The Cato Institute

The Most Prominent Arguments For Banning Cash — And Why They’re Wrong

The arguments for phasing out cash or confining it to small denomination bills are, when not entirely mistaken, extremely weak…

Many have argued that banning or restricting use of cash will reduce criminal transactions within the underground economy. However, just how much underground economic activity constitutes truly harmful criminal acts, as opposed to productive activities that evade taxes or other regulations but nonetheless increase social welfare, is unclear. Further, the likely effects of a cash ban on genuinely predatory activities such as extortion, human trafficking, drug-related violence, and terrorism are extremely difficult to quantify. 

Economist Friedrich Schneider estimated that even a complete phasing out of cash would only shrink the underground economy by 10-20 percent. Yet high-denomination bills still account for a substantial volume of licit transactions, so even a ban limited to such high-denomination bills could harm many innocent persons.

Phasing out cash would have a particularly negative effect on the unbanked, including many poor and vulnerable persons, who might find themselves still further excluded from the modern economy. Anti-cash advocates who recognize this admit that any plan to phase out use of cash would have to include corresponding efforts to provide such persons with basic debit cards, if not with smartphones, at a cost that one estimate puts at $32 billion. Phasing out cash would particularly affect illegal immigrants, drastically cutting their labor contributions and creating additional deadweight loss for the U.S. economy. Internationally, a ban on cash would harm those who use U.S. dollars as a refuge for value, sheltering their savings from the influences of unstable currencies and corrupt governments.

Advocates of phasing out currency also see it as a means of allowing monetary authorities to implement negative interest rate policies. Negative rates could then be imposed on all money holders, acting as a direct tax on their money monetary balances. The necessity of this tool is questionable at best – there are only three instances in the past quarter century where negative interest rates could possibly have been helpful, hardly meriting the extreme measure of eliminating cash. Negative interest rates in a cashless economy end up giving an unelected regulatory body discretionary power to tax money and would require massive restructuring of financial institutions and norms.

Finally, most arguments for doing away with cash ignore the public-choice dynamics of the myriad regulations that such a reform would require. Even if banning cash produced benefits such as a reduction in crime, do those benefits offset the harms and costs to those who use cash for legitimate reasons? Consideration should be given to alternative means for preventing crime and tax evasion that do not cast their web so widely.

In short, none of the arguments favoring restrictions on cash withstand close scrutiny.

It is the advocates of restricting hand-to-hand currency who bear the burden of proof for such an extensive reshaping of the monetary system, no matter how cautiously or slowly implemented and no matter whether all cash is eliminated or just large-denomination notes. 

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Midterms Result in the Most Pro-Immigration House of Representatives in Over a Century

Could the midterm elections spell good news for much-needed immigration reform?

In this election, journalists following the immigration beat will focus on the outcomes of individual races. Dave Brat, the Virginia nativist whose defeat of House Majority Leader Eric Cantor in 2014 doomed hopes of immigration reform, lost in a previously safe GOP seat. Democrats blew out Corey Stewart in Virginia and Lou Barletta in Pennsylvania, the most anti-immigrant Senate candidates. Kris Kobach, the author of state anti-immigrant laws across the country, cost Republicans the governorship in Kansas.

But, when it comes to immigration, the two most important outcomes of this election are in the big picture. 

First, nativists have officially squandered their last, best chance to restrict legal immigration. There may never be another moment like the one in 2017 and 2018, where the House, Senate, and White House were all controlled by Republicans with nativist agendas. They held multiple votes in the House and Senate on various measures to make legal immigration cuts, and all their efforts went down in flames.

The second outcome is even more important: the House of Representatives is now the most pro-immigrant that it has been since the 19th century. Current House Democrats would not only pass the broadest legalization in the history of the United States — they also would greatly expand legal immigration. No elected House Democrat is opposed to legalization, even if they would want it paired with some enforcement measures.

Better yet, this House will have the backing of the most pro-immigration general public in recorded history. More Americans oppose cuts to immigration and favor expanded immigration than at any point since at least 1965. 

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Permission to Work

In the 1950s, 1 in 20 U.S. workers needed government permission to work. Today licensing has ballooned to 1 in 4 workers…

The story of state occupational licensing is the same across most occupations. Insiders want to block outsiders — people they deem less professional — from practicing their occupation. Thus, they lobby state legislators or licensing boards to restrict entry into the occupation.

Licensing advocates will typically argue that requiring a state license is necessary to guarantee quality or to protect public health and safety from unprofessional or dangerous workers. However, advocates lobby vigorously to protect their turf by creating barriers to entry with scant evidence that those barriers will improve quality, public health, or public safety. Once an occupation is licensed, workers are motivated to increase the costs to outsiders by changing requirements to include more hours of education, higher grades to pass exams, or increased fees. 

