Doom vs. Boom: Robert Gordon and Joel Mokyr on the future of American growth

From Northwestern Now:

It has been called the ‘clash of titans.’ Two of the biggest names in economics research–Bob Gordon and Joel Mokyr – have been battling it out in the press for years with fiery arguments in the Wall Street Journal and the New York Times, plus debates in countries all over the world, including the latest at the Chicago Council on Global Affairs.

Robert Gordon, author of The Rise and Fall of American Growth, and Joel Mokyr, author of A Culture of Growth, go head to head in their latest debate on the future of economic growth in the United States. You can listen to it via the Northwestern Now podcast, or read the full transcript.

 

Gordon

 

Mokyr

Joel Mokyr: How the modern economy was born

MokyrBefore 1800, the majority of people lived on the verge of subsistence. In A Culture of Growth: The Origins of the Modern Economy, esteemed historian Joel Mokyr explains why in the industrialized world such a standard of living has grown increasingly uncommon. Mokyr offers a groundbreaking view on a culture of growth specific to early modern Europe, showing how the European Enlightenment laid the foundations for the scientific advances and pioneering inventions that would instigate explosive technological and economic development. Recently, Mokyr took some time to answer questions about the book.


How would you sum up the book’s main points?

JM: Before 1800 the overwhelming majority of humankind was poor; today in the industrialized world, almost nobody lives at the verge of subsistence, and a majority of people in the world enjoy living standards that would have been unimaginable a few centuries ago. My book asks how and why that happened. The question of the Great Enlightenment is central to economic history; a Nobel prize winning economist, Robert Lucas, once wrote that once we start thinking about it, it is hard to think of anything else.

Do we know how and where this started? 

JM: Yes, it started in Western Europe (primarily in Britain) in the last third of the eighteenth century through a set of technological innovations we now call the Industrial Revolution. From there it spread to the four corners of the world, although the success rate varied from place to place, and often the new techniques had to be adapted to local circumstances.

How is this book different from other work looking at this event? 

JM: The literature looking at the question of why this happened has advanced three types of explanations: geographical (looking at resources and natural endowments), political-institutional (focusing on the State and economic policies), or purely economic, through prices and incomes. My book examines culture: what did people believe, value, and how did they learn to understand natural phenomena and regularities they could harness to their material improvement.

Whose culture mattered most here? 

JM: Good question! Technological progress and the growth of modern science were driven first and foremost by a small educated elite of literate people who had been trained in medicine, mathematics and what they called “natural philosophy.” The culture of the large majority of people, who were as yet uneducated and mostly illiterate, mattered less in the early stages, but became increasingly important at a later stage when mass education became the norm.

So what was it about these intellectuals that mattered most? 

JM: In my earlier work, especially my The Enlightened Economy (2009), I pointed to what I called “the Industrial Enlightenment” as the central change that prepared the ground for modern economic growth. In the new book, I explain the origins of the Industrial Enlightenment. At some point, say around 1700, the consensus of intellectuals in Europe had become that material progress (what we were later to call “economic growth”) was not only desirable but possible, and that increasing what they called “useful knowledge” (science and technology) was the way to bring it about. These intellectuals then carried out that program through continuous advances in science that eventually found a myriad of economic applications.

How and why did this change happen? 

JM: That is the main question this book is focusing on and tries to answer. It describes and analyzes the cultural changes in the decades between Columbus and Newton, during what is sometimes known as “early modern Europe.” It was an age of tremendous cultural changes, above all of course the Reformation and the Scientific Revolution. Equally important was the emergence of what is known as “the Baconian Program,” in which Francis Bacon and his followers formulated the principles of what later became the Industrial Enlightenment. The success of these thinkers to persuade others of the validity of their notions of progress and the importance of a research agenda that reflected real economic needs is at the heart of the story of how the Industrial Enlightenment emerged.

So why did this take place in this period and in Europe, and not somewhere else? 

JM: Europe in this age enjoyed an unusual structure that allowed new and fresh ideas to flourish as never before. On the one hand, it was politically and religiously fragmented into units that fiercely competed with one another. This created a competitive market both for and among intellectuals that stimulated intellectual innovation. It was a market for ideas that worked well and in it the Baconian Program was an idea that succeeded, in part because it was attractive to many actors, but also because it was marketed effectively by cultural entrepreneurs. At the same time, political fragmentation coexisted with a unified and transnational institution (known at the time as the Republic of Letters) that connected European intellectuals through networks of correspondence and publications and created a pan-European competitive market in which new ideas circulated all over the Continent. In this sense, early modern Europe had the “best of all possible worlds” in having all the advantages of diversity and fragmentation and yet have a unified intellectual community.

Of all the new ideas, which ones were the most important? 

JM: Many new ideas played a role in the intellectual transformations that eventually led to the waves of technological progress we associate with modern growth. One of the most important was the decline in the blind veneration of ancient learning that was the hallmark of many other cultures. Shaking off the paralyzing grip of past learning is one of the central developments that counted in the cultural evolution in this period. The “classical canon” of Ptolemy and Aristotle was overthrown by rebels such as Copernicus and Galileo, and over time the intellectuals of this age became more assertive in their belief that they could outdo classical learning and that many of the conventional beliefs that had ruled the world of intellectuals in astronomy, medicine, and other fields were demonstrably wrong. Evidence and logic replaced ancient authority.

Was the success of the new ideas a foregone conclusion? 

JM: Not at all: there was fierce resistance to intellectual innovation by a variety of conservative powers, both religious and political. Many of the most original and creative people were persecuted. But in the end resistance failed, in large part because both people and books — and hence ideas — could move around in Europe and move to more liberal areas where their reception was more welcomed.

Could an Industrial Enlightenment not have happened elsewhere, for example in China? 

JM: The book deals at length with the intellectual development of China. In many ways, China’s economy in 1500 was as advanced and sophisticated as Europe. But in China the kind of competitive pluralism and diversity that were the hallmark of Europe were absent, and even though we see attempts to introduce more progressive thinking in China, it never succeeded to overthrow the conservative vested interests that controlled the world of intellectuals, above all the Mandarine bureaucracy. Instead of explosive growth as in Europe, Chinese science and technology stagnated.

Does the book have any implications for our own time? 

