Tuesday, November 21, 2017

No, Rand Paul Didn’t Have It Coming

No, Rand Paul Didn’t Have It Coming



I read Elie Mystal’s article on Rand Paul’s assault, which suggests such violent encounters are the inevitable result of libertarianism in practice. He makes two errors. First, he contends Rand Paul ignores the rules of his HOA based on his libertarian philosophy. Second, he contends basing a legal framework on the libertarian non-aggression principle (NAP) is unworkable.

Private Contracts

Regarding the first error, libertarianism is based on the sanctity of voluntary contracts. An HOA is a perfect example of what libertarians would replace zoning regulations with – an enforceable contract voluntarily entered into by every individual, instead of a set of rules imposed on the whole by a supposed majority. Mystal conflates voluntary contracts with regulations near the end of his piece, writing, “Rand Paul’s broken ribs are a g**damn case study in why we need regulations.” This begs the question, “Why do we need regulations, rather than just enforcement of the HOA?”

 

Neither Mystal nor I know the terms of Rand Paul’s HOA contract, but if they prohibit either pumpkin patches or compost heaps, then Rand Paul appears to be in violation of that contract. Libertarians would side with the HOA, not Rand Paul. However, the HOA contract also provides penalties for violation of the terms, which I’m fairly certain don’t include bum-rushing him and breaking his ribs.

This all assumes there is any truth to reports Senator Paul used his property in ways his neighbors found offensive, whether compliant with the letter of his HOA agreement or not. Several of his neighbors have come forward since Mystal’s piece was written to refute those reports.

Even in the absence of a written agreement, libertarians recognize longstanding local conditions as binding on new property owners. Thus, I cannot come into a quiet community and build an airport on my land, subjecting my neighbors to the noise and other inconveniences of having an airport border their land. By the same token, I cannot buy the land next to an existing airport and then demand the airport stop making noise or doing the other things an airport must do to conduct its business. This principle extends to all sorts of questions, including air pollution, zoning, etc. Murray Rothbard wrote about this concept many times. Here is an example.

The Non-Aggression Principle

Second, Mystal’s article includes this passage:
You can do what you want and I can do what I want and, so long as we’re not hurting anybody, the government can do nothing.” It’s… cute, as theories of social interactions go. It’s not a workable basis for law and governance.
I would refer the writer to this passage from Thomas Jefferson’s First Inaugural address:
With all these blessings, what more is necessary to make us a happy and a prosperous people? Still one thing more, fellow-citizens — a wise and frugal Government, which shall restrain men from injuring one another, shall leave them otherwise free to regulate their own pursuits of industry and improvement, and shall not take from the mouth of labor the bread it has earned. This is the sum of good government, and this is necessary to close the circle of our felicities. [emphasis added]
In fact, Jefferson reiterated the NAP as the basis for law and governance many times over the course of his life. Examples include thisthis and this.

Rather than a “cute theory of social interaction,” the NAP was the guiding principle of American liberty for well over a century until Woodrow Wilson specifically called it out as no longer adequate for what he considered too complex a society for the NAP to govern. Libertarians disagree with Wilson. Mystal may not. But it would be a much more valuable discussion if libertarianism would at least be represented correctly when criticized, rather than presented in the cartoonish fashion our sound bite media so often resort to.

Reprinted from tommullen.net


Tom Mullen


Tom Mullen is the author of Where Do Conservatives and Liberals Come From? And What Ever Happened to Life, Liberty and the Pursuit of Happiness? and A Return to Common  Sense: Reawakening Liberty in the Inhabitants of America. For more information and more of Tom's writing, visit www.tommullen.net.

This article was originally published on FEE.org. Read the original article.

Monday, November 20, 2017

The Government Is Lying to Us About Cybersecurity

The Government Is Lying to Us About Cybersecurity


In a press conference, Deputy Attorney General Rod Rosenstein stated that the “absolutist position” that strong encryption should be, by definition, unbreakable is “unreasonable.”

