On November 8, 2016, Narendra Modi, the Prime Minister of India, stepped in front of TV cameras and announced the nation would almost immediately begin getting rid of most of its cash. Indians would have to exchange or deposit their large rupee bills in a matter of weeks — or else they would become worthless. Poof. Gone. The policy was supposed to end corruption, counterfeiting, and a large shadow economy; it was also a push to turn India's backward, cash-dependent economy into a modern, electronic one.
But what followed proved to be chaos.
The surprise announcement sent millions and millions of Indians scrambling to exchange their cash. They left their jobs and waited in long lines at the bank. They upended their lives trying to preserve their savings. Businesses, starved of payments, crumbled. The whole story is nuts, and Planet Money has two great episodes that tell it. You can listen to them here and here.
It's now been a few years since India's "demonetization," as Prime Minister Modi called it. And the data is coming in. A new study, forthcoming in the prestigious Quarterly Journal of Economics, gives us a one-of-a-kind look at what this radical policy meant for the economy.
What Happens When You Suddenly Get Rid of Cash?
Gabriel Chodorow-Reich is an economist at Harvard University, and he and his colleagues quickly saw demonetization as a perfect "natural experiment," a rare opportunity to look at how economic theory plays out in the real world.
You might think that Chodorow-Reich and his team could have just looked at official statistics, like GDP, to get the story. But GDP misses a lot, especially in a country like India, where there is a massive underground economy. To get around this problem, Chodorow-Reich and his colleagues used other measures, like satellite imagery of lights at night. When people spend money, restaurants, factories, bars, and cars light up the night sky. The idea is more light, more economic activity. Economists have increasingly been using changes in night luminosity, as seen from space, as a way to measure economic growth in places where official statistics are spotty.
India at night, as seen from space.
Wikimedia Commons
The Indian government wiped out 500 and 1000 Rupee notes, representing 87% of the total cash in circulation. It then shipped in new types of bills, which are harder to counterfeit, to the roughly 600 districts in the country. The new bills were sent to districts at different speeds and in different batches, and Chodorow-Reich says that this wasn't done with much recognition of where the old notes came from. As a result, some districts became much more starved for cash than others, and the economists used data on these cash shortfalls to measure the effect of cash on economic growth.
Chodorow-Reich and his team find the policy of rapid demonetization caused a two percentage point crash in economic growth during the first few months after the policy was announced. To put that in perspective, the Indian economy was growing just over 2 percentage points per quarter during this period. So essentially, the policy halted economic growth. The decline could be seen by satellites at night; the country looked dimmer.
Lessons For The Cashless Movement
There's currently a movement to get rid of cash. One of its leaders is Chodorow-Reich's colleague at Harvard, Kenneth Rogoff. Rogoff wrote a book called, The Curse of Cash, and he makes the case that eliminating large bills will have all sorts of societal benefits, starting with a reduction in crime and corruption.
Chodorow-Reich's study raises the prospect that the movement to get rid of cash has a real cost. But he cautions that such a policy might work out differently in a country like the United States. India has a massive population of people without bank accounts, credit cards, or payment apps — and the United States is much more advanced in this regard. It's not as dependent on cash.
India surely suffered under this policy, but Chodorow-Reich and his team do find that it helped promote the adoption of electronic forms of payments. Moreover, once new cash replaced the old notes and people adjusted to the new payment system, things returned to normal. "If India had been able to print those notes and distribute them instantaneously, there wouldn't have been any problem," Chodorow-Reich says.
Which is why Chodorow-Reich advises that that if a country wants to get rid of cash, they should heed this key lesson from India: "You don't want to do it suddenly," he says. "There are adjustment costs."
Here’s what Russia’s 2020 disinformation operations look like, according to two experts on social media and propaganda. By DARREN LINVILL & PATRICK WARREN Internet trolls don’t troll. Not the professionals at least. Professional trolls don’t go on social media to antagonize liberals or belittle conservatives. They are not narrow minded, drunk or angry. They don’t lack basic English language skills. They certainly aren’t “somebody sitting on their bed that weighs 400 pounds,” as the president once put it. Your stereotypical trolls do exist on social media, but the amateurs aren’t a threat to Western democracy. Professional trolls, on the other hand, are the tip of the spear in the new digital, ideological battleground. To combat the threat they pose, we must first understand them — and take them seriously. MORE: https://www.rollingstone.com/politics/politics-features/russia-troll-2020-election-interference-twitter-916482/ P...
The Nightmare Scenario That Keeps Election Lawyers Up At Night -- And Could Hand Trump A Second Term (Photo: Photos: Getty Images) Americans will almost certainly go to bed on Nov. 3 without knowing who won the presidential election. Since millions of people will vote by mail, constraints on time and resources will slow ballot counting into potentially a weeks-long process. Voting patterns suggest it’s likely that President Donald Trump could end Election Day in the lead in certain key states, only to be overtaken by Democratic opponent Joe Biden when more votes are tallied. This could create a nightmare scenario during the three months stretching from Election Day to the Jan. 20 inauguration: a battle on the state and congressional level over who is the legitimate winner. This could include Congress reconvening on Jan. 6, presided over by Vice President Mike Pence , with no consensus over its potential role in choosing the next president. This...
So, what is bluster? By definition: - to speak or act in a noisy, angry, or threatening way without saying anything important As good enough an explanation as any I guess, but it really doesn't say it all. Back when I was a kid, there was always that kid on the teams that would lose at whatever game it was and get mad while blaming someone else for the loss, even though they'd been a major part in the loss. So I naively assumed that bluster was only a sore loser thing. As I got older and worked I found out that it was also a tactic to try and scare others from fighting back. So a poker reference here, it's very similar to someone going "all in" right away to discourage anyone from calling the bet. Now, we see it quite often in politics, usually with doubling down if it's confronted. In politics as a tactic, it's meant to scare the politician's opponents, but also to distract from the other things the politician has failed to deliver and/or actually w...