JM: By focusing on the social and economic mechanisms that stimulated and encouraged technological innovation in the past, my book points to the kind of factors that will ensure future technological creativity. First and foremost, innovation requires the correct incentives. Intellectuals on the whole do not require vast riches, but they will struggle for some measure of economic security and the opportunity to do their research in an environment of intellectual freedom in which successful innovation is respected and rewarded. Second, the freedom to innovate thrives in environments that are internationally competitive: just as much of innovation in earlier times emerged from the rivalry between England, France, Spain and the United Provinces, in the modern era the global competition between the United States, the EU, China, and so on will ensure continuous innovation. International competition and mobility ensure the intellectual freedom needed to propose new ideas. Finally, global institutions that share and distribute knowledge, as well as coordinate and govern intellectual communities of scientists and innovators across national boundaries and cultural divides, are critical for continued technological progress.

Joel Mokyr  is the Robert H. Strotz Professor of Arts and Sciences and professor of economics and history at Northwestern University, and Sackler Professor at the Eitan Berglas School of Economics at the University of Tel Aviv, Israel. He is the recipient of of the Heineken Prize for History and the International Balzan Prize for Economic History. Mokyr’s other works include The Enlightened Economy and the Gifts of Athena: Historical Origins of the Knowledge of Economy. His most recent book is a Culture of Growth: The Origins of the Modern Economy.

Kenneth Rogoff: India’s Currency Exchange and The Curse of Cash

RogoffToday in our blog series by Kenneth Rogoff, author of The Curse of Cash, Rogoff discusses the controversy over India’s currency exchange. Read other posts in the series here.

On the same day that the United States was carrying out its 2016 presidential election, India’s Prime Minister, Narendra Modi, announced on national TV that the country’s two highest-denomination notes, the 500 and 1000 rupee (worth roughly $7.50 and $15.00) would no longer be legal tender by midnight that night, and that citizens would have until the end of the year to surrender their notes for new ones. His stated aim was to fight “black money”: cash used for tax evasion, crime, terror, and corruption. It was a bold, audacious move to radically alter the mindset of an economy where less than 2% of citizens pay income tax, and where official corruption is endemic.

MOTIVATION SAME AS IN THE CURSE OF CASH

Is India following the playbook in The Curse of Cash? On motivation, yes, absolutely. A central theme of the book is that whereas advanced country citizens still use cash extensively (amounting to about 10% of the value of all transactions in the United States), the vast bulk of physical currency is held in the underground economy, fueling tax evasion and crime of all sorts. Moreover, most of this cash is held in the form of large denomination notes such as the US $100 that are increasingly unimportant in legal, tax-compliant transactions. Ninety-five percent of Americans never hold $100s, yet for every man, woman and child there are 34 of them. Paper currency is also a key driver of illegal immigration and corruption. The European Central Bank recently began phasing out the 500 euro mega-note over these concerns, partly because of the terrorist attacks in Paris.

BUT SETTING AND IMPLEMENTATION IS VASTLY DIFFERENT

On implementation, however, India’s approach is radically different, in two fundamental ways. First, I argue for a very gradual phase-out, in which citizens would have up to seven years to exchange their currency, but with the exchange made less convenient over time. This is the standard approach in currency exchanges. For example this is how the European swapped out legacy national currencies (e.g the deutschmark and the French franc) during the introduction of the physical euro fifteen years ago. India has given people 50 days, and the notes are of very limited use in the meantime. The idea of taking big notes out of circulation at short notice is hardly new, it was done in Europe after World War II for example, but as a peacetime move it is extremely radical. Back in the 1970s, James Henry suggested an idea like this for the United States (see my October 26 new blog on his early approach to the big bills problem). Here is what I say there about doing a fast swap for the United States instead of the very gradual one I recommend:

 “(A very fast) swap plan absolutely merits serious discussion, but there might be significant problems even if the government only handed out small bills for the old big bills. First, there are formidable logistical problems to doing anything quickly, since at least 40% of U.S. currency is held overseas. Moreover, there is a fine line between a snap currency exchange and a debt default, especially for a highly developed economy in peacetime. Foreign dollar holders especially would feel this way. Finally, any exchange at short notice would be extremely unfair to people who acquired their big bills completely legally but might not keep tabs on the news.

In general, a slow gradual currency swap would be far less disruptive in an advanced economy, and would leave room for dealing with unanticipated and unintended consequences. One idea, detailed in The Curse of Cash, is to allow people to exchange their expiring large bills relatively conveniently for the first few years (still subject to standard anti-money-laundering reporting requirements), then over time make it more inconvenient by accepting the big notes at ever fewer locations and with ever stronger reporting requirements.

Second, my approach eliminates large notes entirely. Instead of eliminating the large notes, India is exchanging them for new ones, and also introducing a larger, 2000-rupee note, which are also being given in exchange for the old notes.

MY PLAN IS EXPLICITLY TAILORED TO ADVANCED ECONOMIES

The idea in The Curse of Cash of eliminating large notes and not replacing them is not aimed at developing countries, where the share of people without effective access to banking is just too large. In the book I explain how a major part of any plan to phase out large notes must include a significant component for financial inclusion. In the United States, the poor do not really rely heavily on $100 bills (virtually no one in the legal economy does) and as long as smaller bills are around, the phase out of large notes should not be too much of a problem, However, the phaseout of large notes is golden opportunity to advance financial inclusion, in the first instance by giving low income individuals access to free basic debt accounts. The government could use these accounts to make transfers, which would in turn be a major cost saving measure. But in the US, only 8% of the population is unbanked. In Colombia, the number is closer to 50% and, by some accounts, it is near 90% in India. Indeed, the 500 rupee note in India is like the $10 or $20 bill in the US and is widely used by all classes, so India’s maneuver is radically different than my plan. (That said, I appreciate that the challenges are both different and greater, and the long-run potential upside also much higher.)

Indeed, developing countries share some of the same problems and the corruption and counterfeiting problem is often worse. Simply replacing old notes with new ones does have a lot of beneficial effects similar to eliminating large notes. Anyone turning in large amounts of cash still becomes very vulnerable to legal and tax authorities. Indeed that is Modi’s idea. And criminals have to worry that if the government has done this once, it can do it again, making large notes less desirable and less liquid. And replacing notes is also a good way to fight counterfeiting—as The Curse of Cash explains, it is a constant struggle for governments to stay ahead of counterfeiters, as for example in the case of the infamous North Korean $100 supernote.

Will Modi’s plan work? Despite apparent huge holes in the planning (for example, the new notes India is printing are a different size and do not fit the ATM machines), many economists feel it could still have large positive effects in the long-run, shaking up the corruption, tax evasion, and crime that has long crippled the country. But the long-run gains depend on implementation, and it could take years to know how history will view this unprecedented move.

