Best of the Week
Most Popular
1. Market Decline Will Lead To Pension Collapse, USD Devaluation, And NWO - Raymond_Matison
2.Uber’s Nightmare Has Just Started - Stephen_McBride
3.Stock Market Crash Black Swan Event Set Up Sept 12th? - Brad_Gudgeon
4.GDow Stock Market Trend Forecast Update - Nadeem_Walayat
5.Gold Significant Correction Has Started - Clive_Maund
6.British Pound GBP vs Brexit Chaos Timeline - Nadeem_Walayat
7.Cameco Crash, Uranium Sector Won’t Catch a break - Richard_Mills
8.Recession 2020 Forecast : The New Risks & New Profits Of A Grand Experiment - Dan_Amerman
9.Gold When Global Insanity Prevails - Michael Ballanger
10.UK General Election Forecast 2019 - Betting Market Odds - Nadeem_Walayat
Last 7 days
FOMC Minutes Reveal an Important Shift That’s Key for Gold, Too - 22nd Nov 19
Adaptive Predictive Modeling Suggests Stock Market Weakness Into 2020 - 22nd Nov 19
Why You Should “Follow the Money” on The Yellow (and Silver) Brick Road - 22nd Nov 19
This Invisible Tech Stock Threatens Amazon with 800,000+ Online Stores - 21st Nov 19
Crude Oil Price Begins To Move Lower - 21st Nov 19
Cracks Spread in the Precious Metals Bullion Banks’ Price Management System - 21st Nov 19
Why Record-High Stock Prices Mean You Should Buy More - 20th Nov 19
This Invisible Company Powers Almost the Entire Finance Industry - 20th Nov 19
Zig-Zagging Gold Is Not Necessarily Bearish Gold - 20th Nov 19
Legal Status of Cannabis Seeds in the UK - 20th Nov 19
The Next Gold Rush Could Be About To Happen Here - 20th Nov 19
China's Grand Plan to Take Over the World - 19th Nov 19
Interest Rates Heading Zero or Negative to Prop Up Debt Bubble - 19th Nov 19
Plethora of Potential Financial Crisis Triggers - 19th Nov 19
Trade News Still Relevant? - 19th Nov 19
Comments on Catena Media Q3 Report 2019 - 19th Nov 19
Venezuela’s Hyperinflation Drags On For A Near Record—36 Months - 18th Nov 19
Intellectual Property as the New Guild System - 18th Nov 19
Gold Mining Stocks Q3’ 2019 Fundamentals - 18th Nov 19
The Best Way To Play The Coming Gold Boom - 18th Nov 19
What ECB’s Tiering Means for Gold - 17th Nov 19
DOJ Asked to Examine New Systemic Risk in Gold & Silver Markets - 17th Nov 19
Dow Jones Stock Market Cycle Update and are we there yet? - 17th Nov 19
When the Crude Oil Price Collapses Below $40 What Happens? PART III - 17th Nov 19
If History Repeats, Gold is Headed to $8,000 - 17th Nov 19
All You Need To Know About Cryptocurrency - 17th Nov 19
What happens To The Global Economy If Oil Collapses Below $40 – Part II - 15th Nov 19
America’s Exceptionalism’s Non-intervention Slide to Conquest, Empire - and Socialism - 15th Nov 19
Five Gold Charts to Contemplate as We Prepare for the New Year - 15th Nov 19
Best Gaming CPU Nov 2019 - Budget, Mid and High End PC System Processors - 15th Nov 19
Lend Money Without A Credit Check — Is That Possible? - 15th Nov 19

Market Oracle FREE Newsletter

$4 Billion Golden Oppoerunity

How Government Forces the Poor Into Black Markets

Economics / Government Intervention Jul 01, 2014 - 10:13 PM GMT

By: MISES

Economics

Peter St. Onge writes: From the left we often see tension between those who want to help the poor, and those who want to help the government. One recent example of this is the proposal to ban cash forwarded by Harvard’s Ken Rogoff.

The gist of Rogoff’s beef with cash is that cash fuels the black market, and it makes it harder for the government to push negative nominal interest rates. In both cases, Rogoff doesn’t even get that he’s describing benefits of cash, not problems to be solved.


The fact that cash enables black market transactions is one of its greatest benefits to the poor and undercapitalized. The poor cannot afford to navigate regulatory thickets installed by bored bureaucrats on behalf of the powerful. The choice, then, is to set up an informal, cash-based business, or none at all. Recent debates over Uber’s taxi-services or Mom-and-Pop hair braiding remind us of the never-ending roadblocks placed in the way of entrepreneurs, and especially small entrepreneurs, by government. Indeed, without government who would harass small business? Government definitely built that.

The victims of this arbitrary harassment are disproportionately small businesses, who lack the ability to write checks to political godfathers. We will never know how many businesses are not started In the face of regulatory costs: those unstarted businesses are like the unbought alternatives in Bastiat’s parable of the broken window. The number is certainly large.

In 2011 the Kauffman Foundationfoundthat 54 percent of Americans aged 18-34 either want to start a business or already have started one. Meanwhile, in a study by oDesk and Millennial Branding, 35 percent of 18-35 year-olds have started a business, while a full 72 percent would like to quit their jobs and start a business. We’re not talking a small group here. We’re talking about most Americans. Translating into terms politicians understand, we’re talking most voters.

Cash, of course, lets these people start businesses free of regulatory harassment. It’s an efficient system, actually; you start an informal cash-based business, braiding hair or designing websites. You’re paid under the table, so you can skip the regulatory costs. Meanwhile, as you do get bigger, opening franchises city-wide, say, you will need to register and pay those costs. But you’re now big enough to absorb them better.

In other words, black-market business is the “venture capital” industry of the poor and young. Cash provides early-stage immunity from regulatory burdens that would otherwise strangle small entrepreneurs.

The second part of Rogoff’s complaint moves us to the economy-wide level. He wants negative interest rates, and blames cash for making this harder. Here Rogoff betrays his ignorance of the rich classical and Austrian literature on business cycles. Outside the Keynesian reality distortion field, in real economics, it’s precisely government-managed low interest rates that cause the business cycle. Money’s too cheap, dumb projects get funded, and those dumb projects turn out to be unsustainable.

Since he doesn’t understand classical economics, Rogoff thinks he’s pushing for some free lunch sugar-high, when what he’s really asking for is a magnification of business cycles. He might think whether the next recession/depression really should be magnified by ever-lower rates.

Rogoff’s cashless society is aimed squarely at kneecapping the poor. He would stamp out early-stage small business, especially the resource-poor start-ups that are often the best way up for the poor and the young. Obviously, this would increase inequality, raise poverty and trim prosperity. Of course, if types like Rogoff manage to knock out an important rung from the ladder to the middle class, you can be sure they will reflexively blame the destruction on the rich or, better, greedy GOP billionaires. It’s the standard socialist pattern — destroy the poor then blame the rich. “Accelerating the contradictions,” as Lenin put it.

We’ll see much worse if Rogoff gets his way on interest rates; more extreme cycles, with the poor, as usual, taking the most savage hits in the downturns. Again, types like Rogoff will be ready with talk of Chinese savings or internet price compression, whatever fashionable explanation lets Harvard econ off the hook for not reading their Mises and Hayek.

Peter St. Onge is a Summer Fellow at the Mises Institute and an Assistant Professor at Taiwan's Fengjia University College of Business. He blogs at www.profitsofchaos.com. See Peter St. Onge's article archives.

© 2014 Copyright Peter St. Onge - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules