Sunday, November 6, 2016

Sorry Ken, bots don't like writing letters to Janet

Koning on Rogoff: With the publication of his new book The Curse of Cash, economist Ken Rogoff has ignited a big debate over the future of paper money. Both the book, which is packed with information and accessible to a mainstream audience, and Rogoff's series of blog posts are well worth reading, even if you already disagree with his premise that the way the world currently handles cash needs to be modified.
The key observation motivating Rogoff's book is this one: with $1.3 trillion worth of U.S. currency in existence, a back-of-the-envelope calculation says that the average four person family should be holding around $16,800 in cash. However, this simply doesn't reflect the personal experience of most Americans. Indeed, 2012 survey data shows that consumers generally report holding just $56 per person, leaving the majority of cash unaccounted for. Nor is this anomaly confined to the U.S. Given $78 billion in Canadian currency outstanding, a four person family in Canada should hold around $6,000. Instead, survey data shows the average person only holds a median $38 in their wallets. The same pattern occurs in Europe, Japan, Australia, and elsewhere.
According to Rogoff, much of the unaccounted cash is being held by those who participate in the underground economy, both by those engaged in criminal activity and those employed in legal activity (dentists, contractors, retailers, etc) who use cash as a way to avoid taxes. Rogoff's premise is that if we can alter the institution of cash, then maybe we can flush some of these people out of the underground economy and back into the legal, tax-paying economy.
Why do economists get this wrong?   We are going to pure cash, Ken, get with the program.  If criminals want to hold digits in their smart cards,then the bots will notice them by their spending absence.  But if we keep the letters to Janet then the bots will jam the graph,

Here is a better system.  If the criminals decide to hold a particular coin, then it circulates through the  trading pits less, it will havr lower precision is less useful.  Thus, the bots well slowly adapt to a more active coin. Check the probability graph on the StandardS&L trading pit for the coin.  Scan the digits outstanding, digits outstanding make the null bet.

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