Black Markets

Don't Mess With Shadow Economies. They Keep Countries Afloat


Greek street vendor

Shadow economies — black markets, underground economies, whatever you want to call them — provide a refuge for people overburdened by taxes and regulations. Businesses that can't navigate a byzantine maze of licenses, permits and red tape, or discover their profit margins can't survive the appetites of revenue collectors, can nevertheless find life outside the legal economy. But shadow economies not only offer life to entrepreneurs and workers, they can even keep whole struggling countries on their feet. Economists now warn that stamping out shadow economies, as so many politicians vow to do, could be suicide in places where the aboveground world is a less than completely fertile environment.

From The Economist:

Friedrich Schneider, a professor at the Johannes Kepler University in Linz, Austria, has been assessing shadow economies for years. He reckons that much of Greece's shadow economy, perhaps as much as half, actually complements activities in the official economy, adding to welfare and overall GDP. Stamping it out altogether might do more harm than good.

How is it that the shadow economy "complements activities in the official economy"?

A government has the challenge of deciding whether the shadow economy is a blessing or a curse. And, argues Mr Schneider in a paper he has been circulating, it may not have a great interest in reducing it, for the following reasons:

  • Income earned in the shadow economy increases the standard of living of one-third of the working population
  • Between 40% and 50% of these activities have a complementary character, which means additional value-added and an increase in overall output
  • Foregone taxes may be moderate since at least two-thirds of the income earned in the shadow economy is immediately spent in the official economy
  • People who work in the shadow economy have less time for other things such as going on demonstrations

Greece is of specific concern here. It's a country where the shaow economy equaled an estimated 25.1 percent of GDP last year. Unsurprisingly, Greece is ranked 119th in the world in terms of economic freedom, where "licensing requirements remain burdensome" and "[l]abor regulations are restrictive, with the non-salary cost of employing a worker high and restrictions on work hours rigid."

But there are lots of places in the world today that have created discouraging environments for aboveboard economic activity. Then, off-the-books work becomes a necessity, and "stamping it out altogether might do more harm than good."

Yeah. We're looking at you, California.

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  1. …can’t navigate a byzantine maze…

    Greece is of specific concern here.

    I see what you did there.

    1. I also want to make it clear that neither John nor Heroic Mulatto will see what you did there, because neither of them knows a single goddamn fact about history, particularly of areas outside the United States. This is a fact.

      1. I’m sure I’m missing something, but John’s quite the history buff.

        1. [that’s the joke]

          1. See, I missed something.

    2. Heh. I just spent the last hour playing Crusader Kings 2 with the Legacy of Rome DLC. Trying to reclaim Asia Minor piece by piece from the Rum Seljuks is annoying.

  2. Don’t Mess With Shadow Economies. They Keep Countries Afloat


    1. Nice. =)

  3. How about we get rid of the laws that cause shadow economies to exist and have, I don’t know, an actual legal economy?

    1. WHOA NOW, let’s leave out the crazy talk.

    2. Next you’ll say we should get rid of the laws that cause illegal immigrants to exist and have, I don’t know, actual legal immigrants.

    3. With enough rules we will finally be free.


      1. Look, the universe has laws built into it. Man is just extending that process to human behavior. Just as the universe is order from chaos, so is the legal system order from human chaos.

        1. Resistance is futile

          1. We must resist entropy by imposing complete control over all human behavior. People must be kept constantly cleaning up messes and fixing things so that we can maintain order in the face of the continuous pressure of entropy.

            1. I knew we needed an alien invasion for something

              1. Alien Deathbot: Sir? Disorder has increased in Section H-1079-A(1)? Yes, sir, right on it. [Turns to slave]: Get to work, you lazy human.

    4. How can an economy function if people are free to act without asking permission and taking orders?

      What you describe is anarchy and chaos!

    5. Do you pay your child labor less than minimum wage?
      Do you sell un-approved food products to people?
      Do you use trans-fats?

