does the underground economy, in addition to its economic benefits, provide essential political safeguards for a free polity, and would the suppression of cash require or facilitate significant restrictions on liberty? For the moment, we will focus on the potential gains and losses for the United States, its residents, and other users of U.
Estimates of how much of total U. Yet a study from the Boston Federal Reserve, based on surveys with admittedly small sample sizes, suggests that only 1 in 20 adult U. However, the evidence for this inference is not as reliable as it may seem at first. As Lawrence H. As for eliminating smaller denomination notes, cash still remains the dominant means of payment in the United States, accounting for 31 percent of all transactions by volume. A European Central Bank study finds that reliance on cash throughout the Eurozone is even more striking. Europeans, for instance, use cash to make 32 percent of payments of euros or more.
No one denies that a lot of cash circulates within underground economies, which are composed of both criminal activity and activity that is unreported but otherwise legal. But what should be emphasized at the outset is that however large that amount, whether for the United States or any other country, extensive use of cash in the underground economy cuts both ways in arguments about phasing out cash. A greater relative amount of cash within an economy can not only indicate a larger underground sector, but likewise implies that the economy is more heavily reliant on the use of cash, making any phase-out that much more traumatic.
In addition, any benefits from suppressing cash depend on how much underground activity constitutes truly predatory criminal acts and how much is beneficial production that merely evades taxes or other regulations but nonetheless increases welfare. Instead of undertaking a detailed welfare analysis, advocates of phasing out cash tend to tout potential revenue gains—often as their sole quantitative evidence. Rogoff, for instance, relies on Internal Revenue Service estimates of the unpaid U. Assuming that half of those unpaid taxes derive from cash transactions, he deduces that the elimination of large-denomination notes could close the gap by at least 10 percent.
Taxes do more than simply transfer funds from taxpayers to the government. They also discourage people from doing whatever is being taxed. If this inhibits otherwise productive activity, the tax will impose additional economic losses as well as generate tax revenue. Thus, the downside of these alleged revenue gains from restricting cash is the potential deadweight loss from taxing and discouraging underground economic production. A genuine analysis of economic welfare would have to give some weight to the social costs of forcing what is productive unreported activity from a marginal tax rate of zero into marginal rates as high as 30 to 40 percent.
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Both Sands and Rogoff attempt to slip around this requirement by noting that tax evasion also distorts economic output. This is correct as far as it goes.
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But in order for it to be relevant to a welfare analysis of phasing out cash, either one of two conditions, or some combination of the two, must hold. First, any increase in government revenue must finance a genuine public good whose benefits must offset and exceed the increased deadweight loss from the heavier taxes. Second, the increased deadweight loss from taxing underground activity must be offset by decreased deadweight loss from existing taxes. Either of these conditions appears naively at odds with the politics of taxation. The assumption of revenue neutrality ignores a host of other complications.
As will be discussed below, phasing out cash will probably reduce the revenue that governments gain from issuing cash in the first place seigniorage. As a result, it is not clear how large the tax gains would be, if there are any at all. Moreover, when government, through its central bank, increases the amount of cash in circulation, it causes the price level to be higher than it otherwise would have been. This implicit tax on cash balances currently bears more heavily on underground, cash-intensive businesses.
Phasing out cash not only changes both the level and type of taxation that these unreported, productive activities would pay, but also could subject them to burdensome regulation that imposes costs without generating revenue. A genuine welfare analysis should carefully assess all of these complications. As one friend has written me, the advocates. This is how she budgets, she knows she can only spend what she has in her purse, when it is empty she stops spending. Tell her to go on line to check her balance, or top up her account and she will look at you as though you are from Mars.
Take her cash away from her and you have locked her out of the modern economy, her local shops, her daily routine. Leaving in circulation small-denomination notes or coins will help somewhat, though not forever, as inflation steadily erodes their real value. Phasing out cash would particularly affect the poor who also happen to be illegal immigrants.
After all, employers pay wages high enough to attract illegal immigrants, in spite of all the other obstacles illegal immigrants face, and the resulting contribution to output increases the consumption of other Americans. The relative size of the underground economy in other countries, whether rich or poor, is almost universally larger than in the United States.