THE GOAL IS A LESS-CASH SOCIETY NOT A CASHLESS ONE

In The Curse of Cash, I argue that it will likely be necessary to have a physical currency into the far distant future, but that society should try to better calibrate the use of cash. What is happening in India is an extremely ambitious step in that direction, of a staggering scale that is immediately affecting 1.2 billion people. The short run costs are unfolding, but the long-run effects on India may well prove more than worth them, but it is very hard to know for sure at this stage.

Kenneth S. Rogoff, the Thomas D. Cabot Professor of Public Policy at Harvard University and former chief economist of the International Monetary Fund, is the coauthor of the New York Times bestseller This Time Is Different: Eight Centuries of Financial Folly (Princeton). He appears frequently in the national media and writes a monthly newspaper column that is syndicated in more than fifty countries. He lives in Cambridge, Massachusetts.

Find Kenneth Rogoff on Twitter: @krogoff

 

 

 

 

 

This Halloween, a few books that won’t (shouldn’t!) die

If Halloween has you looking for a way to combine your love (or terror) of zombies and academic books, you’re in luck: Princeton University Press has quite a distinguished publishing history when it comes to the undead.

 

As you noticed if you follow us on Instagram, a few of our favorites have come back to haunt us this October morning. What is this motley crew of titles doing in a pile of withered leaves? Well, The Origins of Monsters offers a peek at the reasons behind the spread of monstrous imagery in ancient empires; Zombies and Calculus  features a veritable course on how to use higher math skills to survive the zombie apocalypse, and International Politics and Zombies invites you to ponder how well-known theories from international relations might be applied to a war with zombies. Is neuroscience your thing? Do Zombies Dream of Undead Sheep? shows how zombism can be understood in terms of current knowledge regarding how the brain works. Or of course, you can take a trip to the graveyard of economic ideology with Zombie Economics, which was probably off marauding when this photo was snapped.

If you’re feeling more ascetic, Black: The History of a Color tells the social history of the color black—archetypal color of darkness and death—but also, Michel Pastoureau tells us, monastic virtue. A strikingly designed choice:

In the beginning was black, Michel Pastoureau tells us in Black: A History of a Color

A photo posted by Princeton University Press (@princetonupress) on

 

Happy Halloween, bookworms.

Kenneth Rogoff: James S. Henry’s early approach to the big bills problem

Presenting the next post in a series by Kenneth Rogoff, author of The Curse of Cash. You can read the other posts in the series here, here, here, and here.

RogoffMy new book, The Curse of Cash, calls for moving to a “less cash” society by very gradually phasing out big notes. I must mention, however, a closely-related idea by James S. Henry. In a prescient 1980 Washington Monthly article, Henry put forth a plan for rapidly swapping out $100s and $50s. While The Curse of Cash highlights his emphasis on the use of cash in crime, it should have noted his snap exchange plan early on (as it will in future printings).

Rather than gradually eliminate big bills as I suggest in the book and in my earlier 1998 article, Henry argues for having the government declare that large denomination bills are to expire and must be exchanged for new bills at short notice:

A surprise currency recall, similar to those that had been conducted by governments in post-World War II Europe, and Latin America, and by our own military in Vietnam. On any given Sunday, the Federal Reserve would announce that existing “big bills”—$50s and $100s—would no longer be accepted as legal tender, and would have to be exchanged at banks for new bills within a short period. When the tax cheats, Mafiosi, and other pillars of the criminal community rushed to their banks to exchange their precious notes, the IRS would be there to ask those with the most peculiar bundles some embarrassing questions. (Henry, “The Cash Connection: How to Make the Mob Miserable,” The Washington Monthly issue 4, p. 54).

This is certainly an interesting idea and, indeed, the U.S. is something of an outlier in allowing old bills to be valid forever, albeit most countries rotate from old to new bills very slowly, not at short notice.

Henry’s swap plan absolutely merits serious discussion, but there might be significant problems even if the government only handed out small bills for the old big bills. First, there are formidable logistical problems to doing anything quickly, since at least 40% of U.S. currency is held overseas. Moreover, there is a fine line between a snap currency exchange and a debt default, especially for a highly developed economy in peacetime. Foreign dollar holders especially would feel this way. Finally, any exchange at short notice would be extremely unfair to people who acquired their big bills completely legally but might not keep tabs on the news.

In general, a slow gradual currency swap would be far less disruptive in an advanced economy, and would leave room for dealing with unanticipated and unintended consequences. One idea, detailed in The Curse of Cash, is to allow people to exchange their expiring large bills relatively conveniently for the first few years (still subject to standard anti-money-laundering reporting requirements), then over time make it more inconvenient by accepting the big notes at ever fewer locations and with ever stronger reporting requirements. True, a more prolonged period would give criminals and tax evaders lots of time to launder their mass holdings of big bills into smaller ones or into other assets, and at relatively minimal cost. This appears to have been the case, for example, with exchange of legacy European currency (such as German deutschemarks and French francs) for new euro currency. Of course, in most past exchanges (such as the birth of the euro), governments were concerned with maintaining future demand for their “product.” If, instead, governments recognize that meeting massive cash demand by the underground economy is penny wise and pound foolish, they would be prepared to be more aggressive in seeking documentation in the exchange.

Lastly, just to reiterate a recurrent theme from earlier blogs, the aim should be a less-cash society—not a cashless one. There will likely always be a need for some physical currency, even a century from now.

RogoffKenneth S. Rogoff, the Thomas D. Cabot Professor of Public Policy at Harvard University and former chief economist of the International Monetary Fund, is the coauthor of the New York Times bestseller This Time Is Different: Eight Centuries of Financial Folly (Princeton). He appears frequently in the national media and writes a monthly newspaper column that is syndicated in more than fifty countries. He lives in Cambridge, Massachusetts. His latest book is The Curse of Cash.

Kenneth Rogoff: Just the Big Bills Pazhalsta

Here is the third post in our blog series by Kenneth Rogoff, author of The Curse of Cash. Read the first post here, and the second here

RogoffIn most emerging markets, cash from advanced countries is at best a mixed blessing. On occasion it helps facilitate legitimate business transactions where banking services are inadequate, but it also plays a big role in crime and corruption. Russian news sources have posted pictures of a massive stack of $100 bills, over $120 million worth, found in the home of an official who was supposed to be in charge of Russia’s anti-corruption agency. Of course, as the book discusses, it is folly to think the mass of stashed cash is all abroad. Virtually every estimate suggests that at least half of all U.S. dollars are held domestically. Some have argued that the costs of cash in crime and tax evasion are a “small price to pay” for civil liberties. But this argument applies to banning all cash, and does not really do much to justify the big notes that allow criminals, tax evaders, and corrupt officials to hide, hoard, and port massive amounts.

