Black Market Booms?

Shadow economy and spending

If as many Spaniards were unemployed as official figures claim, a 2011 Financial Times article pointed out, “Spain would not be as peaceful as, barring a few demonstrations, it has so far been.” Maintaining the peace despite an official unemployment rate of about 20 percent, the authors reported, were jobs and businesses in an untaxed, unregulated black market economy. A similar mismatch can be seen in the United States. Income isn’t rising. Neither is credit card debt. Yet consumer spending marches along.

The Census Bureau reports that real median household income dropped 1.5 percent from 2010 to 2011—the second consecutive annual drop. With labor force participation at its lowest rate since 1979, that’s par for the course. 

But consumer spending is rising. Retail sales were up 1.1 percent in February. The increase cannot be explained by credit card spending. The Federal Reserve Bank reports that revolving credit was up all of 0.1 percent in January and down 4.4 percent in December. “One explanation,” writes Bernard Baumohl of the Economic Outlook Group, “is that many of those who have left the labor force since the last recession have managed to earn income in the shadow economy and their spending still shows up in the official retail sales and personal consumption data.”

Traditionally, the U.S. has had a relatively small black market. A recent estimate put it at 7.2 percent of official GDP, with Spain at 19.3 percent. If Americans’ spending continues to outstrip official income and borrowing figures, those black market numbers may move closer together.  

Editor's Note: We invite comments and request that they be civil and on-topic. We do not moderate or assume any responsibility for comments, which are owned by the readers who post them. Comments do not represent the views of Reason.com or Reason Foundation. We reserve the right to delete any comment for any reason at any time. Report abuses.

GET REASON MAGAZINE

Get Reason's print or digital edition before it’s posted online

  • Progressive Puritans: From e-cigs to sex classifieds, the once transgressive left wants to criminalize fun.
  • Port Authoritarians: Chris Christie’s Bridgegate scandal
  • The Menace of Secret Government: Obama’s proposed intelligence reforms don’t safeguard civil liberties

SUBSCRIBE

advertisement