We all have had contact with the underground economy…from the housepainter who wants cash, to the salesof the back of a truck. Years ago, a Stanford University economist attempted to measure how big the underground economy was…he reasoned that the huge amount of cash in circulation (as we move toward credit cards and paperless transactions) wasn’t justfied by the official GNP numbers. I think he reached the conclusion that US GNP was being undercounted by at least 10%…and the offical unemployment numbers were therefore much too high.
Does anybody have an idea how big this parallel economy is? I think it must be huge (judging from the number of trademen I see working off the books). Another factor…ifyou are in business, your fixed costs are enormous now…along with taxes, you must pay workmen’s compensationinsurance, fees, andlicense…all ofwhich don’t exist for the off the books trades man. And, as the fedral defict reaches for the sky, the pressure to raise taxes will mean that most of what you pay for a service will soon be for taxes…I can see the undergrounfd economy growing because of this. Think about it…for every $10.00you pay someone, you are paying probably 3.00 of your own in taxes, 3.00 of his taxes, and pretty soon you can see the advantages of doingit off the books. I even undertand that there are factories that run (legitimately) for 40 hours a week…after that they keeprunning, but this economic activity it totally unknown to the tax man.
If you consider activities such as drug trafficing, it is very large indeed. I heard once that the reason the fight against drugs is so ineffective is because the effect of closing it down would be a huge blow to the economy. Well, almost certainly that is a silly conspiracy theory, but the point is a lot of drugs money does go back into the general economy. The money has to be laundered, and drug trafficers are consumers of products and services…