The DOJ is lying about three things:

First

The US government works against the security of businesses. Just this week, I had to tell Apple that my iPhone app did not have certain kinds of encryption that the U.S. government has export control on. Encryption export controls cripple the security and innovation of software products made by American businesses.  

Furthermore, the U.S. government hoards software exploits so it can hack into your computer rather than publish them that so companies can patch their products. The NSA intentionally sneaks weaknesses into protocols and bribes businesses to add holes to security products so it can steal the data of their customers.

When businesses want to improve the security of their products, they offer rewards for exploits – Microsoft pays up to $250,000 per exploit, Facebook has paid $40,000, and so on. The NSA purchases millions of dollars of exploits from hackers and uses them to spy on the entire world, including U.S. citizens. Unfortunately, the NSA is incompetent at keeping secrets, so it lost their exploit database and caused millions of computers to be infected and hijacked with the exploits they hoarded.

The hardware and software pieces of both the Internet and individual user’s computers are made by private companies. There is nothing the U.S. government can do to improve “cybersecurity” other than prosecuting criminal behavior.  However, the U.S. government prosecutes a minuscule proportion of cybercrime.  Whether it is unable or unwilling to punish criminals, the reality is that the only “cybersecurity” that the government cares about is its ability to conduct surveillance and attacks on foreign and domestic political targets.

Second

The idea that “strong security” is compatible with a government backdoor is a lie. Any security expert can tell you that a backdoor leaves your product vulnerable, even if you trust the government agency with the key. Previous backdoors advocated by the US government have been blown wide open by security experts. There is near-universal agreement among security experts that government backdoors and security are not compatible – a reality that the DOJ continues to ignore.

Third

It is not true that the government wants to weaken American’s security to protect against crime or terrorism. Their real motivation has always been power and money: they want to monitor the flow of information in order to prevent people from hiding their wealth and use their secret keys and vulnerability stash to intimidate and blackmail other countries into compliance with U.S. policies. This is why the U.S. intelligence budget of over $75 billion did not prevent most American’s personal details from being leaked, but U.S. citizens who do not report foreign bank accounts (under FACTA) can be fined $250,000 or 5 years in jail even if they have never stepped foot in the USA.

Reprinted from The Ungoverned


David L Veksler


David Veksler is the Director of Marketing at FEE.

This article was originally published on FEE.org. Read the original article.



Friday, November 17, 2017

Money, It Turns Out, Is a Practical Art

Money, It Turns Out, Is a Practical Art

If you read on the topic of money’s history from any mainstream textbook, you will already know the drill. In the past, money took many forms. It was shells, pelts, salt, and various metals. Finally we got paper money, credit institutions, then central banks. At this point, we are told, history was complete. The final and best form had arrived.

The state would be in charge of money forever. All that was left was to have it managed in a way that better served our needs. People argued about systems of government management. Maybe a rule of some sort, based on quantity or the gold price or some other scheme. The system can be reformed, but the idea of treating money as a technology to be managed by the market – well, let’s just leave that to utopians like F.A. Hayek.

Frozen in Place

 

But look what actually happened. From the time when money came to be nationalized by the state and managed by central banks, roughly 100 years ago, the improvements stopped. Everything else got better: cars, flight, communication, homes, indoor environments, distribution of all essentials from food to clothing to finance. What did not improve was the money itself. In fact, it became worse.

This is for a reason. The nationalization of money froze it in place. It was no longer subject to the pressure that free enterprise places on everything else. It was the great exception (there were other exceptions too, like schools and courts). It was stuck. In the 21st century, we were using the same core money technology as we were using in the early part of the 20th century. Hardly anyone thought anything of it. Surely we had come to the end of history.

The consequences were not only that money never got better. The nationalization of money led to a huge increase in government debt, wild swings in credit cycles, inflation, and even war because government no longer had to tax people for funds but rather could print it without limit. All of this ended up eating away at liberty itself, growing government beyond what any liberal society should tolerate, and fed human rights abuses.

