The Less-Cash Society

Today I finally got to enjoy the latest episode of Freakonomics titled Why Are We Still Using Cash? The episode is motivated by Kenneth S. Rogoff’s latest book ‘The Curse of Cash’. Rogoff is a Thomas D. Cabot Professor of Public Policy and a Professor of Economics at Harvard who has been working on the problems of cash for many years. He published his first paper in this area back in 1998 (Rogoff cited in Dubner, 2016). Today he also advises the International Monetary Fund among others and writes op-ed articles for The Wall Street Journal.

The essence of Rogoff’s new book is that the use of cash as a means of payment in our economy comes at a real social cost. In particular, Rogoff argues that cash facilitates today’s most pressing social problems of tax evasion and crime, as well as illegal immigration and terrorism. Tax evasion, for example, is facilitated by the anonymity and portability of cash, its widespread acceptance and liquidity compared to ‘alternative currencies’ such as diamonds or bitcoins. Similarly, crimes like drug trafficking escape notice and do not leave any record due to the anonymity of cash. In addition, the ability to carry big sums in large denomination bills is an important advantage for illegal activities. On the other hand, illegal immigration is indirectly driven by the use of cash. This is because cash allows illegal workers to be paid off the books while avoiding social security altogether (Rogoff, 2016e). Hence Rogoff argues that the advantages of cash, like anonymity, portability, liquidity and near-universal acceptance, actually encourage a vibrant underground economy. Cash does more harm than good for society and it makes us poorer (Rogoff, 2016b).

Yet cash has its merits in our economy. First and foremost, cash allows for financial privacy and gives people the freedom whether to participate in the banking system or not (Henry cited in Dubner, 2016). At the moment they have a choice between holding cash or depositing the amount in an account at a bank. Abolishing cash completely would force every individual in the economy to possess at least a basic debit card account. Other concerns include the need for cash in cases of emergencies such as power outages or natural disasters as well as the convenience of cash for very small transactions (Rogoff, 2016b). This is why Rogoff does not advocate a ‘cashless society’ but a ‘less-cash society’. Rogoff’s plan is most concerned about large denomination bills. They tend to have the biggest share in the total currency supply, as shown in the figure below which is available from the data companion website of Rogoff’s book (see references).

(Source: Rogoff, 2016a)

For example, in the US the largest banknote makes up almost 80% of the total currency supply. Yet the $100 dollar bill is rarely used for legal transactions, but a common means of payment for all sorts of illegal activities. Rogoff’s plan is to gradually phase out these banknotes, including 50 and 20 dollar bills in the far future, while keeping small denomination bills (Rogoff in Dubner, 2016). A second pillar of Rogoff’s plan is financial inclusion. In order to make the ‘less-cash society’ work, one needs to provide the poor with a free access to basic debit card accounts. While especially the poor rely on cash today, Rogoff points out that a ‘less-cash society’ would benefit these people disproportionately through the significant increase in tax revenues to be redistributed as well as the reduction in crimes (Rogoff, 2016b).

There are some countries like Sweden and India which are rapidly moving towards a ‘less-cash society’. India, for example, has paved the way for instant banking and financial inclusion to make the ‘less-cash society’ work (Nikelani cited in Dubner, 2016). Another example is the Eurozone. The European Central Bank announced the permanent production and issuance stop of the €500 banknote in May this year (ECB, 2016). However, the Freakonomics episode also points out that cash and access to cash is often seen as a human right (Arvidsson cited in Dubner, 2016). People tend to like their cash; it contributes to the identity of a nation and may have a longstanding history. That is why a ‘less-cash society’ as advocated by Rogoff seems to be a well-conceived plan to balance cash for small transactions with cashless payment for large purchases and other economic activities.

A ‘less-cash society’ might even have another benefit related to the efficiency of monetary policy. Rogoff explains that central banks would be able to control the economy more effectively. This is because it would lessen if not eliminate the zero lower bound on interest rates. It would make the manipulation of the interest rate a more efficient tool to stabilise the economy. It could be more effective at avoiding a deflationary spiral and at kick-starting the economy by stimulating demand through negative interest rates (Rogoff, 2016e).

