Larry Summers Says Cash Sucks

He used to be Harvard’s head honcho, which is a pretty cool thing to be if you’re of that ilk. He was also treasury secretary and director of the White House National Economic Council.  So Larry Summers, even though he only holds an endowed professorship these days, is probably pulling down a decent paycheck.

I bet he pays for stuff with a credit card, because he’s too smart to use a debit card. But what Larry Summers doesn’t do is use big bills.

Harvard’s Mossavar Rahmani Center for Business and Government, which I am privileged to direct, has just issued an important paper by senior fellow Peter Sands and a group of student collaborators. The paper makes a compelling case for stopping the issuance of high denomination notes like the 500 euro note and $100 bill or even withdrawing them from circulation.

Oh cool. Stuff Harvard thinks. That’s certainly important.

The fact that — as Sands points out — in certain circles the 500 euro note is known as the “Bin Laden” confirms the arguments against it. Sands’ extensive analysis is totally convincing on the linkage between high denomination notes and crime. He is surely right that illicit activities are facilitated when a million dollars weighs 2.2 pounds as with the 500 euro note rather than more than 50 pounds as would be the case if the $20 bill was the high denomination note. And he is equally correct in arguing that technology is obviating whatever need there may ever have been for high denomination notes in legal commerce.

Cash. The government hates it. At a kilo per million, it makes for a great way for criminals and terrorists to move money without the government knowing about it. Burn the witch!  After all, “technology is obviating” any need for big bills.  Just use your platinum card. Duh.

What should happen next?  I’d guess the idea of removing existing notes is a step too far. But a moratorium on printing new high denomination notes would make the world a better place.

Better for whom, Larry?  Would it make it harder for criminals and terrorists to move money? Well, sure, and seriously, isn’t that the only thing that matters? Shouldn’t all societal choices be based on the most important consideration possible, what makes the government’s job easier?

The government has done everything possible to eradicate cash as a median of exchange, to the point where its mere possession is proof of criminality. Of course, this also serves an ulterior purpose, as it allows the government to seize cash since no one but criminals use cash anymore, right? But Larry is only talking “big” money, like the $100 bill. And the $50. Because a cool mil in Jackson’s weighs 50 lbs., and that’s a lot to tote around.

And what sort of miscreant would disagree with someone so knowledgeable, so credible, so brilliant, as Larry Summers?

I confess to not being surprised that resistance within the ECB is coming out of Luxembourg, with its long and unsavory tradition of giving comfort to tax evaders, money launderers, and other proponents of bank secrecy and where20 times as much cash is printed, relative to gross domestic, compared to other European countries.

Bad dudes all. Who else but bad dudes wouldn’t hop aboard any speeding train in which one could find Larry Summers in a first class, fully reclining seat.  Well, Larry’s confusion is understandable.  There aren’t many who sip champagne at the cocktail parties Larry attends who would be aware of, and capable of explaining, how the groundlings live.  At Harvard, they are handed a double platinum AmEx card upon matriculation, with the understanding that they will pay their bills when the bonus check clears.

So Larry wouldn’t know about the millions of people who use cash, need cash, including those filthy $100, $50 bills he so despises.  There are people who work for a living. Not the ones at Goldman Sachs, but mowing the lawns of people who work at Goldman Sachs. They live hand to mouth. When they get paid, they head straight to the supermercado to buy food for the niños. Those darn niños get hungry and want to eat every day.

And every few years, they head off to buy a new car. Well, not exactly new, in the sense that Larry gets a new Tesla to keep his carbon footprint under control (those Maybach owners are so thoughtless). New to the buyer, and ten years old to everyone else. Even so, it costs more than a few $20s, and so he carries with him a pile of $100s so he isn’t hit over the head on the way when someone sees a big bulge in his pants pocket.

But, Larry ponders, if they can’t get the black card, at least let him get one of those pedestrian cards they have for “those” sort of people. Here’s the thing, Larry. There are a lot of people, even though you don’t actually know any of them, who have no bank account, no credit history and no savings, who still need to buy stuff.  It’s not that they don’t want a black card, just like you, but credit card issuers don’t think very highly of them as credit risks.  Debit card issues can’t help them, as they’ve never earned enough money to put it into the bank.

And still, they need to eat. To pay rent. To buy the new old car. To survive. And they use cash.

There are even people who don’t trust banks. I know, it seems incomprehensible to the guy who was Treasury Secretary that anyone might mistrust financial institutions like Lehman Brothers, Bear Sterns, Citibank, but they do. Crazy, right?  And some have cultural reasons why they prefer to keep their savings under the mattress. How dare they not assimilate, but still, it’s not yet a crime.

And these people need big bills, because those $20s make the mattress lumpy and uncomfortable.

It’s certainly a matter for a very official guy like Larry Summers to be concerned with, since crime and terror are the sorts of fears that official guys perceive as a problem demanding a fix. And given the weight of the evidence, combined with the availability of plastic, what possible reason could exist not to do away with big bills?  I wonder who mows your lawn, or waits your table, or serves up the champagne on the silver platter at gala balls, Larry?  Maybe you should ask them.

32 thoughts on “Larry Summers Says Cash Sucks

  1. Billy Bob

    Furthermore, how are we working stiffs and our criminal brethren going to pay for legal advice when there are no more big bills? We would like to see the government print more big bills, not fewer. Larry is dead wrong on this one. That’s what happens when you cross Harvard Yard one too many times. You get dingy in the head.
    We could go back to the “gold standard”, but that’s unlikely to happen. Gold is heavier than paper, unfortunately. The 100s and 50s are here to stay, irregardless of what Summers and Sands think. Watch out when your name starts and ends with an ‘s’.