Then Came Crypto

From the time that Bitcoin became viable, however, monetary theory would never be the same. In the years since that time (2009), I’ve noticed a gradual change taking place. We used to think about money as somehow existing in a finalized form. No more. It is now being thought of as we should have thought about it all along, as a technology that can become better in response to human needs.

In the 19th century, the word technology was not in common use. Instead a different phrase was popular: the practical arts. I think it is better. Inventing new things for human use is an art form. But it is not art just for admiring. It is art for using, art to make life better, a tool to enable a better path forward for all.

The practical arts today involve new apps, new buying options, new ways to communicate, new modes of transportation, and new markets. They make things cheaper, better, and more adaptive to our needs. Entrepreneurs compete to find better ways of serving us through the practical arts.

Thanks to the rise of cryptocurrency, the practical arts are being applied to reinventing money itself. It is going on every day, with thousands of companies innovating new monetary technologies. The big breakthroughs include: the uniting of money with payment systems, the dramatic diminution of counterparty risk, the inclusion of the unbanked, the impossibility of censorship, the security of ownership, the absence of a central point of failure. We keep discovering new virtues.

Cryptocurrency opened up the floodgates of monetary innovation a century after the enterprise had been shut down. F.A. Hayek wrote, “I have no doubt that competition would be much more inventive in providing the kind of monetary institutions needed for the proper functioning of markets.” He thought this might only happen by eliminating legal tender laws and dismantling central banks.

Perhaps the most remarkable thing about cryptocurrency is that it unleashed competition without any reform of the system that still operates from the top down. No law was repealed, no plan was enacted, no new reforms were passed. It was as if a Maserati had sudden driven up alongside a fleet of Model Ts.

When will mainstream monetary theory adapt to the new reality? Check back in ten years.

When I was in Tel Aviv, Israel, recently, I did a full interview on a popular podcast on this topic and its meaning for our future.

 


Jeffrey A. Tucker


Jeffrey Tucker is Director of Content for the Foundation for Economic Education. He is founder of Liberty.me, Distinguished Honorary Member of Mises Brazil, economics adviser to FreeSociety.com, research fellow at the Acton Institute, policy adviser of the Heartland Institute, founder of the CryptoCurrency Conference, member of the editorial board of the Molinari Review, an advisor to the blockchain application builder Factom, and author of five books, most recently Right-Wing Collectivism: The Other Threat to Liberty, with a preface by Deirdre McCloskey (FEE 2017). He has written 150 introductions to books and many thousands of articles appearing in the scholarly and popular press. He is available for press interviews via his email.

This article was originally published on FEE.org. Read the original article.

Thursday, November 16, 2017

Run – Special Issue Number 3 – 1987

Run – Special Issue Number 3 – 1987




Wednesday, October 18, 2017

National Security Agencies Are Evading Congressional Oversight

National Security Agencies Are Evading Congressional Oversight



Last week, federal officials from several spy agencies engaged in a full court press in Washington, spinning facts before media outlets, flooding Capitol Hill with lobbyists, and bringing lawmakers to the National Security Agency's (NSA) Ft. Meade headquarters to feed them selective information about their unconstitutional mass surveillance activities. Predictably omitted from these conversations are the many Americans from across the political spectrum who have raised concerns, ranging from constitutional and commercial to security-related, that have rightfully dogged federal mass surveillance efforts since their revelations—not in official proceedings, but rather by whistleblowers—in 2005 and 2013.

Rather than embrace bipartisan calls for long overdue and constitutionally necessary limits, executive officials have instead chosen to shoot the proverbial messengers, vilifyingwhistleblowers and building new programs to prevent others from ever coming forward. Last week’s meetings included claims that particular examples of mass surveillance proved useful, ignoring its repeated failures. While the appearance of security may be comforting to some, NSA veterans have identified discarded programs that, relative to their replacements, reportedly did a better job of protecting national security while also protecting the privacy of Americans by encrypting data collected within the U.S. and requiring a warrant for investigators to access it.