There is a vast literature on this topic using several techniques for estimating the size of the underground economy, but a widely cited pioneer in this field is Friedrich Schneider. The high percentages for some of these countries including developed countries such as Greece, Italy, Spain, and Portugal, to say nothing of less-developed countries suggest that many ordinary citizens earn their living in the underground sector. The obvious economic conclusion from these estimates is that the deadweight loss in Europe from inhibiting the shadow economy would therefore be considerably larger than in the United States.
After all, the most serious levels of tax evasion occur in less-developed countries, such as Brazil and India. Even in some relatively advanced economies, such as Greece and Italy, the underground economy exceeds 20 percent of GDP. He attempts to exclude criminal activity. This makes the dividing line between criminal and legal underground activity hazy. But here again, the only reason that drug cartels generate huge profits is that they supply products that consumers demand.
An economist, despite paternalistic disapproval of such preferences, should include in a complete welfare analysis the lost consumer surplus from any further hindrance to serving those preferences. Indeed, Rogoff does mention legalization of marijuana as a simpler approach for at least that part of the illegal drug trade. With respect to crime that represents bona fide predatory acts, such as extortion, human trafficking, violence associated with the drug trade, and terrorism, any gains from phasing out currency are particularly difficult to quantify and establish.
Almost all estimates of the scale of such crime include the drug trade broadly defined, rather than isolating the costs of predatory acts. As for corruption and bribery, he admits that these are really serious problems only in poorer countries—precisely where he also concedes that a premature elimination of cash would have devastating economic consequences.
With regard to terrorism, Rogoff concludes that eliminating cash would have, at best, minor effects. One major cost that opponents of cash take seriously is the lost government revenue from issuing cash—what economists refer to as seigniorage. There are two ways of measuring the resulting revenue. They are referred to as monetary seigniorage and opportunity-cost seigniorage. In long-run equilibrium, these are just two ways of estimating the same seigniorage, since the present value of the future stream of interest that government does not have to pay should equal the total value of the cash issued.
But to arrive at total lost seigniorage, one must employ both measures, because phasing out cash would both diminish future increases in currency and require the government to replace some existing currency with more government interest-bearing debt. Monetary seigniorage gives the best estimate of the expected lost revenue from future increases in currency, whereas opportunity-cost seigniorage tells us how much it would cost to eliminate existing currency.
Between and , the federal government averaged 0. To phase out all existing currency by replacing it with interest-earning Treasury securities would increase the U. Several factors could cause the calculation of lost seigniorage for the U. The real interest on government debt could be lower, as it has been since the financial crisis. It could be higher if, for whatever reason, market participants cease to view Treasury securities as riskless. If the future demand for new currency on the part of the public falls, then seigniorage would decline anyway, and therefore less of the loss could be attributed to phasing out cash.
The estimated loss also does not include any seigniorage arising from the reserves that banks hold on deposits at the Fed and can easily be converted into vault cash. But probably the most important potential mitigating factor is how much cash is ultimately phased out. If the U. In short, no matter how you play with these offsetting numbers from the increased taxes and lost seigniorage from phasing out cash, they do not seem to render significant net revenue gains.
True, some other developed countries, lacking a foreign demand for their currency, have much lower rates of seigniorage than the United States. Therefore, government losses in those countries if they phased out cash would be less severe than in the United States. But for other developed countries, rates of seigniorage are as high or higher than for the United States, either because of foreign demand or greater domestic currency usage. The resulting rates of monetary seigniorage as a percentage of GDP again ignoring the opportunity cost of phasing out existing cash are 0.
This is not surprising, given that a European Central Bank survey found that 32 percent of respondents usually pay with cash for transactions of euros and above, as noted above. Yet advocates of phasing out cash have so far ignored this effect on countries that have completely dollarized, using only U. The dollar once helped bring the Zimbabwe hyperinflation to an end, but it seems unlikely that the U.
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Indeed, it is unclear how this could even be accomplished in less-developed countries lacking adequate banking sectors. This is another factor that has not been adequately considered by those who advocate phasing out cash. And, in the absence of such evidence, we should take seriously the harm that could occur to those using dollars as a sanctuary from oppressive and corrupt governments if cash was phased out. Given that we have only guesses based on anecdotes about alternative uses of dollars abroad, it certainly is appropriate to quote a contrasting view from a correspondent who has commented on this debate:.
Dollars, for them, are a way of protecting their savings from the vagaries of the local currency. Yet the fact that people continue to demand and use hand-to-hand currency, both domestically and abroad, demonstrates that it still brings net benefits. For the United States, the only exception is pennies and nickels, which cost more to manufacture than their face value and therefore generate negative seigniorage.