I must say that I used to take a rather nostalgic viewpoint in this argument; plus preferring the convenience of cash for small transactions. However, the scale of currency outstanding and, in particular, the high proportion of large denomination bills makes me think twice about how much cash is optimal for society. Rogoff has done an outstanding job in showing the unintended consequences of the advantages of cash. Now it is up to governments and society whether to take in his insights. The judgment of whether the social costs of cash outweigh the benefits is unlikely to be an easy one. Yet, recognising that cash is a major driver of tax evasion, crimes, illegal immigration and terrorism among other things is probably the starting point for moving towards Rogoff’s plan of a ‘less-cash society’.




Dubner, S.J. (2016). Why Are We Still Using Cash? Freakonomics Radio, [podcast] 28 September. Retrieved from: [Accessed 02/10/2016]

ECB (2016). ECB ends production and issuance of €500 banknote. Retrieved from: [Accessed 02/10/2016]

Rogoff, K.S. (2016a). Figure 3.5: Share of largest banknote in total currency supply [dataset/figure]. Retrieved from: [Accessed 02/10/2016]

Rogoff, K.S. (2016b). The Curse of Cash: An interview with Kenneth Rogoff by Debra Liese. Princeton University Press Blog, 25 August. Retrieved from: [Accessed 02/10/2016]

Rogoff, K.S. (2016c). The Curse of Cash: An interview with Kenneth Rogoff (Part II) by Debra Liese. Princeton University Press Blog, 26 August. Retrieved from: [Accessed 02/10/2016]

Rogoff, K.S. (2016d). The Curse of Cash. Princeton: Princeton University Press.

Rogoff, K.S. (2016e). The Sinister Side of Cash. Wall Street Journal Online, [online] 25 August. Retrieved from: [Accessed 02/10/2016]


Deliberate Practice and Grit as Drivers of Productivity

In my recent post Self-Improvement Month: Math Refresher I touched upon how to become more productive and making use of tools like a to-do list – with a stretch goal and a distinct plan of how to achieve it – to structure one’s daily routine. For this I was inspired by the Freakonomics series on self-improvement. Today’s post is again inspired by the radio’s self-improvement series. In particular, I want to talk about how (1) deliberate practice and (2) grit might help improve one’s productivity.

In all aspects of life – from sports and music to work – we can observe that some people are more productive than others. Some people excel at what they are doing while others simply do not. But why is this the case? There are two contrasting views on why some people reach higher levels of productivity or performance than other people. On the one hand, it can be argued that these people have an innate talent or ability which allows them to excel at everything they do. On the other hand, it can be argued that these people have engaged in so-called deliberate practice which is superior to normal practice to excel at what they are doing. While the former view differentiates between people, the latter view assumes that anyone can excel with the help of high levels of practice over a sustained period. (You might have heard about the 10,000 hour rule.)

Because talent is more or less inherited, I want to focus on deliberate practice as a driver of productivity in the first part of the post. This term was coined by Psychologist K. Anders Ericsson. In his research Ericsson has shown that high performers have become experts in their field, because they are engaging in deliberate practice. In comparison to less efficient practice methods, deliberate practice generally consists of:

  • High levels of practice over a sustained period,
  • Learning the skills necessary for high performance step by step through smaller tasks in structured day-to-day practice,
  • Practice at steadily rising levels of difficulty and
  • Individualised supervision and immediate feedback from a teacher (Mayer, 2008).

While individualised supervision can partly be substituted by pre-defined curricula and group instruction, it remains superior and the most effective way of learning (Anders Ericsson, Krampe, and Tesch-Römer, 1993).

However, while the aspects mentioned above are necessary, they are not sufficient for deliberate practice. There are four further constraints which govern whether an individual is able to engage in deliberate practice. Firstly, there is the time constraint which limits the time and energy individuals can spent on practice rather than other commitments like work, school or family life. Second, there is a resource constraint. An individual needs access to appropriate training material and facilities as well as a supportive teacher who can coach the student in a manner which encourages deliberate practice. Third, there is a motivational constraint. Motivation is key to perseverance, because there are most often no immediate but long-term rewards for practice which might not be obvious to the learner in the short-run in daily practice. Fourth, there is the effort constraint. Individuals that engage in deliberate practice recognise the need for breaks and therefore limit daily practice to a healthy and sustainable level (Anders Ericsson, Krampe, and Tesch-Römer, 1993).

