The Government's Push For A Cashless Society Won't Go Away

As it previously did back in August 2016, the Wall Street Journal gives over the front page of a special section today to anti-cash crusader Kenneth Rogoff.  At least this time they also print a counter-point article, by a Wharton professor named James McAndrews.  Both artilcles are at this link (probably behind pay wall).

Rogoff's August 2016 effort was the subject of my post at the time, "There's Nothing More Frightening Than Rule By The 'Smart.'"   Rogoff -- MIT Economics Ph.D. 1980, former Chief Economist of the IMF, big time professor at Harvard -- is a perfect example of those people who think they are so smart that they should be allowed to re-design the world, while at the same time they are completely incapable of perceiving the downsides and unintended consequences of what they are proposing.  Among my comments from last year:

Naturally the visions of these geniuses are all variations of the same thing, namely some kind of government program to more closely monitor and/or control the people.  The geniuses know that there is no downside in such programs, first because the programs have been designed by themselves, and second because government programs are administered by all-knowing and perfect government functionaries, who are people like us and can always be trusted to do the right thing.

Getting rid of cash is another instance of government doubling down on failure.  It's like increasing penalties for drug crimes (this time we will stamp them out!) or adding yet one more in-kind distribution to fight poverty.  In the case of getting rid of cash, the previous effort was the law of "money laundering," which has undoubtedly been the single most abject and total failure of all government efforts to micro-manage the people.  (See "The Joke Of Criminalizing Money Laundering.")  Somehow, drug dealing, illegal gambling, and an entire $2 trillion per year underground economy continue to exist.  This will fix it!

Of course Rogoff leads off with the argument that getting rid of cash will reduce crime and tax evasion.  Well, that's open to debate -- and I would bet for the other side.  Then there's this next one, which he seems to think is an argument in favor of eliminating cash:

Another advantage of eliminating large bills would be the effect on monetary policy. The Federal Reserve should be able to implement negative nominal interest rates vastly more effectively in the absence of large bills, which could prove quite important as a stimulative tool in the next financial crisis.

That's right -- Rogoff, along with most other sophisticated monetary economists these days, has convinced himself that it's a good idea for a central bank to respond to a financial crisis by making it impossible for retirees to earn any return on savings unless they are willing to invest in equities.  Is there any actual evidence for this?  None that I know of.

Our counter-pointer Professor McAndrews makes some good points, but also seems to miss many important ones.  His main points are (1) 7.5% of U.S. households don't have bank accounts.  What about them?  (2) There is substantial legitimate non-criminal need for cash; and (3)
The bad guys will figure out ways around this, probably involving drawing legal businesses into criminal activity of helping them launder the revenue.  All good points that I don't mean to minimize.  Here are a few more that McAndrews doesn't mention, from least to most important:

• The power is out in Puerto Rico, and is likely to be out for a couple of months or more.  How are those credit cards working out for you?
• In a cashless world, everything you do is subject to monitoring by the government.  Indeed, under the Bank Secrecy Act and its incremental encrustations, the government can monitor all of your bank transactions, and all of your uses of credit cards, behind your back, and instruct your bank not to tell you that you are being monitored.  Is there any chance that a government might misuse such snooping powers against its political adversaries?  If you don't think so, then you have not been paying attention to what's going on.  E.g., from CNN, September 18, "US investigators wiretapped former Trump campaign chairman Paul Manafort under secret court orders before and after the election…. The government snooping continued into early this year, including a period when Manafort was known to talk to President Donald Trump.”  Or see the Susan Rice "unmasking" scandal.  
• Cash provides a safety valve against ramping up taxation to a higher and higher percentage of GDP.  The more they can stamp out the escape to cash, the more leeway the government has to increase the current 35% of GDP or so annual tax take to more like 50% or 60% or even 70%.  It's to make a more perfect world!  Without a doubt, this is the main objective of the Rogoffs of the world, although they will never state it explicitly.  

The good news is that, despite a number of setbacks, Bitcoin seems to be gradually progressing toward greater acceptability.  It can't happen fast enough.  Meanwhile, you owe it to yourself and your country to use cash as much as possible.  It's part of the never-ending fight for freedom.   