Meanwhile, too many members of Congress from each of the major parties remain excessively deferential to the intelligence community, despite Congress mustering a bipartisan majority to enact preliminary reforms in 2013 and the House approving even more sweeping changes in their wake. Even though the scheduled expiration of a key statute—Section 702 of the Foreign Intelligence Surveillance Act (FISA)—looms mere months away, congressional committees have yet to hold hearings to get beyond executive talking points and begin actively investigating the underlying facts.

Originally enacted in the 1970s to restrain domestic surveillance, the history of the FISA statute is revealing in itself. Its genesis was a wide-ranging congressional investigation that dramatically uncovered a series of previously secret programs that, instead of promoting security, were carefully tailored to undermine constitutionally protected dissent. Alarmed at wide-ranging executive abuses behind a wall of secrecy, Congress enacted reforms that included the creation of a secret court, and insisted on regulations by the Department of Justice to further curtail the FBI's 40-year assault on democracy in the form of COINTELPRO: its infamous Counterintelligence Programs.

Since then, the Justice Department regulations have been watered down periodically, while FISA was ultimately flipped on its head. Most recently, FISA was amended in 2009 to legalize a series of mass surveillance programs begun under the Bush administration in direct violation of the governing statue at the time, as well as constitutional limits. The continuation of these programs under the Obama administration granted them the appearance of bipartisan legitimacy despite their clear and continuing unconstitutionality.

In the past, concerns about mass surveillance have extended across the political spectrumand around the world. Under the Trump administration, those concerns have grown increasingly pressing, given the president's seeming disregard for constitutional limits on executive power, and potential willingness to politicize surveillance to serve his own political ends.

Given those concerns, and the crucial congressional role of checking and balancing the federal executive branch, Congress should aggressively exercise its oversight responsibilities. But there are structural barriers to doing so. Many members of Congress on key congressional committees, for instance, lack qualified staff wielding adequate security clearance to rebut talking points peddled by self-serving executive officials.

Beyond structural impediments, many members of Congress have been willing to settle for mere assurances from executive officials, rather than insist upon reviewing evidence proving that mass surveillance effectively protects security, and that the government’s systems adequately protect the rights of innocent Americans. Representatives poised to do more include Democrats and Republicans whose constituents may enjoy opportunities to politically force their hands.

Only by investigating mass surveillance operations can Congress uncover the underlying facts. Such an investigation would be crucial in helping establish the need for long overdue constitutional limits.

In particular, because agencies including the NSA and FBI have relied on legal loopholes and secret interpretations for which they have grown notorious, one crucial requirement is for backdoor searches of Americans to be first justified by a judicial warrant. While that process does not impose a significant operational burden on agencies, it does prevent the kinds of documented abuses that agency employees and contractors have already committed, which include stalking former lovers using the government's powerful spying tools.

Congress should also ensure that intelligence information is used exclusively to protect national security, instead of polluting the criminal legal system with raw intelligence that inherently fails to meet the standards required for evidence to be admitted in court. Congress should not allow powerful military-grade surveillance programs to be used for purposes like routine criminal law enforcement or tracking down undocumented immigrants.

Congressional oversight of the intelligence agencies should also address issues beyond data collection. In the past, intelligence agencies have undermined attempts by Americans to ensure their own privacy, including by intercepting router shipments and planting covert firmware. Accordingly, Congress must adopt measures to protect encryption and encryption standards from erosion by national security agencies. A restriction along these lines would also serve business interests, which have vocally decried losses amounting to billions of dollars driven by clients making the rational decision to buy encryption devices from other sources.

Finally, Congress must restore the opportunity for a robust public debate about these issues. That requires reforming the state secrets privilege and fixing the broken classificationsystem described as “dysfunctional” by the former official who administered it. All too often, overclassification keeps policymakers and the public in the dark, and enables a bipartisan war on whistleblowers from whom congressional committees have learned the truth.