      1. losingtrader

        The jokes on you.” Irregardless” is actually in the dictionary, as is “supposably,” which I’d never heard until I moved to Las Vegas and then 5 people used it in about a year in place of “supposedly.”

        I was crushed after making fun of it for 18 years, then discovering it mean “conceivably.”
        As John Riggins drunkenly said to Sandra Day O’ Conner at a dinner party, “Loosen up baby, you’re too tight.”

    1. j a higginbotham

      With inflation, a $100 doesn’t buy what it used to. Even so, we have already discontinued $500 and $1000 notes as well as the $5,000 and $10,000.

  2. David Harris

    I have to imagine Summers is really targeting the 500 Euro and not seriously going after the $100. After all the U.S. enjoys a significant advantage because the dollar is the world’s de facto reserve currency. The economic term is seigniorage, the difference between the cost of printing a $100 bill and what the government receives in return for paying with it. A 2009 McKinsey paper concluded that about half of the physical dollars in circulation are held outside the U.S. ($400B) and the Federal Reserve nets approximately $10B a year from seigniorage income. I don’t have data on how many of those dollars are $100s but I have to think that a significant percentage are for the reasons enumerated in the post. Eliminating the $100 would put more pressure on the dollar’s position as the savings vehicle of choice for the rest of the world. Summers certainly knows this so either he (1) posits that elimination of the $100 bill wouldn’t have any effect on the dollar’s preeminence or (2) knows it is politically impossible and practically without effect (if criminals can’t finance their nefarious deeds with the 400B in foreign circulation they just aren’t trying) but it makes for a great think piece to throw out.

    1. SHG Post author

      I would agree, but for the fact that US government has done everything in its power to make the use of currency untenable, if not criminal. And Summers certainly knows this as well.

  3. Hunting guy

    No link per the rules, but there is now a version of Monopoly that doesn’t use cash. Players get personalized credit cards and use a small ATM to track their money.

      1. Tom C.

        Yup. My kids got the version of Life that used a debit/credit card almost 10 years ago. At college now, the kids don’t even give each other cash to pay for their share of the pizza; they use Venmo (a Paypal company) to move money around between themselves.

  4. losingtrader

    You obviously don’t hang out with people from Walmart and Denny’s.
    There’s AMEX Serve, Bluebird, Netspend and about 20 other debit cards I can name for people without bank accounts. They can be loaded at thousands of locations from 7-11 to Walgreens to Walmart,and if stolen, you can get your money back. But, of course you need a tax ID–which you can get even if you are illegal.

    BTW they won’t let YOU into Walmart since you lost 30 lbs. You’ll have to hide behind 2 fat people,

    But, I agree with the comment about the hundred dollar bills. It was so cool when Saddam’s sons lit them on fire just to light cigars, and more to the point, what wealthy person would be caught without crisp 100’s to roll up to snort coke or meth?
    In fact , I thought that was the main purpose of the $100.
    You’ve enlightened me.

    1. maz

      Another little-known feature of many of those non-bank-account cards is that they can be canceled without warning and without explanation beyond “we decided to cancel it.” Typically such cancellation follows a recent infusion of cash — which the card company then refunds by means of a check that arrives 6 to 8 weeks later and — for a client with no bank account — typically ends up being cashed at a payday loan storefront for a non-insignificant service charge. In my experience, not even AmEx is *that* arbitrary and opaque.

  5. Tom C.

    In contrast, popular Christian financial author/radio host Dave Ramsey tells his followers to cut up their cards and use cash for almost everything. I suspect a lot of them have done so. I would expect a vociferous political response if the government eliminates large bills or starts bringing structuring charges against Dave Ramsey followers who routinely cash out most of their monthly nut.

    1. SHG Post author

      I bet more people listen to Dave Ramsey than Larry Summers. But I would also bet they’re not top governmental officials.

  6. Boffin

    A US banknote is about 1 gram, so a million dollars in $100s is 10 kg, or 22 pounds. A $million in Jacksons is about 100 pounds.

  7. drouse

    The thing is that if people use cash, they can’t be charged for using their own money. It is reminiscent of the tactics the early capitalists used to move the peasantry from their cots into the cities to be exploited.

      1. JAV

        Dennis the peasant from “Monty Python and the Holy Grail”. The briefest of YouTube searches is enlightening.

  8. EH

    Summers is an economist. He must know that there’s a ton of money out there and there are also a ton of obvious viable substitutes from gold to diamonds to bitcoins–and that doesn’t even include the substitutes which will be invented if they stop printing 100s. In what part of Summers’ world will the criminals stop crimining in their criminish way, merely because you stop printing 100s, rather than switching to something else? The substitution cost is small.

  9. Tom H

    I wonder if they did a cost benefit analysis of this scheme to inconvience drug dealers? The government will need to buy more paper to print 5 twentys for every hundred. They will need more ink, may need an extra shift at the printing plants. The Federal Reserve will need bigger warehouses to store all this extra money. Extra trucks to deliver it.

    Since we are talking government, I’m sure all this will cost us billions of dollars.

  10. the other rob

    Another hypothesis that’s being advanced in many circles is that the deprecation of cash is a necessary precursor to the imposition of negative interest rates.

      1. the other rob

        It’s being bruited all over the place, both here and abroad. Oddly, it’s another move that would disproportionately hurt the less well off, who tend to keep what savings they have in the form of money, than it would the better off, who have access to more sophisticated instruments.

        1. Patrick Maupin

          Inflation hurts poor savers. Deflation hurts poor people with mortgages. To hurt both, ya gotta get creative.

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