Two Proposals For Dealing With Equifax (And Experian And TransUnion)

Even as the big Equifax data breach was exploding into the news a couple of weeks ago, there was a bill that had gotten to a fairly advanced stage of the Congressional sausage-grinder, providing for a limitation of liability for the big credit bureaus in the event of such instances or other violations of the Fair Credit Reporting Act.  The principal sponsor was a guy named Barry Loudermilk of the Georgia-11 (northern Atlanta) District.  (Isn't that odd?  He's one of Equifax's home town Congresspersons!)  NBC News reports on the bill on September 11, with a headline spinning this as "Republicans" seeking to protect their big business allies.  ("Republicans in Congress Want to Roll Back Regulations on Credit Bureaus").  Loudermilk is quoted as follows:

“I have seen how a small technical error, turned into a lawsuit, can affect everyone in a business, including employees, customers, and vendors. Unfortunately, suits under the Fair Credit Reporting Act have skyrocketed in recent years while leaving consumers inappropriately compensated."

Well, I wouldn't think that Loudermilk's bill is going anyplace during the current firestorm.  

Normally, you might expect the Manhattan Contrarian to have some sympathy with legislative efforts to rein in abusive lawsuits, but this one is a little different.  As discussed in my first post on this subject last week, Equifax and its confrères in arrogant credit-bureaudom claim the right to collect all your most private and sensitive information and then to have no relationship with you and no responsiveness to you at all.  And to sell your information to thousands of their customers without giving you any idea who those customers are, what information is being sold, or what those customers are doing with the information.  And if you ask any of those questions, the credit bureaus will refuse to answer.  

Loudermilk does have a point that the current structure of the FCRA is essentially useless in protecting consumers against credit bureau abuse (few can show actual damages, and $1000 statutory damages is not enough to justify any individual lawsuit), while at the same time creating perverse incentives for entrepreneurial lawyers to gin up huge class actions over minor technical violations systematically repeated over thousands or millions of customers.  OK.  But there must be a way to make the credit bureaus responsive to consumers in the same way as every other normal company.  Not that other companies are perfect, but the credit bureaus are ridiculous.  (Try googling any of the three of them and the word "reviews", and get ready for hundreds upon hundreds of scathing one star reviews.  And these are the people who purport to establish your reputation!)

There have been numerous proposals for reform, including many put forth as the issue has been in the news during the past couple of weeks.  I'll discuss two:  one from Bloomberg View on September 15 by an opinion columnist named Joe Nocera, headline "Equifax Should Be a Public Utility";  and the other from a guy named Jim Harper for the Cato Institute made back in 2011, title "Reputation under Regulation: The Fair Credit Reporting Act at 40 and Lessons for the Internet Privacy Debate."

Nocera seems to start out on the right foot:

[T]hey don’t care because they don’t have to. At a minimum, the government needs to create incentives that would reward the companies for accuracy, customer service, and ironclad data security.

But from there it's all down hill.  How to create those incentives, Joe?  His big and only idea is to go from the current model of uber-government regulation to another model of much greater, super-duper government regulation -- the "public utility" model:

[T]here is a solution that is both radical and sensible: treat the companies like public utilities. [Adam] Levitin recently wrote a blog post proposing such a plan. The credit bureaus, he wrote, have no natural right to the data the collect; they only have it because the law tolerates it. Thus, he says, “It’s quite reasonable to qualify that right with a regulatory system.”  As public utilities, they would still be publicly-traded companies, but they would be overseen by a government body. . . .

It's the completely standard answer of doubling down on failed bureaucratic solutions.  If dozens of pages of statute and hundreds of pages of regulations have only brought us complete failure, what makes us think that doubling or tripling the regulatory regime will make things any better?