Given that these four constraints are met, K. Anders Ericsson argues that anyone can excel in life through deliberate practice. The high performers that we observe in society have benefited from such optimal conditions for learning and have mastered how they learn best.

After having talked about deliberate practice as one of the two main determinants of performance (the other being innate talent), let’s take a closer look at why these high performers are able to commit to such a high intensity of practice. As noted before, deliberate practice is not always enjoyable. It might even be painful in the day-to-day exercises (in sports for example) in order to reap long-term results. Still, high performers are able to commit to deliberate practice over a sustained time period and that is where grit comes into play. Psychologist Angela Duckworth has studied grit extensively in her book Grit: The Power of Passion and Perseverance. She defines grit “as passion and perseverance for long-term goals” (Duckworth, Peterson, Matthews and Kelly, 2007, p.1087). Hence grit can probably be seen as a lever for deliberate practice as well as a driver of productivity. It enables individuals to engage in such intensive and not always enjoyable levels of practice in order to become a high performer. Furthermore, grit is associated with success outcomes beyond that explained by IQ, with higher attainments in the level of education and less career changes (Duckworth, Peterson, Matthews and Kelly, 2007).

So, in order to become more productive two helpful ingredients are deliberate practice and grit. But is there a way to have more grit in life in case you are not a gritty person?

According to Duckworth any individual can learn to have more grit. This is because genius is “something that you can accomplish yourself as opposed to something that is given to you” she says in her interview with Stephen J. Dubner (Freakonomics, 2016). Her argument links back to the earlier discussion about whether it is innate ability or practice which determines one’s performance in life. Similar to K. Anders Ericsson, Angela Duckworth argues that it is not natural ability which determines one’s level of performance, but individuals can actively accomplish greatness through deliberate effort.

In her research Duckworth found that gritty people do not primarily differ in their character but rather in their behaviour (which can be learned or taught). Her research revealed that gritty people are different in four ways, namely (1) interest, (2) practice, (3) purpose and (4) hope. These four traits enable perseverance and passion for long-term goals. While interest, purpose and hope are new ideas, one can see that the concept of (deliberate) practice also plays a key role in having more grit in life. Hence, there is probably a two-way relationship between grid and deliberate practice.

Let’s look at all four traits in more detail. Interest or even stronger – passion – comes first. Gritty people have acquired high levels of interest in one particular thing. It is like an intrinsic motivator which drives their passion for becoming knowledgeable or an expert in a particular field. However, Duckworth acknowledges that not every individual is striving for becoming an expert in one field. She differentiates between dilettantes and experts. While the former strives for novelty, the latter “substitutes nuance for novelty” (Duckworth in Freakonomics, 2016). In the second stage, once people have become interested in a certain thing, it is about the right kind of practice. Gritty people practice in a very methodical way where this practice is more similar to labour. This is why the first stage of developing passion is crucial. Gritty people can engage in this labouring kind of practice due to their extremely well-developed interest. In the third stage, gritty people develop a beyond-the-self purpose. This means that the real purpose of their work or hobby does not stem from selfish interests but from its positive impact on others or the connectedness to other people (for example team sports). The fourth trait of hope governs all three stages of interest, practice and purpose, because it allows gritty people to remain optimistic even when being confronted with challenges or experiencing setbacks (Freakonomics, 2016).

In sum, deliberate practice and grit are two ingredients for becoming more productive and improve one’s performance in life. Deliberate practice, as coined by K. Anders Ericsson, differs greatly from less efficient ways of practice and allows anyone to excel in life if the four constraints (time, resources, motivation, efforts) are met. Grit is “a passion or perseverance for long-term goals” and enables individuals to become a genius through their own efforts rather than innate ability. Thereby gritty people are characterised by extreme high levels of interest in one particular thing, intensive practice, beyond-the-self purpose and hope. Overall, according to these concepts productivity and performance are more driven by the deliberate efforts of individuals rather than a natural talent. Given that there is a supportive external environment (resources etc.) any individual can improve and excel. This should be good news for anyone attempting to improve their skills!