      1. I don’t have children, but if and when I do, they work hard for little.

        1. If you’re going to you better do it soon. Statistically you’re courting Downs the longer you wait.

          1. [Tasteless joke about John and Downs syndrome redacted]

            1. It’s a boring day, I’ve got nothing to do, except to get a load of retards and drive them to the zoo


          2. I know. My wife is younger though.

            1. It’s her age that counts. If there’s a chromosomal aneuploidy it’s almost alway’s the woman’s fault.

              1. It’s another tool of oppression wielded by the patriarchy.

            2. Your increasing age doesn’t help, though.

        2. …they work hard for little.

          They’ll be Chinese porn stars?

          And I’m sad you didn’t take my bait up in the first comments : (

          1. I was left speechless.

            1. HOLY CRAP! Do it again! Do it again!

            2. Perfect. Now just to lure HM into my web of deceit and evil…

  4. …for people overburdened by taxes and regulations.

    Um, you cannot be overburdened by patriotism.

  5. From The Economist:

    Yeah, that pretty much did it for me… 😛


    Brits are claiming they can produce gas from air. No kidding. It seems legit.

    1. So they have invented a process to convert electrical engergy into chemical energy.

      There is still the minor issue of where all the electictricity comes from.

      Still it is an interesting piece of research.

      1. Made me think of this.

      2. This is basically a superior form of energy storage as opposed to batteries and the like.

        1. Right. Gasoline is about an order of magnitude more efficient at storing energy. Still, the energy has to originate somewhere: coal, uranium, wind, or solar — take your pick.

        2. It actually offers another advantage, it pulls CO2 out of the atmosphere. Yes, in theory all of it will be put back eventually as you burn the fuel, however whatever quantity of carbon stored in gasoline is left in storage at any given moment is NOT in the atmosphere.

          1. You can accomplish the same thing by turning grain, milkweed, or algae into alcohol or diesel fuel.

            1. True, the question is whether this process is more efficient at producing fuel than the plant based processes.

              The problem with the plant based solutions is they are in effect solar energy storage systems and given the weakness of solar energy at ground level, especially in areas not optimized (aka high altitude deserts) for it cause they actually need to be able to grow crops means needing huge territorial footprints and crowding out of foodcrops leading to higher food prices and possibly even food shortages.

              This system could exist on a very small geographical footprint and use ANY form of electric generation like Nuclear, Wind, Geothermal, or any future energy dense process we develop (I’m still putting my money on Solar Power Satelittes as a long term solution)

    2. Fossil fuels in the last century reached their extreme prices
      because of their inherent utility: they pack a great deal of
      potential energy into an extremely efficient package. If we can
      but sidestep the 100 million year production process, we can corner
      this market once again.

      — CEO Nwabudike Morgan,
      Strategy Session

    3. I don’t want to sound too negative about this. There are likely to be very valid needs for technology like this. Take Japan with no oil and no space to grow crops that could be converted to fuel. But they do have nuclear reactors and lots of seawater. So it could become economically viable for them.

      1. So it could become economically viable for them.

        Think comparative advantage. I would think the energy required to produce this fuel be better spent making cars and electronics. This whole notion of energy independence has a romantic twang to it, but if you can buy something cheaper than it costs you to produce it yourself, you’re better off buying it.

        1. The magic word is “could”. It depends on the oil market. Since Japan imports pretty much all of the petroleum products that it needs, a major disruption of the oil market would hit them very hard. And it depends on whether this lab experiment could ever be scaled up to significant production levels.

    4. If it’s true, that would be great. Fact is, ICE is simply a superior technology to electric cars, and will be for the forseeable future. If you have fuel that is just recycling carbon that’s already out and about, it’s just as green as the source of the energy it’s storing.

      I’m thinking this might be a kickass industry for seasteaders — just throw a bunch of solar panels onto a lightweight flat platform, convert the energy to fuel, ship tankers of it to the mainland.

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