The book continues to generate a great deal of discussion in general, with many very positive reviews coming in the past two weeks (here, here, here, here, and here, for example). Freakanomics (as always) does an excellent job explaining the ideas and issues, as does the The New Yorker, which also talks extensively about the Swedish experience (covered at the end of chapter 7 in the book).

The UK now has a group campaigning for the country to go cashless by 2020. The group’s webpage echoes many of the arguments made in The Curse of Cash, in particular highlighting how the bulk of cash is used to facilitate crime, tax evasion, and black economy. The group makes the case that coordinated action by stakeholders can accomplish things relatively quickly and effectively without requiring any new legislation. They are definitely on to something. As my book argues, a key feature of cash that distinguishes it from other transactions media that criminals might use is that it can be spent virtually anywhere. If, for example, more and more retailers refuse to take cash (already a trend), that will have a direct impact. While this is very interesting and encouraging, my book argues that society will want to keep small bills indefinitely for a variety of reasons including privacy, dealing with power outages etc. The group’s timeline might be too ambitious—again the book argues that it is important to go slow to allow time for adjustments, to implement policies for financial inclusion, and to allow time to deal with unanticipated issues.

Indeed, virtually all the recent reviews of the book are very attuned to the subtleties of why getting rid of big bills but not small ones might be a happy medium, and The Business Insider has produced an explainer. The recent print reviews also by and large recognize the manifold preparations that negative-interest-rate policy require, and thus why the early experiences in Europe and particularly Japan might be less informative about how negative rates might work in the future than some commentators seem to believe.

Of course, there are still people glued to the past who think the US should go back on the 1800s gold standard (see my discussion of Jim Grant in blog #2), and there are forward-looking thinkers who think that private digital currencies will put governments out of the central-banking business anyway. The book explains why this is nonsense, mainly because the government gets to make the rules in the currency business, and it always eventually wins, albeit sometimes after adapting private sector innovations. The private sector probably first invented standardized coinage, but the government ultimately appropriated the activity. The private sector first invented paper currency, again the government eventually appropriated the activity. The same will almost surely happen with digital currencies, and already government around the world have taken many steps to hinder mainstream use of cryptocurrencies.

On a different note, there are a couple of otherwise very positive reviews which, in passing, allude to a controversy surrounding my 2009 Princeton University Press book with Carmen Reinhart. In fact, there is no controversy around that book, and never has been. In 2013 there was a debate over a short, un-refereed 2010 conference proceedings note. There is an interesting recent discussion of the perils of debt complacency by Reinhart 2016.

RogoffKenneth S. Rogoff, the Thomas D. Cabot Professor of Public Policy at Harvard University and former chief economist of the International Monetary Fund, is the coauthor of the New York Times bestseller This Time Is Different: Eight Centuries of Financial Folly (Princeton). He appears frequently in the national media and writes a monthly newspaper column that is syndicated in more than fifty countries. He lives in Cambridge, Massachusetts. His latest book is The Curse of Cash.

Katharine Dow: Can surrogacy ever escape the taint of global exploitation?

making the good life jacket dowSurrogate motherhood has a bad rep, as a murky business far removed from everyday experience – especially when it comes to prospective parents from the West procuring the gestational services of less privileged women in the global South. So while middle-class 30- and 40-somethings swap IVF anecdotes over the dinner table, and their younger female colleagues are encouraged by ‘hip’ employers to freeze their eggs as an insurance policy against both time and nature, surrogacy continues to induce a great deal of moral handwringing.

The Kim Cotton case in 1985 was the first attempt to arrange a commercial surrogacy agreement in the United Kingdom. It set the tone for what was to come. Cotton was paid £6,500 to have a baby for an anonymous Swedish couple, and her story provoked sensational press-fuelled panic. British legislators, too, saw surrogacy as likely to lead to exploitation, with poorer women coerced into acting as surrogates out of financial need, and with intended parents taken advantage of by unscrupulous surrogacy brokers. Their action was swift: within just months of the Cotton story breaking, a law was passed banning for-profit surrogacy in the UK.

With the growth of an international surrogacy industry over the past two decades, worries over surrogacy’s fundamentally exploitative character have only intensified. Worst-case scenarios such as the Baby Gammy case in 2014, involving an Australian couple and a Thai surrogate, suggest that surrogacy frequently is exploitative. But that’s less because paying someone to carry and bear a child on your behalf is inherently usurious than because the transaction takes place in a deeply unequal world. The Baby Gammy case was complicated by other unsavoury factors, since the child, born with Down’s Syndrome, seemed to be rejected by his intended parents because of his condition. Then it turned out that the intended father had a previous conviction for child sex offences, which rather overshadowed the potential exploitation experienced by Gammy’s surrogate – and now de facto – mother.

I am not arguing for a laissez-faire approach to regulating surrogacy, but for thinking more deeply about how surrogacy reflects the context in which it takes place.

We need to step back and think critically about what makes people so driven to have a biogenetically related child that they are prepared to procure the intimate bodily capacity of another, typically less privileged, person to achieve that. We should also listen to surrogates, and try to understand why they might judge surrogacy as their best option. Intended parents are not always uncaring nabobs, and surrogate mothers are not just naïve victims; but while the power dynamic between them is decidedly skewed, each is subject to particular cultural expectations, moral obligations and familial pressures.

As for the larger context, we increasingly outsource even the most intimate tasks to those whose labour is cheap, readily available and less regulated. If we think of surrogacy as a form of work, it doesn’t look that different from many other jobs in our increasingly casualised and precarious global economic context, like selling bodily substances and services for clinical trials, biomedical research or product testing, or working as domestic staff and carers.

And surrogacy is on the rise. Both in the UK and in the United States, where some states allow commercial surrogacy and command the highest fees in the world, increasing numbers of would-be parents are turning to the international surrogacy industry: 95 per cent of the 2,000 surrogate births to UK intended parents each year occur overseas. With the age at which women have their first child increasing, more women are finding it difficult to conceive; and there’s now greater access to fertility treatments for single-sex couples and single people. In addition, surrogacy has become the option of choice for gay couples, transgender people, and single men wanting a biogenetically related child.