Unlicensed workers operating in the shadow (or informal) economy have a harder time standing up to such threats. Those workers will earn less than they could out in the open. Hiring employees and paying taxes might expose them as unlicensed operators. 

Licensing harms consumers by increasing the price of services and decreasing innovation — without ensuring quality. Consumers may purchase fewer services. Consumers who choose to save money by hiring unlicensed practitioners may face fewer legal protections. And people who chose to save money by performing potentially dangerous work themselves, like electrical work, place themselves at a greater risk of harm.

On top of those tradeoffs, consumers still face the costs of finding reputable service providers, despite claims that occupational licensing establishes professionalism and quality. Remember experiences you may have had with a bad haircut, a slow home contractor, an angry nurse, or a painful dental procedure.

Licensing is not a substitute for reputation. Word of mouth is a typical method for finding quality service providers, even in licensed occupations. Today it is easier than ever to find a provider who will best fit your needs. Technology reduces search costs through website reviews from Yelp, Angie’s List, and TripAdvisor, for example, and through crowdsourcing on sites like Facebook and Reddit.

In addition to failing to ensure quality, there is little to no evidence that occupational licensing improves health and safety outcomes for consumers. And consumers do not require occupational licenses to feel safe.

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Jamal Khashoggi’s Death Is the Latest Chapter in A 300-Year War

Prominent Saudi journalist Jamal Khashoggi’s suspected murder, and its aftermath, is the latest battle of a 300-year war over Sunni Islam…

The apparent abduction, and probable murder, of the prominent Saudi journalist Jamal Khashoggi at the Saudi consulate in Istanbul on Oct. 2 unmasked the ugly despotism behind the reformist image of the kingdom’s crown prince, Mohammed bin Salman. 

The U.S./Saudi relationship should be under the microscope like never before following Khashoggi’s probable death. 

Less noticed, however, is the way this scandal revealed a long-running rivalry between the two countries that directly butted heads at the outset: Turkey and Saudi Arabia.

This is a story that goes back to the 18th century. Then, much of what we call “the Middle East” today, including the more habitable part of the Arabian Peninsula, was part of the Ottoman Empire, ruled from Istanbul, then called Constantinople, by a cosmopolitan elite of mainly Turks and Balkan Muslims, including Bosnians and Albanians. The Hejaz, the western region of the Arabian Peninsula that included the holy cities of Mecca and Medina, was revered for religious reasons, but it was a backwater with no political or cultural significance.

In the 1740s, in the most isolated central area of the Arabian Peninsula, called Najd, a scholar named Muhammad ibn Abd al-Wahhab emerged with a fiery call for the restoration of “true Islam.” Wahhab soon allied with a chieftain called Ibn Saud—the founder of the Saudi dynasty.

The First Saudi State they established together grew in size and ambition, leading to a big massacre of Shiites in Karbala in 1801 and the occupation of Mecca in 1803. The Ottomans crushed the Wahhabi revolt in 1812 via their protectorate in Egypt, and Wahhabism retreated to the desert.

Another tumult in Hejaz occurred in 1856 when the Ottomans, thanks to the influence of their British allies, introduced another heretical “innovation”: the banning of slave trade, which was then a lucrative business between the Africa coast and the Arabian city of Jeddah. At the behest of angry slave traders, Grand Sharif Abd al-Muttalib of Mecca declared that Turks had become infidels and their blood was licit. As we learn from the chronicles of Ottoman statesman Ahmed Cevdet Pasha, Turks’ sins included “allowing women to uncover their bodies, to stay separate from their fathers or husbands, and to have the right to divorce.”

These were the changes introduced during the Tanzimat, the great Ottoman reform movement in the mid-19th century by which the empire imported many Western institutions and norms. The Tanzimat allowed the Ottoman Empire to ultimately become a constitutional monarchy with an elected parliament—something still unimaginable in the absolute monarchy of Saudi Arabia. It also allowed the rise of the modern Turkish Republic, where secular law became the norm, women gained equal rights, and democracy began to grow.

Today, admittedly, Turkey became the home of jailed journalists, crushed opponents, hate, paranoia, and a new cult of personality that has been called “Erdoganism.” Yet Erdogan and his fellow Islamists are still Turkey’s Islamists—that is, compared with Saudi Arabia’s elites, they are still operating within a more modern framework that reflects a milder interpretation of Sunni Islam.

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Immigrant Wages and Economic Assimilation

The American Dream is still alive: America’s overly generous welfare state has not stopped immigrants from assimilating into the U.S. economy…

The degree and speed at which immigrant wages converge with the wages of native-born Americans are important indicators of economic assimilation. 

