Destroy, don't confiscate, the money

In the past I've used the burning of bales of money as a ridiculous way to illustrate opportunity cost, but this time I'm making the claim that government agencies should be forced to hold actual bonfires with dollar bills.

There's a serious issue called civil asset forfeiture, where the police and prosecutors can seize and keep property they believe is linked to a crime, even if that person hasn't been convicted of anything.

Phil Williams from CBS News Channel 5 in Tennessee recently did an amazing piece of investigative reporting on local agencies who are letting drugs slip by in order to focus on finding money to seize. This is a classic case of rent seeking, where legislation causes people to spend precious resources to make artificial profits while the overall society is harmed.

Maine has a good rule that the police or municipality do not profit directly from civil asset forfeitures, but the money instead goes into the state general fund. This cuts down on the incentive for police to seize valuables from the public.

But what would happen if the money was destroyed instead?

It's not such a far-fetched idea. Police destroy firearms seized from criminals. Although firearms are valuable goods that could be resold, police instead have a public works employee take a band saw to the guns. After all, those guns could be involved with past crimes.

Well so has all that money. If the government simply had to destroy the money the way it does when it take guns from people, it would have less of an incentive to violate peoples' civil rights and steal from unconvicted suspects. Money made from selling seized goods would need to burn as well.

This would also have a slight deflationary effect on the currency, as less money in circulation means less of a supply for the bills that represent goods and services. Every time money is destroyed, the money people have at home gains a little bit in value.

I realize deflation is no walk in the park - it's the base to inflation's acid - but we haven't had the exposure to deflation like we have with inflation.