After all, many alternatives to cash exist already—checks, debit cards, credit cards, Automated Clearing House transactions, mobile payment devices—and at the margin people are taking considerable advantage of them.
In the future, entrepreneurs will undoubtedly come up with innovations and cost cuts that make these alternatives even more attractive. But to prematurely force people into digitized electronic payments by eliminating nearly all cash, rather than allowing this transition to proceed through a spontaneous market process, will produce further welfare losses. Each individual sticks with cash so long as his trading partners do, and vice-versa.
Intervention can establish the digital-payments equilibrium that everyone agrees is better but has been blocked by the need for everyone to switch together. This is the implicit rationale of the BTCA in its advocacy of government compulsion to shift people in less-developed economies out of cash into digitized payment mechanisms. But this slow rate of adoption teaches us that collective action is necessary to drive transformational change.
But rather than offering any numbers or studies, he just assumes net gains. In fact, the validity of the negative externality justification for phasing out cash has never been explicitly demonstrated. Moreover, as unconvincing as this theoretical justification is for poor countries heavily reliant on cash, it is not actually applicable to developed countries with highly sophisticated banking and clearing systems.
A more fundamental issue is why governments monopolize the issue of currency at all. Why not permit banks to issue their own currency, as they did in the past? This was advocated by none other than Milton Friedman in one of his later writings. Indeed, a full and complete welfare analysis might arrive at the opposite conclusion of those who want to phase out cash: there may be too little currency in circulation rather than too much. This creates an unrecognized distortion inefficiently encouraging alternatives to hand-to-hand currency. These banknotes are not legal tender in England or even Scotland, but neither are Bank of England notes in Scotland, and yet the quantity of Scottish banknotes circulating as of amounted to 2.
Kurt Schuler has discovered that, within the United States, Congress has already inadvertently repealed the legal restrictions on private banknotes. In all likelihood, federal authorities would come down hard on any bank that tried to take advantage of this unintended legal loophole, and the private minting of coins is still prohibited.
Moreover, debit cards have made bank deposits nearly as easy to spend as banknotes once were. The second main argument for phasing out currency is that it would facilitate imposition of negative interest rates. The idea that a negative return on money might sometimes be desirable is not entirely new. It can do so by using its monetary tools to lower interest rates. Normally, all this requires is an expansionary monetary policy in which new money that is injected into the economy, along with the concomitant fall in interest rates, drives up spending.
But if interest rates are already extremely low, the public and the banks, rather than spending any newly created money, will tend to hold it and allow their cash balances to accumulate. Central banks can already charge a negative interest rate on the reserves that commercial banks and other financial institutions hold as deposits at the central bank. The practice, in turn, can put pressure on private banks to charge negative rates on their own depositors.
If the monetary authorities push negative rates down too far, however, the public can just flee into cash, with its zero nominal return. Banks can also do the same thing by replacing their deposits at the central bank with vault cash. Elimination of cash would close off this way of avoiding negative rates, making negative rates truly comprehensive and effective and thereby spurring increased spending. Reserve requirements on banks used to be common, but several central banks today—although not yet the Federal Reserve—have abandoned them.
They have done this in part as a response to the observation of economists that required reserves are an indirect tax on banks, which makes the banks hold more non-interest-earning assets than they otherwise would. So, another way of thinking about negative rates on reserves is as a direct, rather than indirect, tax on banks. In fact, Rogoff frequently describes negative rates as a tax on money. If negative interest rates were to be imposed long enough, governments could generate revenue and partly offset the seigniorage lost from restricting cash. Negative rates thus reverse the causal chain of traditional monetary theory, which focuses on the money stock.
To the extent monetary expansion increases spending, it causes higher inflation with its implicit tax on money. Negative interest rates, in contrast, would directly tax money in order to cause increased spending with higher inflation. I explore the importance of this difference below. The growing scholarly literature on the zero bound has reached no consensus about whether it is a pressing problem for standard monetary policy.
We therefore need to address four questions about directly taxing money with negative rates. First, is the policy needed? Second, will the policy work? Third, is the policy more effective than alternatives for achieving the same goal? And fourth, does the policy avoid additional downsides that would make it risky or dangerous? Are negative interest rates needed? Although the persistence of low interest rates, low inflation, and slow growth after the recent crisis still raise the specter of the zero lower bound, there is little agreement among economists about the causes and seriousness of those prolonged trends.