In case that the grit concept sounds plausible to you, you might want to actually go ahead and calculate your own grit score. For this Angela Duckworth has published her 12-item grit scale here. On her website there is also a shortened interactive version if are short of time.

Thanks for reading today’s post,


Anders Ericsson, K., Krampe, R.Th., and Tesch-Römer, C. (1993). The Role of Deliberate Practice in the Acquisition of Expert Performance. Psychological Review, 100(3), 363-406.

Duckworth, A.L., Peterson, C. Matthews, M.D., and Kelly, D.R. (2007). Grit: Perseverance and Passion for Long-Term Goals. Journal of Personality and Social Psychology, 92(6), 1087-1101.

Freakonomics, (2016, 4 May). How to Get More Grit in Your Life. Retrieved from:

Mayer, R.E. (2008). Learning and Instruction (2nd ed.). Upper Saddle River, N.J: Pearson Merrill Prentice Hall.

Self-Improvement Month: Math Refresher

On my way to the grocery store yesterday I listened to the Freakonomics episode How to Be More Productive as part of self-improvement month. Host Stephen Dubner begins the episode by asking his Freakonomics co-author Steve Levitt about what he is working on improving about himself these daysLevitt’s answer is: (1) becoming better at golf and (2) learning German, primarily self-taught. This is probably a mainstream answer but – other than many people – Levitt ranks himself as a quite productive person (probably not too much of a surprise for an economist). So in the episode Dubner really wants to get to the bottom of people’s productivity and how one can become more productive at work and in personal life. Hence he introduces the listeners to Charles Duhigg, author of the book Smarter Faster Better: The Secrets of Being Productive in Life and Business. Duhigg has quite interesting ideas about how to become more productive. In particular, I like Duhigg’s list of eight productivity drivers:

  1. Motivation
  2. Focus
  3. Goal-setting
  4. Decision making
  5. Innovation
  6. Absorbing data
  7. Managing others
  8. Teams

Besides these eight more or less universal ingredients of productivity, Duhigg also talks about writing the perfect to-do list. They consist of stretch goals as well as distinct plans to make them achievable and realistic. I bought into Duhigg’s ideas and therefore took self-improvement month as an incentive to think about my goals and how my to-do list would look like. You can probably guess my stretch goal sitting at the top of my (long-term) to-do list from the blog’s name: I dream of proceeding to a graduate Economics programme after graduating from my bachelor’s next year.

So after having defined my stretch goal, what’s my distinct plan for achieving it? I know my strengths and weaknesses in Economics quite well and I would say that am on track for my classes. However, mathematics is probably my biggest area for self-improvement. There are just too few math classes undergraduate Economics programmes can fit into the busy teaching schedule. Also, I finished my advanced math class at high school in Germany already three years ago.

That is why I nudged myself to sit down today and do something ‘tangible’ to get closer to my stretch goal, a.k.a. refreshing my math skills! I decided to study the course Highlights of Calculus by Professor Gilbert Strang on MIT OpenCourseWare. I could listen to Professor Strang for ages. I admire him for his teaching style. He makes juggling equations so much easier (I also watched his other class on Linear Algebra a while ago, in case you are interested.)

In conclusion: mission self-improvement fulfilled for today. It was a rather productive day! Thanks Freakonomics!


Dubner, S.J. (2016, 20 April). How to Be More Productive [podcast]. Freakonomics Radio. Retrieved from: 

Strang, G. (2010). Highlights of Calculus. Retrieved from:

Strang, G. (2011). 18.06SC Linear Algebra (Fall 2011). Retrieved from:

The Economics of Altruism and Spite

I want to dedicate today’s post to a really great episode of Freakonomics on humans’ propensity for spite. This is an interesting topic to bring into the economic field because it seems at odds with our assumption that people are motivated to act only if the benefits of their action outweigh the costs. In standard economic theory there is no such thing as altruism or spite because people do not act if they incur losses.