For me, as someone who has studied surrogacy, the practice is problematic because it reveals some of our most taken-for-granted assumptions about the nature of family. It also tells us much about work, gender, and how the two are connected. This is why it is so challenging.

At a time when parent-child relationships often appear to be one of the few remaining havens in an increasingly heartless world, surrogacy suggests that there might not be a straightforward relationship between women’s reproductive biology, their capacity to produce children, and their desire to nurture. The usual debates that focus simply on whether or not surrogacy is exploitative sidestep some of these uncomfortable truths, and make it difficult to ask more complicated questions about the practice.

There is a parallel here with abortion debates. Trying to define and defend the sanctity of life is important, but this also obscures highly problematic issues, such as the gendered expectation that women should look after children; the fact that women typically bear responsibility for contraception (and the disproportionate consequences of not using it); the prevalence of non-consensual sex; and the pressure on women to produce children to meet familial obligations.

Surrogacy is a technology. And like any other technology we should not attribute to it magical properties that conceal its anthropogenic – that is, human-made – character. It’s all too easy to blame surrogacy or the specific individuals who participate in it rather than to ask why surrogacy might make sense as a way of having children at all. We should give credit to intended parents and surrogate mothers for having thought deeply about their decisions, and we should not hold them individually responsible for surrogacy’s ills.Aeon counter – do not remove

Katharine Dow is a research associate in the Reproductive Sociology Research Group at the University of Cambridge. She is the author of Making a Good Life.

Want to join the discussion or follow us on Aeon? Head over to our partnership page.

This article was originally published at Aeon and has been republished under Creative Commons.
Aeon counter – do not remove

Robert Gordon is one of Bloomberg’s 50 most influential people

Yesterday Bloomberg released its 50 Most Influential 2016 list.

Congratulations are in order for our own Robert Gordon, author of The Rise and Fall of American Growth, who makes an appearance at #36. According to the piece, a Bloomberg reporter once counted up the references in the footnotes of Fed Chair Janet Yellen’s speeches and found Gordon cited more than any other economist outside the central bank. Gordon finds himself in great company this year—other recognized economists include Larry Summers at #49, Raj Chetty at #44, and Joe Stiglitz at #29.

Congratulations, Robert Gordon!

Gordon

Kenneth Rogoff: Negative interest rates are an emotional topic, too

Presenting the second post in a blog series by Kenneth Rogoff, author of The Curse of Cash. If you missed the first installment, read it here.

Rogoff

The book continues to create a vigorous debate about moving to a less-cash (not cashless) society with only smaller denomination bills; you can see various TV and radio discussion here. Below I’d like to respond to a provocative review in the Wall Street Journal.

But first a few other points that have come up: the gun lobby continues to seem particularly exercised about losing large bills. Perhaps the concern is that without convenient large notes, the government might have an easier time enforcing registration and background checks on people who buy firearms. A broader take is the American Thinker piece “Washington’s Endgame: First Your Guns Then Your Cash.” I can only say that I am not very sympathetic.

I try in the book to efficiently cover every possible misconception that people might have about where all the missing big bills are (even the spirit world), but I am afraid I missed one. Writing in the Numismatic News, Patrick A Heller suggests that we all should know “that a sizeable percentage of this (missing cash) is held by central banks as reserves.” Well, not really. Foreign central-bank dollar holdings are almost entirely in the form of electronic bills and bonds. Some foreign banks do hold physical U.S. dollars to meet customer demand, but most world holdings of dollars are in the underground economy (crime and tax evasion). As the book discusses extensively, foreign demand mostly likely accounts for less than 50% of total U.S. dollars outstanding.

In his thoughtful Finance and Development review, Peter Garber asks why not just make $100 bills larger and bulkier, then we don’t need to get rid of them. Well, if we make them ten times heavier and ten times bulkier, yes, that would be another approach (albeit not equivalent to mine, because tenfold oversized notes would be easier to tabulate, and you could probably pack them tighter unless the bills are larger still). But seriously, what is the difference, the symbolism? Anyway, I have no objections to leaving a giant $100 bill for collectors. Garber also argues that if the physical dollar becomes less prominent internationally, the electronic dollar will suffer. Maybe once upon a time that was true, but it is almost irrelevant today in the legal tax-paying world, domestic or foreign. Also, let’s not forget my plan leaves plenty leaves small bills, so the symbolism is still there.

This takes us to Jim Grant’s Wall Street Journal review. Several people I respect think Grant is a very smart guy who likes to be provocative, but I would to take up some of his simple errors and profound misconceptions.

Grant has little interest in the main part of the book, which argues that the large notes, which dominate the currency supply, do far more to facilitate tax evasion and crime than legal transactions. He posits that it would be so much simpler to legalize narcotics and simplify taxes, and that “Mr. Rogoff considers neither policy option.” In point of fact, I address legalizing marijuana on page 69, and the book goes on to detail the many other ways cash is used in crime besides drugs: racketeering, money laundering, human trafficking, extortion, corruption, you name it. Simplifying taxes is a great idea with lots of efficiency benefits I have written often about. But to think that any realistic simplification plan would end tax evasion is delusional.

Grant focuses his ire almost entirely on negative interest rates, saying “You rub your eyes. You can recall no precedent. There has never been one in 5,000 years of banking.” Well, Grant is known for his interesting historical analyses, but this statement is misleading at best. Before paper currency, governments routinely paid negative interest rates on metallic currencies by calling in coins and shaving them (as I discuss at some length in chapter 2). That might not immediately imply a negative rate on other debt instruments, but if your debt is repaid in physically debased pence that have much less silver than the ones you lent, it is a negative interest rate in any meaningful sense.

In modern times, the existence of paper currency prevents any significant negative rate on other government debt because of fear of a run on cash, though Europe and Japan have managed to get away with slight negative rates. So the statement that this has not happened until now is, well, hardly profound. Besides, there have been countless episodes of significant negative real interest rates on government bonds, that is when the nominal (face value) interest rate is not nearly enough to keep up with inflation, for example in the 1970s, when inflation went over 13% in the U.S. and over 20% in the U.K. and Japan.

In any event, my plan excludes small savers. And if effective negative-rate policy were possible, it would likely be quite short lived, and would probably cause a lot less problems that a decade of zero rates or high inflation. If the Fed could engage in effective monetary policy in a deep recession, most savers will gain far more than they will lose. It would bring back jobs more quickly, restore house and stock prices faster, and it would actually raise nominal rates on long-term bonds through restoring expected inflation to target. The suggestion that negative rates are just a policy to rob savers is empty polemic.

