India’s Prime Minister Narendra Modi is
just another political hack. Like politicians in general, he does not
understand economics. He does not understand the law of unanticipated
consequences. He does not understand that government is dumb.
On November 8, he unilaterally and without
warning declared the two highest value paper currency units obsolete: the
500-rupee ($7) and 1,000-rupee notes ($14). They will no longer be money in 50 days, he announced. That will be on
December 28.
These two denomination bills constituted 86% of the nation’s currency.
To turn it back into currency of value,
India’s currency holders most go to a bank and exchange it. But 600 million Indians have no bank accounts.
This was a minor detail in the mind of Modi. He thinks of himself as a
big-picture guy. Details don’t matter to him.
Across India, banks ran out of the official
replacement currency. The ATMs stopped working.
This law supposedly is aimed at income tax
cheaters. Yet this is a nation in which 95% of the population does not file tax returns.
Tax cheating? Really? And I am to understand that the best way to stop tax
cheating is to annul 86% of the currency? Tell me more!
Sorry, but I cannot resist. This is the
Indian government’s Modi Operandi.
Some businesses have ground to a halt.
Street vendors cannot buy or sell. Gasoline is unavailable in some regions. Some 400,000 trucks were stranded.
Small businesses deal only in cash. All of
them are suffering.
Because India’s money, like every other
nation’s money, is monopolized by the national government and the central bank,
the public was helpless. There is nothing in economic theory or political
theory that proves that a national government should have sovereignty over the
money supply. But governments claim this right so that they can control the
population better. The voters go along with this. Then they pay the price.
No nation today is paying a heavier price
than India. About 90% of India’s transactions are currency
transactions. Only 10% of stores have credit card purchasing. The
government calls currency black money. It is seen as black market money.
It is also white market money and gray market money.
“Be patient,” Modi has said. This is
reminiscent of “endeavor to persevere.” (See video at website)
All over the world, Modi has become the
poster child of a truly dumb politician. Up until November 8, India had the
fastest-growing economy on earth: over 7%. Estimates are that his anti-cash law
will shave off at least two percentage points. Achieving this kind of economic
setback is not easy for a politician to achieve overnight. Any politician who
accomplishes this is going into the record books.
This is good news for the rest of the
world. Any politician who is contemplating a forcible move to a cashless
society will be more ready to think through the unintended consequences of his
actions, especially the consequences at the next election.
From now on, around the world, this phrase
will become familiar in politics: “to pull a Modi.”
Reprinted from GaryNorth.com.