Social behaviour Primary effect on recipients
Primary effect on actor + Mutual benefit Selfishness
Altruism Spite

(Adapted from Krupp, 2013, p.2748)

Let’s firstly define what spite is. For this we have to look at social behaviour which can be broadly classified into four categories. The methodology above is adapted from a paper by Krupp and can be found as a reference for further reading if you like. It is derived from the effects of the primary interaction between actor and recipient. In the crudest sense, spite occurs if we hurt ourselves to hurt others while altruism occurs when we hurt ourselves to help others. Therefore altruism tends to be seen as the counterpart of spite. What is important in the definition of spite, though, is that true spite is not driven by the desire to punish someone’s bad behaviour as economist Benedikt Hermann mentions in the Freakonomics episode.

Stephen Dubner drills down on the concept of spite from different angles. For example, he speaks to economist Benedikt Herrmann about his “money-burning” experiments which provided evidence for spite in a lab setting. He found that there were a surprisingly large number of people that would give up a certain amount of the promised money only to take away some money from the opponent (which they did not know). Hermann attempts to explain this with the “Homo rivalis” concept, as he puts it. While the Homo economicus is driven by self-interest and wants to get as much as possible in absolute terms, the Homo rivalis is driven by competition and wants to maximize the difference between his or her gain and the opponent’s gain. So you could describe that person as a relative pay-off maximiser rather than absolute pay-off maximiser. This phenomenon can lead to spite according to Herrmann. However, a limitation of such lab games is their anonymous setting. In the real world, we tend to know the recipients of our action.

After seeming to have some evidence for spite in human behaviour the next question of the podcast is whether spite is in our human nature or whether we somehow happened to develop this behaviour along the way. To answer this Freakonomics Radio producer Katherine Wells speaks to biologist E. O. Wilson about whether spite exists in nature. According to Wilson spite, i.e. doing harm to someone else at the cost of harm to yourself, might not exist in nature. Animals are very much motivated by some advantage or other gain and Wilson argues that this also applies to humans. He reasons that there are always some benefits – even if it is only emotional – a perpetrator gains from his or her actions. So in sum, real spite might actually not exist; neither in nature nor in human behaviour.

Personally, the last six minutes of the podcast are the most interesting ones as Katherine Wells turns away from spite to altruism. Wilson sees altruism in the framework of either doing the moral/ heroic thing or the selfish thing, where the moral or heroic thing is the altruistic choice. He compares pure altruism to ants as social insects. On the other hand pure selfishness would be mere chaos. So the ‘human condition’ is to actually be in the middle, which sounds plausible for the functioning of society in general terms.

Steven Levitt concludes the episode and firstly establishes the link between economics and evolutionary biology (Wilson’s view) to prove his point on spite thereafter. According to Levitt both disciplines are motivated by costs and benefits and their striving for simplicity and – especially based on the former commonality – this is exactly why true spite may not exist. Even if the perpetrator does not gain from the outside you merely do not know for sure. For true spite to exist the perpetrator would need to act without any benefit, but you cannot prove this in the real world (maybe in a lab setting). This is why Levitt stresses one of the premises of economics “that we never know what other people are thinking and why they are doing what they are doing but we focus on what they are doing”. Similarly for altruism, as the flipside of spite, this could well be motivated by self-interest rather than by true altruism. However, for economists this is not the primary concern because we know that we don’t know their motivation. What economists focus on is the actions they observe. This is still consistent with “people do the best they can” according to Levitt.

So what does the episode leave us with? There is a lot to digest and a lot of different aspects to the concept of spite and altruism. While there might be such thing as spite in a lab setting, it is much harder to find in the real world. One should be cautious in applying the findings from these lab experiments to the real world. What is more, true spite as something where the perpetrator does harm to someone else at the cost of harming him- or herself may not even exist; neither in nature nor in human behaviour (so I probably have to be sorry for the somewhat wrong title). As humans, or “homo economicus” if you like, we are very much motivated by a gain – extrinsic or intrinsic – from our actions. This is why in economics the focus tends to be on people’s actions. This is not really at odds with the concept of spite or altruism in general and does not mean that they cannot exist. We only acknowledge that what people call spite or altruism can either be true altruism/spite or actually motivated by self-interest…

Thanks for reading!


Freakonomics, 2013. Spite Happens. [podcast online] Available at:

Krupp, D.B., 2013. How to distinguish altruism from spite (and why we should bother). Journal of Evolutionary Biology, 26(12), pp.2746-2749.