Regardless of what Congress does this fall, advocates will continue to challenge the constitutionality of mass surveillance in the courts, where we have sought for over a decade to invoke the rule of law to restore limits on executive authority. Congress is currently considering surveillance policy, and we urge Congress to legislate limits to safeguard constitutional rights. If enough policymakers are pressed by informed and alarmed constituents, Congress will hopefully finish the job it already started.

Source: National Security Agencies Are Evading Congressional Oversight



India’s Demonetization Effort Has Demonstrably Failed

India’s Demonetization Effort Has Demonstrably Failed



Dormant for a while, the debate over India’s demonetization program of last fall has been revived by new evidence. The new evidence on note returns and GDP vindicates the critics and has the defenders in strategic retreat.

What Happened

To recap: On November 8, 2016, India’s Prime Minister Narendra Modi shocked the nation by announcing the immediate “demonetization” of the two largest rupee currency notes (Rs 500, worth about $7.50, and Rs 1000, worth about $15). Noteholders would have only 50 days to turn them in for new Rs 500 and Rs 2000 notes. The move, Modi promised, would sharply penalize holders of unaccounted “black money,” namely tax evaders, bribe-takers, professional criminals, and terrorists. Their currency hoards would become worthless — a welcome one-time wealth loss — or they would expose themselves to detection by trying to swap or deposit large batches. Anyone depositing a large sum in old notes would face scrutiny by tax authorities.

In order to keep the move a surprise (the better to catch the black money holders), new notes to replace all the discontinued notes had not been printed in advance. The canceled notes represented 86% of the currency in circulation, and more than half of M1 (currency plus checking deposits), India having a highly cash-intensive economy with half the population unbanked. As criminals were far from the main users of currency, the impact was unavoidably felt well beyond the black-money set. A serious currency shortage immediately arose, with predictable consequences. Honest wage laborers in the huge cash economy went unpaid, honest construction projects came to a standstill, honest shopkeepers saw sales dry up, and honest businesses failed. Honest people wasted billions of hours waiting in queues to exchange old notes for the trickle of new notes.

As Shruti Rajagopalan and I noted in November last year, there was also a fiscal angle: for every billion of old rupee notes not turned in (for fear of being scrutinized), the government could issue a replacement billion and pocket it as one-time seigniorage revenue. For example:
If 20% of the old notes are never turned in, the government’s revenue windfall is up to Rs 2.9 trillion ($42.5 billion).

The destruction of the private wealth of non-redeeming old-note holders, combined with the revenue windfall to the government, makes the currency policy effectively a large capital levy, a massive one-shot transfer of wealth from the private to the public sector.
We speculated: “The wealth transfer to government may help to explain Prime Minister Modi’s enthusiasm for the currency cancellation and re-issue, despite its likely ineffectuality against black money.”

Economically literate defenders of demonetization have been fewer than critics. The most prominent defenders have been the well-known trade economist Jagdish Bhagwati of Columbia University together with his former students Vivek Dehejia and Pravin Krishna, and with his Columbia colleague Suresh Sundaresan.

The Defense

In a December 2016 piece in the prominent Times of India, Bhagwati, Krishna, and Sundaresan (hereafter BKS) praised the demonetization program as “a courageous and substantive economic reform that, despite the significant transition costs, has the potential to generate large future benefits.” BKS recognized that “the process is inconvenient, and subjects many households to hardships,” but thought it worthwhile for “potentially increasing transparency and expanding the tax base and revenues to the government from taxes and surcharges.” The fiscal angle was foremost: since “unaccounted deposits will be taxed, this will yield a windfall for the government permitting large increases in social expenditures.” In addition, it would promote a “switch into digital transactions” and “put a major dent in counterfeiting.”

