Underground Economy

And finance Allah shmoop What is thie Underground economy the

black market the shadowy economy the underground The unregulated wild

Wild West becomes well The underground economy includes all illegal

economic transactions Well some economic transactions might break the law

directly Like you know human trafficking It's a big no

no While others might break it more directly like selling

cigarettes under the table to avoid paying high cigarette taxes

you know smoking up X free Well what else in

the underground economy is there Well there are more obvious

ones like the sale of illegal drugs and prostitution and

all things mafia and you know smuggling things or people

across borders You know the stuff you see on the

news or well when you're binging on breaking bad Well

the less obvious illegal transactions did Billy the neighbor boy

who rakes everyone's yards in the fall violate child labor

laws All shame on you Billy Shane How dare you

break Okay Even if Billy was old enough to not

be violating child labor laws did he report that income

to the I R S did his parents Well probably

not Same goes for Bonnie The baby sitter don't have

a permit for that lemonade stand their little seven year

old girl and we're going to shut you down And

yeah that really has happened in some cities Well the

underground economy has got some obvious illegal activity and some

less obvious illegal activity But it's still all illegal Well

so just how widespread is all this illegal economic activity

Well the underground economy is notoriously hard to measure But

according to the IMF the International Monetary Fund the average

size of the underground economy of one hundred fifty eight

countries between nineteen ninety one and two thousand fifteen is

almost a third of GDP thirty one point nine percent

It includes country like you know Zimbabwe in Soviet Georgia

and Bolivia the shadow economy there's about two thirds of

the GDP The smaller shadow economies can be found and

highly regulated Highly technically audited places like the U S

And Austria and Switzerland which have underground economy is estimated

to be in the seven eight nine percent range Well

underground economies aren't necessarily stable For instance there's some evidence

that after the two thousand eight financial crisis the US

underground market doubled from a trillion to two trillion dollars

As the legal economy plummeted the underground economy picked up

the slack Which begs the question Why is the underground

economy even a thing anyway Well where there's demand supply

will feel away usually even if the thing being demanded

is illegal for sellers If the benefits of selling on

the black market outweigh the costs and the risks well

then the market will exist For instance marijuana was made

illegal around the time of the Great Depression right The

laws around it theorized that high unemployment and fears of

Mexican immigrants led to marijuana being made federally illegal Well

fast forward to today and well over half the states

in America have generally legalized marijuana medicinally and many states

recreational e well what changed as marijuana transition from the

underground economy into the legal economy or overground economy While

first governments get to tax marijuana increasing their revenues providing

more money for for schools in theory and then roads

and whatever government spend money on the second wealth money

that used to be funneled through the underground economy is

now being funneled through that legal economy which has different

rules and enforcement protocols and competition in the legal economy

We've got police courts and laws that we can use

to enforce the rules in the underground economy Everyone has

to fend for him or herself That's why enforcement in

the black market often results in violence well as the

black market for a good like marijuana is being displaced

by marijuana in the legal market it also means that

legal enforcement is displacing illegal enforcement courts and cops Replacing

black market violence for enforcement is a societal benefit When

we make economic laws and policies well it's important to

consider the economic effect of bands and high taxes on

the entire economy including the underground economy We'd like to

think high taxes will bring in a ton of revenue

and that bands will be respect But in reality that's

just not the case If the trade offs are worth

it and the demand is there well then taxes and

bands can simply push transactions into the underground economy Well

just as marijuana is moving from the shadow economy to

the legal one drastic tax increases on commodities and bands

can move goods and services from the legal economy into

the illegal one as in all of economics whether transaction

is in the legal market or the illegal market It

comes with its own set of tradeoffs For instance food

stalls on the street that avoid paying taxes mean less

money for the government But they could also result in

economic stimulus There's a good chance than many food stalls

that aren't paying taxes wouldn't exist if they did have

to pay taxes Since these things do thrive well it

means more money for them but also more money injected

into the economy from all the economic transactions that they're

creating It's the same idea behind job creation versus relaxing

taxes while feeling like the government is being well some

governments have their own underground economy to government officials tapping

government coffers for their own purposes A corruption and fraud

is nothing new Ironically when governments are the enforcers of

the legal economy many have their own share of behind

the curtains Illegal dealings So yeah I don't try violating

child labor laws and hiding income from the I R

Rest or you know do just make sure there are

no neighborhood sticklers against lemonade stands or freshly reclines Our

prisons filled with seven a nine year old a waitin 00:05:35.363 --> [endTime] for mom and dad to come and bail amount