Harper's much longer report contains a very useful history of how we got where we are in the credit reporting mess.  You won't be surprised to learn -- or maybe you will be surprised -- that once the government got into heavily regulating the credit bureaus back around 1970, there followed a series of statutory amendments, one after the other, each giving the government itself more and more access to the credit bureau databases without consumer knowledge or permission for one after another seemingly laudatory purpose.  The end result of it all has been to turn the bureaus, in substantial part, into an arm of what Harper calls the "surveillance state," all taking place without your permission and behind your back, and without need of a search warrant or subpoena:

[I]n 1989 Congress expanded the “permissible purposes” for which a credit bureau could furnish a report by allowing federal grand juries to take a look at people’s credit files. . . .   Among the 23 amendments passed since 1990, Congress has added child support obligations to credit reports, later making disclosure of credit reports to state and local child support agencies a “permissible purpose.”  In 1996 Congress allowed disclosure of credit report information to the Federal Bureau of Investigation for counterintelligence purposes.  After a heavy revamp of the law’s provisions in 1996, Congress in 1997 allowed the use of credit reports for investigations of people related to security clearances . . . .  Terrorism opened credit bureaus’ files to the government yet further. In the USA-PATRIOT Act, Congress allowed the release to government officials of consumer reports “and all other information in a consumer’s file” for counterterrorism purposes. . . .  In 2006 Congress made it a “permissible purpose” to provide a consumer report to the Federal Deposit Insurance Corporation or the National Credit Union Administration as part of their preparation for appointment as conservator, receiver, or liquidating agent for depository institutions or credit unions. And in 2007 Congress made it a permissible purpose to provide a consumer report to a government agency in connection with the issuance of government-sponsored, individually billed travel charge cards. . . .   

You get the picture.  The fact is that far and away the entity most to be feared for potential misuse of your private information is the government itself, and giving it more regulatory authority only makes that problem worse, not better.

Harper's proposed solution?  He doesn't give a lot of details, but the gist consists of three points: (1) repeal the FCRA in its entirety, (2) declare in a one-line statute that consumer data reported to a credit bureau is held in "a confidential trust for the benefit of the consumer," and (3) let the common law take it from there.

Under this regime, if the credit bureaus want to use your information, they would either need to get your permission, or alternatively pay you (in some form) to allow them to use it.  In the case of credit reporting, you would very likely give your permission, because you would need to have credit bureau reporting in order to obtain credit.  For other uses, the experience with companies like Google and Facebook shows that most people will gladly give up plenty of personal information in return for nominal and often non-monetary consideration like free use of a website.  Others (like yours truly) aren't so glad to do this, so they'd have to pay me more, or maybe they couldn't use my information for other purposes.  Too bad for them.  What about this doesn't work?

All The Federal "Privacy" Regulations Are Worse Than Useless

By now you've probably heard of the big data breach at credit reporting agency Equifax.  It apparently occurred back in July, but the details are only now coming out.  Numbers in the range of 143 million have been mentioned for how many consumers have been subjected to compromise of their personal data, including their name, addresses, date of birth, and social security number (aka your "personal information").  The combination of these things in association with each other is what enables the opening of a credit account in your name.

When comparably large data breaches occurred a couple of years ago at Yahoo and Target, you knew you were at risk if you did business with those companies; and if you did, you could rightfully blame yourself.  But, you say, you've never had any dealings of any kind with Equifax.  Therefore, your information cannot possibly be at risk.  Wrong.  Pretty much every bank, credit card company, mortgage lender, car finance company, or credit provider of any type shares your personal information with Equifax.  Without your permission.  Indeed, even over your specific objection.

The New York Times today has no fewer than three big articles on the Equifax breach, one on page A1, and two more on the front page of the Business Section.  The article on page A1 is headlined (in the online version) "Equifax Hack Exposes Regulatory Gaps, Leaving Consumers Vulnerable."  The theme, you will not be surprised to learn, is that the problem was caused by insufficient government regulation:

Despite the wealth of sensitive information in its databases, Equifax, in essence, falls through the regulatory cracks.  The dangers of such lax oversight became apparent on Thursday when Equifax disclosed that hackers had compromised the personal and confidential information, including Social Security numbers, of nearly half of the American population.