In chapter 12, I discuss populist perspectives on central banking, including Ron Paul and a return of the gold standard. Grant, evidently, was tapped to be Paul’s Fed Chairman had his 2012 presidential campaign been successful. On CNBC Squawkbox, Grant compares Fed chair Ben Bernanke to the head of Zimbabwe’s central bank, because he is just sure that all the “money printing” Bernanke was doing would lead to high inflation. Of course, what Bernanke was doing was not so much printing money as exchanging short-term central bank reserves for long-term government debt, as a reader of chapter 9 would understand. (And critically, the government fully owns the central bank.) I am not a big believer in the wonders of quantitative easing, but those who predicted that it would lead to very high inflation made an epic wrong call. Grant not only hates negative rates, he says he doesn’t like zero rates, and said back then the Fed should promptly raise them. Many other central banks, including the European Central Bank, tried just that—the results were disastrous.

Lastly, it is worth mentioning that by and large the financial industry lobbies heavily against negative rates. Leading financial newspapers regularly publish articles by banking industry proponents that argue how negative rates will deter governments from pursuing structural reform. Some of their arguments—about the problems with implementing negative rates today, having to with institutional, tax, and legal issues that need to be fixed before negative rates can be effective—are legitimate. The Curse of Cash addresses all that, and explains that it will take a long time even if the problem of a run into cash is taken off the table. Ultimately, banks make money off the difference between the rates they pay to borrow and the rates they charge to lend, and once the preparations are made, they will not have cause to complain.

In the end, if global real interest rates stay low for the next decade, there will likely be occasional periods of negative rates during recessions in most advanced economies, whether we like it or not. Part II of the book explains how to make negative rate policy better and more effective. Anyone who wants to understand it should read The Curse of Cash.

Kenneth S. Rogoff, the Thomas D. Cabot Professor of Public Policy at Harvard University and former chief economist of the International Monetary Fund, is the coauthor of the New York Times bestseller This Time Is Different: Eight Centuries of Financial Folly (Princeton). He appears frequently in the national media and writes a monthly newspaper column that is syndicated in more than fifty countries. He lives in Cambridge, Massachusetts.

An interview with Emrys Westacott on frugality, happiness, and everyday ethics

Westacott

Philosophers from Socrates to Thoreau have associated a happy life with frugality and simple living, but in today’s materialistic society, the simple lifestyle is hard to sustain. Emrys Westacott examines why enlightened philosophers have advocated spending less money… and why so many people have ignored them. In The Wisdom of Frugality: Why Less Is More – More or Less, he takes an unprecedented look at a topic that has come into considerable vogue: simple living. Recently, Westacott answered some questions about his book.

What led a philosopher to write about frugality?

EW: A few years ago I taught an honors class at my university titled, somewhat tongue in cheek, “Tightwaddery: The Good Life on a Dollar a Day.”  The theme was suggested by friends who knew of my own tightwaddish tendencies.  These honors classes meet for one evening a week, and are often experimental and a little quirky.  My Tightwaddery course made it into several lists of bizarre college courses, and some people who didn’t know anything about it assumed it was a perfect example of silliness passing for education.  If they’d bothered to look at the syllabus, though, they’d have seen that the course had plenty of respectable content.  We studied canonical philosophers like Epicurus, Epictetus, and Thoreau, as well as contemporary culture critics such as Sut Jhally and Judith Schor on issues such as consumerism, advertising, poverty, and the nature of work.  There were also practical components to the course, a few of which were admittedly not so serious.  Students were required to keep track of all their expenditures; they learned about matters such as unit pricing and dollar cost averaging; they had a go at cutting one another’s hair; and the course ended with a class banquet consisting of super cheap dishes that the students concocted.

Although the specific focus of the course was on frugality, the broader questions being asked really had to do with clarifying our most important values and our ideas about the good life–questions that have been central to philosophy ever since Socrates.  I’ve taught the course on frugality several times since. More recently I began teaching classes on Happiness, a topic which also obviously relates to questions about the good life.  And for many years now I’ve been writing about everyday ethics.  My last book, The Virtues of Our Vices, included essays on topics such as gossiping, rudeness, snobbery, and humor.

These overlapping interests in frugality, happiness and everyday ethics came together in a set of questions I found myself asking.  E.g. Why has frugality been praised down the ages as a moral virtue?  Are those who praise it right?  Is it possible that today, when the opportunities for consumption of all kinds are so much greater than in the past, and when our economy depends on millions of people constantly getting and spending, that thrift is an outmoded virtue, rather like chastity?  Should it even, perhaps, be included among what David Hume called the “monkish virtues”?

Once I started thinking about these questions, I realized that it was very difficult to keep separate the notions of frugality and simple living.  The concepts overlap, and so do the various arguments that have been put forward in favor of living a life of frugal simplicity.

Was the class popular?  Is simple living a topic that engages students today?

EW: Yes, the class was popular. (I might add that parents I spoke to were also enthusiastic about their offspring learning how to be frugal!) We hear in the news that the most popular undergraduate major in the US these days is Business, and that many graduates from Harvard and similar institutions head straight for Wall Street, following the money.  But I think there is clearly another movement, perhaps especially among young people, in the opposite direction.  A lot of people are critical of the prevailing consumerist culture, concerned about the environment, and interested in voluntarily structuring their lives around values like frugality, simplicity, and self-sufficiency. The recession of 2008 encouraged this trend since it made the frugal lifestyle a practical necessity for many who might not otherwise have been inclined to embrace it.

There are plenty of books out there about how we can and why we should live frugally or simply.  How is this one different?

EW: In several ways.

First, it’s not a self-help book or a compendium of practical advice.  If you want to learn how to make toilet brush holders out of used milk cartons, you should buy a book like Amy Dacyczyn’s The Complete Tightwad Gazette.

Second, it’s a philosophically informed study that focuses throughout on the arguments that have been (or can be) given both for and against simple living.  There is a rich philosophical tradition going back to ancient times in which these arguments are advanced and debated.  One of the things I try to do is identify what I take to be the main arguments within this tradition and examine them in an orderly way.

Third, it’s not a polemic.  The message of the book is not: Your must change your life!  I certainly am sympathetic to the views and values of those I call “the frugal sages” (a group that includes, among others, the Buddha, Socrates, Plato, Epicureans, Cynics, Stoics, Jesus, St. Francis, Boethius, More, Rousseau, and Thoreau). And in the last two chapters I offer reasons why it would be good for our society to facilitate and encourage simple living.  But I also recognize that there are some powerful arguments on the other side, arguments in favor of luxury and extravagance.  A failing of the frugal sages is that, for the most part, they don’t pay any attention to these arguments.  I try to correct this omission and to recognize that there really are cogent reasons for questioning the idea that the good life is the simple life.