In an Op-Ed published on December 27, Bhagwati, Dehejia, and Krishna (hereafter BDK) defended the demonetization program entirely on the grounds that it would impose an effective capital levy. It was, they wrote, “a policy designed, in effect, as a one-time tax on black money.” They noted that the government’s revenue gain would not come just from replacing unreturned notes. Under “voluntary disclosure” rules promulgated after the initial announcement, depositors of old notes who acknowledged their holdings as illegitimate would also pay: “deposits of unaccounted money will be taxed at 50% — with a further 25% taken by the government … as an interest-free loan for a period of four years.” Thus there would be a one-time fiscal gain to the government not only from notes never returned, but also from notes returned under such terms.

BDK proposed the size of the revenue gain as a sufficient criterion for judging the success of the program: “at least from the perspective of its effectiveness in dealing with the black money issue, success has to be measured by the sum of tax revenue generated [from the 50% tax on acknowledged black deposits] and black money destroyed [i.e. revenue from replacing unreturned notes].” For the sake of illustration, they supposed (calling it an “estimate”) “that one-third [Rs5 trillion] of the approximately Rs15 trillion in demonetised notes is black money.” Then if by the end of the turn-in period “Rs1 trillion is unreturned, as is believed, and we further assume that only half of the remaining Rs4 trillion of black money that is returned falls within the tax net, the net gain works out to Rs1 trillion of black money destroyed and 50% times 2 trillion = Rs1 trillion in tax revenue.” With such a total fiscal gain of Rs2 trillion, “the government could reasonably claim this as a successful outcome.”

In a commentary on the BDK piece, Rajagopalan and I pointed out that, from the economist’s point of view, the costs of any measure must be taken into account before judging it worthwhile or efficient. What matters is effectiveness per unit cost. Unlike the earlier BKS piece, BDK had simply neglected the costs incurred in collecting revenue or suppressing black money through demonetization. We noted a think tank’s estimate of Rs. 1.28 trillion in losses during the transitional period from expenses of printing new notes, lost income of those waiting in queues, additional costs to banks tied up with exchanging currency, and (the largest item) lost business sales due to the currency shortage. It was then too early to replace the estimate of lost business with measured effects on GDP, but we noted that one percentage point of lost annual growth equals Rs1.45 trillion. These costs need to be set against the revenue. Even if the revenue were as high as Rs2 trillion, collecting it at a deadweight cost of 64% or more would be a very bad bargain.

Doesn’t it matter that the transfer, in this case, is coming from bad actors whose welfare one may disregard? No. In the above reckoning, as in standard tax analysis, the pure wealth-transfer losses of taxpayers don’t figure in the deadweight loss calculation, which only counts the costs associated with extracting the transfer.

BDK had noted in passing the argument “that the short- to medium-run economic impact post 8 November will be contractionary” due to a “temporary liquidity shortage induced by an insufficiently fast replacement of old notes with new notes.” But they dismissed on theoretical grounds that “this is not necessarily the only outcome possible.” Government could avoid a currency shortage by promptly providing new notes, they reckoned. This was a very odd line to take seven weeks into demonetization, given that the government was not in fact providing new notes sufficiently fast, and when the evidence of currency shortage was plain to see. Alternatively, they proposed, hoarded currency could come out from under mattresses, be deposited in banks, and actually expand M1 “via the classical money multiplier.” This was an odd line to take given that expansion of deposits (even should it happen) would not remedy the currency shortage being suffered by the unbanked half of India’s population.

In March 2017, Bhagwati was quoted by the Indian newspaper Firstpost making the surprising claim in an email interview that demonetization had actually promoted economic growth: "On the effects of demonetisation on growth, I should say that I was the one economist who had argued (with my co-authors), from first principles, that demonetisation would increase, not diminish, growth. And that is exactly what appears to have happened." The factual basis for saying that it appeared to have happened was not clear.

In a March 30 piece, BDK cited a new 2016Q4 GDP report as showing that GDP had suffered “only a modest dip … of roughly half of a percentage point” below pre-demonetization projections. This was not an increase in growth. But they counted it a victory compared to “the economic disaster that the critics had imagined.”