According to new research from Cato scholars, newly arrived immigrants have wages lower than otherwise identical natives, but those wage differences diminish greatly or disappear entirely after about two decades of working in the United States. 

Over time, the wages of immigrants converge with those of similar U.S.-born Americans. While illegal immigrants never close that gap, providing these workers with legal status would allow them to demand the same wages as similar American workers. 

The fact that immigrants tend to achieve the same or greater levels of economic prosperity in the United States shows that the American Dream is still alive and that America’s overly generous welfare state has not stopped immigrants from assimilating into America’s economy.

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Global Economic Freedom Up Slightly

For the first time in almost a decade, the United States  ranks within the top ten economically freest countries…

The Economic Freedom of the World — an annual report, co-published by the Cato Institute, the Canada-based Fraser Institute, and the Economic Freedom Network, a group of independent research and educational institutes in nearly 100 nations and territories worldwide — seeks to measure the consistency of the institutions and policies of various countries with voluntary exchange and the other dimensions of economic freedom.

Based on data from 2016 (the most recent year for which comparable data is available), the report is the world’s premier measurement of economic freedom, using 42 distinct variables to create an index ranking countries around the world based on policies that encourage economic freedom.

Economic freedom is measured in five different areas: (1) size of government, (2) legal system and property rights, (3) access to sound money, (4) freedom to trade internationally, and (5) regulation of credit, labor, and business.

Each country is rated on a 0-10 scale where a higher value indicates a higher level of economic freedom.

The United States returned to the top 10 with the 6th freest economy after an absence of several years, with an overall rating of 8.03, according to the 2018 Index.

“The increase in the United States’ economic freedom score is welcome, but it remains notably below the level it enjoyed at the beginning of this century,” said Ian Vasquez, director of the Center for Global Liberty and Prosperity at the Cato Institute.

During the 2009-2016 term of President Obama, the U.S. score initially continued to decline as it had under President Bush. From 2013 to 2016, however, the U.S. increased its rating from 7.74 to its current standing. This is still well below the high-water mark of 8.62 in 2000 at the end of the Clinton presidency.

Hong Kong and Singapore occupy the top two positions. The next highest scoring nations are New Zealand, Switzerland, Ireland, United States, Georgia, Mauritius, United Kingdom, Australia and Canada, the last two tied for 10th place. Venezuela is again ranked as the lowest in economic freedom out of the countries of this year’s report. 

The rankings of some other major countries are Germany (20^th), Japan (41^st), Italy (54^th), France (57^th), Mexico (82^nd), Russia (87^th), India (96^th), China (108^th), and Brazil (144^th).

Three new countries — Belarus, Iraq, and Sudan — were added to the Index this year, bringing the total number of jurisdictions measured to 162. The Index also integrates differential legal treatment according to gender, thus taking into account the fact that women do not have the same level of economic freedom as men do in all nations.

”Women benefit from greater economic freedom as there is greater gender equality in countries that are more economically free,“ continued Vasquez.

The cornerstones of economic freedom include personal choice, voluntary exchange, freedom to enter markets and compete, and security of the person and privately owned property. The data shows people living in countries with high levels of economic freedom enjoy greater prosperity, more political and civil liberties, and longer life spans.

Nations in the top quartile of economic freedom had an average per capita GDP of US $40,376 in 2016, compared to $5,649 for bottom quartile nations. Moreover, the average income of the poorest 10% in the most economically free nations is almost twice the average per capita income in the least free nations. Life expectancy is 79.5 years in the top quartile compared to 64.4 years in the bottom quartile, and happiness levels are much higher in economically free nations than in unfree nations.

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Banned Books and Educational Freedom

This week is Banned Books Week. Freedom is certainly at stake in all this, but not the way most anti-banners would have you think…

The American Library Association is the primary champion of Banned Books Week, and the group’s website spells out why we are supposed to be outraged. “Banned Books Week is the national book community’s annual celebration of the freedom to read,” it says. The week’s goal is to “draw attention to the problem of censorship by mounting displays of challenged books and hosting a variety of events.”

Basically, we’re supposed to be incensed over people who say “I don’t think anyone should read that,” and then try to destroy the offending books Fahrenheit 451 style. The thing is, for the most part such outright censorship efforts don’t exist. No, most challenges are from parents or taxpayers who don’t want their kids reading or accessing material in public schools that they find offensive, or don’t want objectionable books in the libraries for which they must pay.

The real issue isn’t protecting books from those who would banish them for eternity. It is that public institutions select books in the first place. The instant such a selection is made freedom is already compromised.

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