"Falls through the regulatory cracks"?  "Lax oversight?"  Funny, but as far as I've been able to observe over the past multiple decades, the credit reporting business has been the subject of one big federal statutory and/or regulatory initiative after another.  First there was the Consumer Credit Protection Act of 1968, followed quickly by the Fair Credit Reporting Act of 1970, which has subsequently been amended several times.  The FCRA gave regulatory jurisdiction to the Federal Trade Commission, which has issued multiple rounds of regulations.  Then there was a big statutory addition made by the Gramm-Leach-Bliley Act in 1999, followed by additional rounds of regulations from the FTC.  The Dodd-Frank Act in 2010 added yet more statutory provisions, and brought in another regulator, the Consumer Financial Protection Bureau, with its own rounds of regulations.  Are you now telling us that all these layers and layers of statutes and regulations have given us nothing but a bunch of "cracks" for our information to slip through right into the hands of the bad guys?

The problem, of course, is that all the rounds of statutes and regulations have been completely incompetent.  The chance that the next round will be any less incompetent is approximately zero.  With so many regulations the details have become mind-numbingly complex, but the bottom line is that you have no ability whatsoever to limit access to your information only to the people and companies of your choice.  Nor can you find out any comprehensive list of who has access to your personal information or what they are doing with it.

The statute most specifically focused on the privacy of your personal information was Gramm-Leach-Bliley (GLBA).  Here is a summary of the GLBA privacy provisions from the Electronic Privacy Information Center.  GLBA is the source of the requirement for all those "privacy notices" that you get regularly from your banks and credit card companies and insurers.  Have you ever read one of them?  I'll bet the answer is no.  And you are right not to.  They all start out saying that "you have options," but then seem to exempt from the opt outs anything of any significance.  Somewhere in every one of them it will say either that we use your information to "manage our business" or "as permitted by law" or some other empty phrase that lets them do whatever they please without giving any specifics.  As an example (and not meaning to pick on them specifically) here is the relevant part of the Citibank privacy statement currently available at their website:

Citi uses the information we collect about and from you to provide services, to manage our business and to offer an enhanced, personalized online experience on our site and third-party websites.

The information we collect allows us to:

• Recognize you when you return to our site so we can personalize your experience
• Process applications and transactions
• Respond to your requests
• Recognize and provide you account related benefits and information on our sites.
• Provide you more relevant product and service offers on our sites and in other advertising

We may also use personal information we have about you such as your email or postal address to deliver advertising to you directly or on third party websites.

Try reading that a few times and see if you can figure out where they tell you that they give your personal information to Equifax (and for that matter Experian and TransUnion).  Or where they tell you that Equifax, Experian and TransUnion in turn sell your personal information to data aggregators and brokers who then sell it to all kinds of other people and entities for all kinds of other unspecified purposes, like:

• Governments at all levels for whatever they feel like doing with it, including snooping on you behind your back without a warrant.
• Private investigators for whatever they do with it.
• Law firms (my old law firm subscribed to one of these services).
• Others?  I've demanded a complete list from my bank, from each of the three credit bureaus, from some of the data aggregators (like ChoicePoint) and others.  None will respond.

Here's another page from EPIC, this time about ChoicePoint.  Haven't heard of them?  Here's an example of what they sell:

ChoicePoint sells a wide array of information to the government, including:  Credit headers, a list of identifying information that appears at the top of a credit report. This information includes name, spouse's name, address, previous address, phone number, Social Security number, and employer.

Wait, where did they get that information to sell?  You guessed it.  If you think that a big piece of the holes in the GLBA are to enable the government to circumvent the pesky Fourth Amendment requirements for court-approved warrants if they want to investigate you, you are now starting to catch on.  Enabling you to protect yourself against fraud is not one of their priorities.

By the way, ChoicePoint had a big data breach in 2004, and then another one in 2008.  

So is there anything you can actually do to protect yourself against misuse of your personal information?  Yes:  put a "freeze" on your credit.  If you haven't done it yet, you should do it promptly, with each of the three credit bureaus.  But don't do it online.  Try to do it online, and they will of course demand your social security number in order to proceed.  Don't give it to them.  They will promptly re-sell it.  Write them a letter.  It's some work, but it can be done.