The Evidence Against

The debate over demonetization was revived this month (September 2017) after the Reserve Bank of India finally announced the count of returned currency. It announced that 99 percent of the discontinued notes, Rs 15.28 trillion out of Rs 15.44 trillion, had been returned. As Vivek Kaul has noted, “The conventional explanation for this is that most people who had black money found other people, who did not have black money, to deposit their savings into the banking system for them.”

The trivial size of unreturned currency, of course, obliterates BDK’s projection of a government seigniorage windfall.

What about BDK’s other projected source of revenue, the 50% tax on acknowledged black deposits? Whereas in BDK’s scenario, black currency holders would make Rs2 trillion in voluntary-disclosure deposits, which would yield Rs 1 trillion in revenue, the actual collections under the scheme were reported in April at Rs 23 billion, or 2.3% of the BDK-imagined sum. Such paltry revenues mean that demonetization, from the fiscal perspective, was all pain and no gain.

The accumulating evidence on economic growth, meanwhile, has become damning. Between July and September 2016, India’s GDP grew 7.53 percent. Between January and March 2017 it grew 5.72 percent. Former head of the Reserve Bank of India Raghuram Rajan, now returned to the University of Chicago, links the drop to demonetization: “Let us not mince words about it — GDP has suffered. The estimates I have seen range from 1 to 2 percentage points, and that's a lot of money — over Rs2 lakh crore [i.e. trillion] and maybe approaching Rs2.5 lakh crore." Kaul adds that GDP does not well capture the size of the informal cash sector, where the losses from demonetization were greatest.

In response to the RBI report and GDP data, and to their credit, BDK have substantially retreated from claims of success to what can be regarded as the claim that there is still a chance to break even. They have recently written:
First off, it must be conceded that if demonetisation is to be judged narrowly on the basis of the triple rationale originally advanced … , it would at best be unclear if it could be accounted a success. For, little black money was literally “destroyed” and there is scant evidence that the policy had much if any impact on counterfeiting or terror finance.
Although they acknowledge that they “overestimated the quantum of black money that would ultimately be unreturned” and thus overestimated the seigniorage gain, they still contend that the “money deposited into bank accounts can also generate fiscal gain, as these will invite the scrutiny of tax officials.” For about two-thirds of the deposits of old currency by value, even though no admission was made and thus no 50% tax was paid, the sums deposited were large and “are mostly open to scrutiny by tax officials.” Thus it is conceivable that tax investigators may eventually squeeze taxes and fines out of them, and it is premature to rule this out.

Conceivable, but unlikely. The investigatory capacity of the tax authority is finite and it already has its hands full, as Vivek Kaul spells out in detail.

BDK concede: “Should, however, the government fail in identifying and taxing black money deposits in any significant quantity, we can all conclude that demonetisation will have failed in achieving its primary goal.” Welcome as this reasonable concession is, the converse does not follow: whether even significant eventual revenue counts as success depends on how it compares to the sizable costs of demonetization. A deadweight burden of less than 100% seems highly unlikely.

BDK add an odd coda. They acknowledge transition costs in the program actually followed, but suggest that it could have been otherwise:
in principle, had demonetisation occurred without transition costs — for instance, if old notes could have been seamlessly converted or deposited within a few days after 8 November, or if demonetisation had been pre-announced to occur with a lag, allowing time for an orderly remonetisation — there could only have been largely upside gain without any downside cost.
It is hard to square this with BDK’s earlier statements that demonetization without secrecy would have been pointless because it would not have caught out the black money holders. Are BDK saying that if the aim had been merely to introduce new notes with better anti-counterfeiting features, the Modi government’s demonetization program was an unnecessarily costly way of doing it? Well yes, the critics have said that all along. High transition costs were a feature and not a bug of the dramatic scheme to penalize black money by surprise.

Reprinted from Alt-M


Lawrence H. White


Lawrence H. White is Professor of Economics at George Mason University and The Freeman contributor.  He previously taught at New York University, the University of Georgia, and the University of Missouri – St. Louis. He is a member of the FEE Faculty Network.

This article was originally published on FEE.org. Read the original article.