A more germane issue is whether the zero bound constrains monetary policy at all. Yet Milton Friedman and Anna Schwartz, in their classic Monetary History of the United States , demonstrated that during the Great Depression, when massive banking panics caused the total money supply to collapse, the Federal Reserve made no effort to counteract the decline by increasing that segment of money it directly controlled: the monetary base.
The surviving banks did increase their reserves, but the major reason for the fall in the broader money supply was the widespread disappearance of bank deposits. Because of concerns about inflation as Bernanke divulges in his memoirs , the Fed sterilized its bailouts of the financial system during the early phase of the financial crisis, selling off Treasury securities to offset any effect on the monetary base.
When the Fed finally orchestrated its large-scale asset purchases in October , it did so mainly by borrowing the funds in one of three primary ways: through a special supplementary financing account from the Treasury; through short-term, collateralized loans from financial institutions known as reverse repos; and most important, through paying interest on bank reserves for the first time. When the Fed thus borrows money and then reinjects it back into the economy, it is not in any real sense creating new money.
Interest-earning reserves, in particular, encouraged banks to raise their reserve ratios rather than expand their loans to the private sector. This newly implemented monetary tool acting as a substitute for minimum reserve requirements therefore ended up lowering the money multiplier at the same time the Fed was increasing the monetary base. Looked at from another angle, the Fed became the preferred destination for a lot of bank lending, borrowing from the banks by paying them interest on their reserves in order to purchase other financial assets.
Almost the entire explosion of the monetary base constituted this kind of de facto borrowing. Such financial intermediation can have no more effect on the broader monetary aggregates than can the pure intermediation of Fannie Mae or Freddie Mac. In short, quantitative easing hardly entailed massive money printing, as so many have characterized it. Other central banks that dabbled in so-called quantitative easing did so later than the Fed, and with similar impediments.
The European Central Bank ECB , being particularly concerned about inflation at the outset of the financial crisis in late and early , initially conducted an even tighter monetary policy than the Fed. Only with the European debt crisis did the ECB in begin its first round of quantitative easing, at a time when it was still continuing its long-standing policy of paying interest on reserves. And it did not drop the positive interest on its required reserves to zero until March The Liquidity Coverage Ratio is more complicated than reserve requirements, but it, too, can induce banks to hold more reserves than they otherwise would.
Instead, it was not actually tried. Will negative interest rates work? As Stephen Williamson, formerly at the St. They have been almost entirely confined to negative rates on bank reserves, and usually only excess bank reserves. To determine how well negative rates might work, we must take up more theoretical issues. To the extent that central banks affect interest rates in positive territory, they do so with open-market operations or their equivalent, resulting in changes to the monetary base and bank reserves. But the very reason the zero bound is considered a problem is that these tools presumably do not work as well, if at all, in negative territory.
Negative rates, in contrast, can be imposed and managed simply by taxing bank reserves. They therefore require no concomitant open-market purchases or sales and therefore place no automatic market constraints on how far down the monetary authorities push negative rates. At first glance, this operational asymmetry would seem to make taxing money more powerful than open-market operations. Yet the operational asymmetry between the two leads to an asymmetry in how they bring about changes in spending.
Unlike open-market operations that affect the supply of money, negative interest rates affect the demand for money. In contrast to constant money growth, which can generate sustained inflation, any increase in velocity induced by plunging into negative rates should have only a level effect, generating at best a one-shot rise in the price level. Admittedly, if the rate at which money balances are taxed continually rises, the central bank could, in theory, produce sustained inflation. But none of the advocates of taxing money appear to have in mind a policy that continually pushes negative rates lower and lower.
This difference suggests that negative rates should have weaker effects than monetary growth has. Rogoff expects that negative rates might need to be in place for a year or two for them to achieve even this limited effect on spending. Once monetary growth is under control, the velocity boost always ceases.
To be truly effective at increasing the rate of inflation, rather than just an unsustained spending bulge, a negative-rate policy would likewise require accompanying monetary expansion. But if monetary expansion is doing the real work anyway, why is a tax on money needed at all? This leads to the most plausible argument that advocates of negative interest rates can make.
By acknowledging that, yes, monetary expansion does the real work, they can contend that negative rates will simply make issuing money through open-market operations more effective. In other words, any increase in the monetary base required to stimulate spending will be more modest with negative interest rates than without them. While this is likely true, the crucial question is how much more modest. The evidence so far from the experience with negative rates on bank reserves has hardly been encouraging. Even if it had been, that result would ironically undermine the urgency of taxing money generally.
The question thus remains: Why couple negative rates on bank reserves with such an encompassing and extreme policy as eliminating cash when the effectiveness of negative rates is unproven? If the primary concern is that banks would pile up reserves in the form of vault cash, there are far less encompassing options for discouraging that, such as limiting or imposing negative rates on vault cash. There are other perspectives from which to challenge the efficacy of negative interest rates. Although an expansionary monetary policy is generally thought to push interest rates down in the short run, to the extent that the policy increases the rate of inflation, it does the opposite in the long run, increasing nominal interest rates.
This long-run impact is known as the Fisher effect. As people expect higher inflation, they drive nominal rates up to keep real interest rates roughly constant. The confusions about the symmetry between positive and negative interest-rate policies, as well as the misconceptions about quantitative easing mentioned above, stem from the current focus on interest rates as the sole target and indicator of central bank policy.
Are negative interest rates more effective than alternatives for achieving the same goal? We noted above, when explaining the apparent impotence of quantitative easing, that so long as the central bank expands the monetary base with newly created money rather than recycling funds through financial intermediation, it can eventually hit any inflation target it chooses. Subsequently, many economists have accepted a requirement for some coordination with fiscal policy. The Fed has already purchased mortgage-backed securities, and other central banks have extended their acquisitions still more broadly, some even purchasing equities.
Although far from ideal, such limited, and hopefully temporary, expansion of central-bank involvement in credit markets would be less invasive than an untested, all-embracing tax on money. A host of other ways of dealing with the zero bound have been proposed. These proposals have spawned a vast literature that need not detain us. For those interested, Rogoff systematically reviews these alternatives in The Curse of Cash , where he persuasively argues that none are simultaneously attractive and effective.
In the final analysis, neither phasing out cash nor the other assorted alternatives that Rogoff dismisses would be both as simple to implement and as powerful in their effect as a straightforward monetary injection. Do negative interest rates avoid any additional downsides that would make them risky or dangerous? Although some people have raised concerns about the effect of negative rates on lending generally and on the viability of such financial institutions as banks, pension funds, and money market funds, these concerns mostly derive from negative rates imposed only on bank reserves, with cash still widely available.
Presumably, in this world the tax on money would impinge on nearly all lenders and borrowers across the board, except those with small exempt accounts or those who are holding the remaining cash and coins. No one to my knowledge has systematically worked out how financial intermediation would function in this world, either in the short term or long run.
It is even unclear whether nominal interest rates generally would turn negative. What is to prevent the same outcome from an explicit tax on money that is more akin to a near-universal service fee for deposit balances? Negative interest rates in a cashless economy end up giving an unelected regulatory body discretionary power to tax money. Let us grant for a moment that the phasing out of all but small-denomination notes would accomplish what proponents claim: a marked reduction in crime, particularly bona fide predatory acts.
Would it still be desirable? Not necessarily. We must consider whether that benefit offsets the harm to those who use cash for perfectly legitimate or benign reasons. We have already seen above that no one has quantitatively estimated the welfare loss to these users of cash.
But there are further political-economy considerations that go beyond a strict cost-benefit analysis. Even when gains appear to be greater than losses, we should still hesitate about policies that punish or severely inconvenience the perfectly innocent. Thus, government cannot regulate past a certain point.
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Indeed, one could argue that the underground economy is often a more effective check on government abuses than voting itself. Voting encounters well established free-rider problems, fostering rational ignorance about political choices, all of which is amplified by confronting voters with, at best, a packaged bundle of usually unrelated policies. The underground economy, in contrast, allows citizens to focus their grievances on particular government interventions that they understand from firsthand experience.
And the fact that the risk associated with their illegal or unreported transactions imposes a real cost dramatically demonstrates their genuine preferences, in stark contrast to pulling a lever or checking a box in a voting booth, which is virtually costless and inconsequential on an individual basis. Would alcohol prohibition in the United States have been repealed without widespread evasion by countless Americans?
Would the United States be belatedly moving to marijuana legalization without the escape mechanism of the underground economy? But as noted above, those in favor of restricting cash offer no more than emotionally charged impressions about the magnitude of these acts compared to harmless or beneficial uses of cash.