The State, on the other hand, knows that it’s their money, and they are determined to get it:
Some people believe that money is the root of all evil. At least to the government of India it is the root of all corruption and tax evasion and consequently it is doing everything in his power to withdraw cash from circulation. “On Nov. 8, the Indian government announced an immediate ban on two major bills that account for the vast majority of all currency in circulation. Indians would have until the end of the year to change those notes for other bills, including newly minted ones” reported the New York Times. All that will be left is small change.
Ramesh Thakur a professor at the Australian National University explained in the Japan Times what the new policy was supposed to do and why it won’t work.
The goal is to eradicate black money, counter tax evasion and destroy counterfeit currency. In most large economies, cash is around 5 percent of GDP; in India it is 12 to 14 percent. Fewer than one-third of Indians have access to financial institutions. While most banks are concentrated in cities, most Indians live in villages. Forcing businesses to use banks and digital payments will help to bring them inside the tax net.
Only 5 percent of Indian workers pay income tax, just 15 percent of the economy is inside the tax net and India’s tax to GDP ratio at 17 percent is 5 points lower than comparable countries. Because of high property taxes, for example, buyers collude with sellers to understate the sale value and split the tax difference. This explains why the policy is an attack on the Indian way of doing business: Much of India’s cash-based consumer transactions have ground to a halt. …
The move also confuses the black with the informal economy by conflating cash with black money. Demonetization has the potential to permanently damage the latter, which comprises 45 percent of GDP and 80 percent of the workforce. Its main motor is the desire to escape the crushing burden of state taxes, regulations and bureaucracy. India’s formal and informal economies are not quarantined from each other, but form a seamless value chain. For example, almost one-third of the working capital of small businesses comes from the black economy. Can that lost capital be replenished with fresh credit?
Of course, living within their means never occurs to them. Being in Government means never having to hear the word “no”.
Money in its various forms has become the new battleground between a State that needs to reward its constituencies with and the actual economy which produces most of the real goods and services required to do it. The sad experience of command economies suggests in end the Real always wins over the Official. As Ramesh Thakur said of India’s demonitization policy: “a better solution would have been to shift the balance of economic decision-making away from the state to firms and consumers; simplify, rationalize and reduce taxes; cut regulations and curtail officials’ discretionary powers; eliminate loopholes; and widen the tax net.”
At some point, it will occur to people that merely voting the criminals out of office isn’t any solution: they just keep getting replaced with new criminals. And when the populace finally realizes that, the pols will genuinely wonder why they’re standing on an upturned trashcan with a noose around their necks.