What would you say is the guiding question of the book?

EW: There are actually three guiding questions:  Why do most philosophers advocate simple living?  Why do most people ignore them?  And who’s right?

What, exactly is meant by “simple living”?

EW: It turns out, when you think hard about it, that simple living is a complex notion.  It could include, or refer to, any of the following ideas:

  • fiscal prudence (as advocated by Ben Franklin)
  • living cheaply (using little money and few resources)
  • self-sufficiency (doing things for yourself; also not depending on others for favors or patronage)
  • living close to nature (like Thoreau at Walden)
  • being content with simple pleasures
  • asceticism, or self-denial (as practiced, for instance, by monks and hermits)
  • physical or spiritual purity
  • living according to a strict routine
  • aesthetic simplicity (e.g. shunning ornamentation, or preferring the rustic)

Some of these senses of simplicity overlap or support one another.  E.g. tending a vegetable garden is a simple pleasure that saves you money, makes you more self-sufficient, and brings you closer to nature.  But they can also conflict.  Diogenes the Cynic undoubtedly lived cheaply; his home was a large ceramic jar, and he kept all his possessions in a small bag.  But since he was a beggar he could hardly be described as self-sufficient.

Why do so many philosophers advocate simple living?

EW: Most of the reasons they give can be classified as either moral or prudential.

The moral reasons typically associate frugal simplicity with various virtues, such as hardiness, fortitude, unpretentiousness, temperance, and wisdom.  We still make this connection.   When the present pope was selected, lots of people pointed out that as a cardinal in Buenos Aries he had chosen to live in a small downtown apartment rather than the palace put at his disposal.  This was taken to be a sign of his integrity.

The prudential reasons are those that connect simple living with happiness.  The basic argument is that if you embrace frugal simplicity you’ll experience fewer negative emotions like anxiety, envy, frustration, or disappointment, and you will be more content with life.  You’ll need to work less, for instance, so you’ll have more leisure time in which to do as you please.  Once you get off the hamster wheel pursuing false goods such as money, possessions, status, fame, or power, you’ll find it much easier to achieve peace of mind.  You won’t be dissatisfied over what you lack, nor anxious about losing what you have.  You’ll realize that satisfying your basic needs is quite sufficient in order to be happy.  In fact, doing without luxuries can even enhance your capacity for enjoying both luxuries, when you occasionally experience them, and the humbler, everyday pleasures of life as well.  Epicurus champions this outlook on life as persuasively as anyone; in his view, nothing much more was needed for happiness than a cup of wine, a bowl of cheese, and a few good friends with whom to share the feast.

So why do so many people ignore the “frugal sages”?

EW: Well, there are quite a few reasons, and some of them make good sense.  One argument is that a serious commitment to frugality can have a morally objectionable aspect. Think of Ebenezer Scrooge, for instance.  An ingrained habit of penny-pinching can lead to parsimoniousness, ungenerosity, and pointless self-denial. Another fairly obvious point is that having a certain amount of wealth offers a degree of security, and hence peace of mind.  Even the bible–which tells us not to toil after wealth–says that “a rich man’s wealth is his strong city, and like a high wall protecting him.”

More interesting, though, in my view, are the arguments that can be given in favor of what the frugal sages would view as extravagance–that is, getting and spending far more than is needed for a life of simple contentment.   Extravagance generally gets a bad rap from thinkers like Ben Franklin because they automatically think of it as imprudent.  And it often is, of course.  Look at the hundreds of billions of dollars in credit card debt that Americans carry over from month to month, paying exorbitant rates of interest.   But what about affordable extravagance?  Here, I think the situation is complicated, and I find that my own attitude is ambivalent.

On the one hand, like many people, I’m inclined to criticize the self-indulgence of the super-rich when they spend vast sums on tasteless parties where ice sculptures of Michaelangelo’s David pee vodka, or on satisfying ridiculous whims, like Paris Hilton building a replica of her own mansion for her dog at a cost of $325,000.  Given how much more usefully the money might be spent, this sort of expenditure seems callously wasteful–although, truth be told, most of us who are comfortably off quite often indulge ourselves in a similar way; we just do it more cheaply.

On the other hand, one has to admit that extravagance has its pluses.  Think about where tourists go.  They go to see the Taj Mahal, the palace at Versailles, the stately homes of England, the art and architecture of Florence, and countless other cultural treasures that the extravagance of long dead fat cats has bequeathed to us.  The fact is, extravagance fuels culture.  How many of us could honestly wish that the Medicis had been more frugal, or that the aristocratic patrons of Haydn and Mozart had dispensed with their court orchestras?

And there’s another problem.  If I ask my students whether they would like to live the good life as described by the likes of Socrates and Epicurus–the life of frugal simplicity, humble pleasures, and conversation with friends–some find it appealing, but many don’t.  And the reason is simple: they find this ideal boring.  They want to go places, see things, do stuff, have adventures, and make their mark.  From this point of view, the frugal sages fail to squeeze all they could out of life.  They content themselves with too little.  That attitude perhaps made sense throughout most of human history, when  life was terribly insecure for almost everyone, and both vocational and recreational opportunities were very limited.  But things are different today.  The quintessentially modern attitude is that of Faust in Goethe’s drama: he wants to experience everything the whole of life to the full.  So here is another reason for being extravagant: done right, it makes life more interesting and exciting.

Does this imply that the philosophy of frugal simplicity, the outlook championed by Epicurus, Thoreau, and the rest, is past its sell by date?  Or is it still relevant today?

EW: These are the questions I take up in the final two chapters of the book.  My answer is that there is still plenty of wisdom in the frugal tradition that we can apply today, but that we also have to recognize its limitations, given how dramatically the world has changed over the past two centuries.

Two changes in particular present us with issues that the frugal sages of the past never really considered: the size and complexity of modern economies; and the environmental problems engendered by the industrial revolution and the subsequent growth in human population.

Anyone who advocates a return to frugal simplicity has to deal with the problem that if enough people took this path over a short period of time, there would be a massive decline in demand for goods and services that one pays for.  But many people’s livelihood depends on this demand remaining high.  A modern economy stays buoyant because enough people are running around getting and spending.  So the question is whether we can simplify our lives in desirable ways without impoverishing ourselves and creating depression-era levels of unemployment.  I think we can.  But it requires government policies that positively support simple living. If, for instance, people enjoyed free universal health care, adequate state pensions, cheap public transport, and affordable housing, they could feel assured of a decent quality of life without the need to make lots of money.  In that situation, the prospect of working fewer hours and having longer holidays–the obvious solution to the problem of unemployment– becomes more inviting.

The way our material standard of living is tied to consumer activity poses a difficulty for the philosophy of frugality.  But the environmentalist problems we face suggest new arguments in favor of this philosophy.  Limiting consumption, cutting out waste, downsizing, and simplifying will, in most circumstances, reduce one’s ecological footprint.  Here, too, there are complexities and legitimate grounds for disagreement.  On the whole, though, the environmentalist arguments in favor of simple living are strong, for the need to combat problems like global warming and pollution is urgent.   And a shift toward simpler living might also be useful in helping us handle the social disruption and ethical challenges thrown up by constant rapid technological change with greater wisdom than we have managed to date.

Emrys Westacott is a professor of philosophy at Alfred University in Alfred, New York and the author of The Wisdom of Frugality: Why Less Is More – More or Less and The Virtues of Our Vices (Princeton). Westacott’s work has been featured in the New York Times and has appeared in the Los Angeles Times, the Wall Street Journal, the Philosopher’s Magazine and Philosophy Now, to name a few.

Five PUP authors included in the Politico 50 2016 list

We are thrilled that five PUP authors have been included in the Politico 50 2016 list!

 Robert Gordon, author of The Rise and Fall of American Growth

Gordon

George Borjas, author of Heaven’s Door

Borjas

David Card and Alan Krueger, authors of Myth and Measurement

Myth

Angus Deaton, author of The Great Escape

Deaton

Kenneth Rogoff: Cash is an emotional topic

Read on for the first post in a blog series by Kenneth Rogoff, author of The Curse of Cash:
Rogoff

In The Curse of Cash, I make a serious case for phasing out the bulk of paper currency, particularly large denomination notes. Since pre-publication copies started floating around just a few weeks ago, a number of engaging, thoughtful reviews have published (for example, here, here, here, here and here). But mere rumors of the book’s impending publication have also evoked an extraordinary number of visceral comments (online and by email): “This idea is almost as bad as banning semi-automatic weapons,” is one theme. Another is, “Why should people feel guilty about doing business in cash to avoid paying taxes when we all know the government will just waste the money?” Having first explained two decades ago why governments that print big bills are penny-wise and pound-foolish, I am well familiar with how emotional this topic can be.

There have also been some comments having to do with individual liberty and wondering if criminals will use other currencies and transactions media. I address these and many other serious concerns in the book, and I have tried to do so in a clear and engaging way that anyone can understand. But here is a quick version to straighten out some key points:

The most fundamental point is to emphasize that the book argues for a less-cash society, not a cash-less one. There is a world of difference. If the U.S. first phased out one hundred-dollar bills and fifty-dollar bills, and then after perhaps two decades phased out twenty-dollar bills, there would still be ten-dollar bills and below. I strongly argue these should be left around indefinitely, and explain why it would be a mistake to withdraw cash entirely, as opposed to just larger bills. Even if we get down to ten-dollar bills, making an anonymous cash purchase of $1,000 would still be pretty easy—and even a $100,000 purchase would require only a briefcase. The aim of my proposal is to get at wholesale tax evasion by businesses and higher-income individuals, and by large-scale criminal enterprises, e.g., drug lords and crime bosses. With ten-dollar bills and below—which will be left in place indefinitely—there will always be ways for ordinary people to make private (anonymous) payments and for low-income individuals to buy groceries.

Any reader of the book will see that I am not proposing getting rid larger bills as segue to an outright abolition of cash—I explain why I’m against eliminating physical cash into the very distant future, perhaps another century. But for all the advantages of cash, we have to recognize that the current system is badly off kilter. A lot of central banks and finance ministries know it, as do justice departments and tax authorities.

What about the argument that in lieu of big bills, criminals and tax evaders are always going to find other ways to make anonymous payments? Obviously this is an important point, and one that comes up throughout in the book. But there is a reason why cash is king. No other anonymous transactions vehicle, however, is as remotely easy to use. Gold coins have to be weighed and assayed, and can hardly be spent at the tobacco shop. Uncut diamonds are even less liquid. Bitcoin is somewhat anonymous (albeit traceable in many instances), but governments have been putting up all sorts of tax rules and restrictions on financial institutions that make it a very poor substitute for cash. And by the way, governments will continue to do this with any new transaction media they view as facilitating tax evasion, money laundering, and crime. As I explain in the book, big bills facilitate big crime—taking them out of circulation will have a significant effect.

Finally, another very early comment on the book, of a vastly different type, is from someone I greatly respect but do not always agree with, Edward Chancellor. Unfortunately, he makes a couple of absolutely critical misrepresentations. Most importantly, he seems happy to blur the critical distinction between “less cash” and cashless. He slips easily into the “cashless” phraseology, for example, when wondering how to give money to beggars in my world. I am impressed if he can give out one hundred-dollar bills to beggars, but if so, I think he would find that a fistful of tens is also welcome.

I agree with Edward that to take advantage of today’s ultra-low real interest rates, it would be a good idea for governments right now to issue very long-term bonds (see my recent article); I have no objections to his preferred perpetuities. But there is an enormous difference between issuing registered perpetual bonds and issuing anonymous currency; that is my whole point. By the way, as the book notes, anonymous bearer bonds were effectively killed a long time ago.

Edward and I disagree on negative interest rates, but that it is whole different can of worms. I’ll just say that, in addition to explaining the issues, the section in the book on negative rates shows that effective negative-interest-rate policy is going to require laying many years of ground work—not a recommendation for something the ECB or the Bank of Japan can do tomorrow. But for reasons discussed, it is by a wide margin the best plan for the future. All the others are much worse.

In the meantime, anyone who has looked serious at the data will realize that even as currency use is declining in the legal economy, it is growing in the underground economy. Something is badly out of whack, and it is time to have a serious discussion about it.

Kenneth S. Rogoff, the Thomas D. Cabot Professor of Public Policy at Harvard University and former chief economist of the International Monetary Fund, is the coauthor of the New York Times bestseller This Time Is Different: Eight Centuries of Financial Folly (Princeton). He appears frequently in the national media and writes a monthly newspaper column that is syndicated in more than fifty countries. He lives in Cambridge, Massachusetts.