Black Markets

Control Freaks' Solution to Shadow Economy: Nag People and Abolish Cash

They'll try anything but lowering taxes and reducing regulations



The shadow economy—off-the-books business and labor that would be perfectly legal if people felt like subjecting themselves to taxes and regulations—ebbs and flows with the years. Right now, it's down a bit in many countries from the days of the recession, but shadow economic activity is still huge. Across the European Union, it's estimated to amount to 18.4 percent of GDP. Why people work off the books is no secret—high taxes and burdensome regulations are constantly cited by economists as primary drivers for people to hide what they're doing. So, current policies are like kryptonite to people who want to keep the fruits of their labor. Got it. The obvious solution then is to…harangue and coerce people back into the official economy?

Yeah, those are really serious recent proposals.

First, let's be clear that we are talking about a lot of productive activity in the shadow economy. "[I]n both OECD nations and developing countries, two-thirds of all businesses start-up unregistered in the informal economy," notes Prof. Colin C. Williams of the University of Sheffield at the London School of Economics' European Politics and Policy blog. That's a large majority of businesses starting off the books.

For his figures on the size of the shadow economy, Williams cites Friedrich Schneider, one of the world's foremost experts on the field. In a 2010 paper for the World Bank, Schneider and his co-authors argued that "the overall tax and social security contribution burdens are among the main causes for the existence of the shadow economy." They also noted that "[i]ncreased intensity of regulations is another important factor that reduces the freedom of choice for individuals engaged in the official economy," and they cite research by others concluding that "every available measure of regulation is significantly correlated with the share of the unofficial economy."

So burdensome taxes and regulations created a situation in which a majority of businesses start up illegally. What to do? Maybe cut taxes and regulations so that people find the legal economy a tad more attractive?

Oh no. "[D]e-regulating the declared economy is also a non-starter," insists Williams, "because it results in a levelling down of working conditions." We can't have less onerous regulations because they'd be less onerous and regulatory. Much better to have people ignoring them entirely.

Well, that's not exactly what he wants. He concedes that the "stick"approach—punishing the non-compliant—isn't working and that stepping it up would "squash precisely the active citizenship and entrepreneurship that with the other hand governments want to foster."

His solution is to…umm…talk people into paying more taxes and submitting to red tape. Or, as he puts it, "developing the social contract between the state and citizens to engender a voluntary commitment to compliant behaviour and thus greater self-regulation." Apparently, this involves "openly engaging citizens to consider their obligations and take responsibility for regulating themselves."

That and a euro will get you a cup of black market coffee. It's just not going to work. Sorry.

Then again, it's better than the proposal of Peter Bofinger of the German Council of Economic Experts. He wants to abolish the use of cash, which he calls an anachronism. He frets that old-fashioned notes enable undeclared work and black markets, and stand in the way of central bank monetary policy. So rather than adjust policy to be more palatable to the public, he'd rather leave no shadows in which the public can hide from his preferred policies. The idea is to make all economic activity visible so that people have to submit to control.

Denmark, which has the highest tax rates in Europe and a correspondingly booming shadow economy, is already moving in that direction. With almost half the workforce in construction and agriculture laboring, at least sometimes, off the books, the Danmarks Nationalbank will stop internal printing of banknotes and minting of coins in 2016.

After all, why adjust tax and regulatory policy to be acceptable to constitutents when you can nag them and try to reinvent the idea of money instead?

All very creative stuff as bureaucratic wishful-think goes, for sure. But this dance has continued for millennia, with government officials forever trying to force people to disclose their incomes and comply with impossible rules. After thousands of years of this, Williams and Bofinger think they've found the key to enforcing official will without having to make any adjustments for public preferences.

I'm willing to bet that the creativity of all of those millions of people working and starting businesses in the shadows will ultimately prevail. Again.

NEXT: No, Duke Didn't Discipline Prof for Racist Comments. But Its Reaction Was Still Wrong.

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  1. You know who else tried to take on The Shadows?…

    1. Peter Pan?

      1. I knew one of you mammals was an early 90’s geek

        1. Actually, I never watched the show. I picked up the references through cultural osmosis.

        2. The avalanche has begun, it is too late for the pebbles to vote.

    2. John Steed?

    3. Shiwan Khan?

    4. Mr. Magoo for GE Soft White bulbs?

    5. Batman?

    6. Renly Baratheon?

    7. The evil that lurks in the hearts of men?

  2. …high taxes and burdensome regulations are constantly cited by economists as primary drivers for people to hide what they’re doing.

    Which, in turn, means the government has to tax more those patriotic enough to declare their money moving, to make up for the shortfall. It’s all a vicious circle.

  3. Without cash, how will I buy hookers and blow???

    How will I tip lapdancers? Square?

    1. They get really mad when you throw rolls of coins.

      1. Don’t laugh, I did this once. Striper started cooing, “Make it rain!” and I threw nickels.

        OK, I’m a cheap Jew. Gonna make something of it?

        1. *stripper

          Fucking keyboard.

          1. That costs extra.

          2. That costs extra.

            1. You can say that again!

          3. I was assuming you were talking about candy stripers at the hospital. They’re such sluts.

        2. No I can totally see Candy Stripers being your thing.

          1. What’s your point?

        3. Round here people like to fish for sea bass, and they call them stripers. I used to work with a guy who wore a shirt related to some striper contest, and I’d always tell him “You spelled stripper wrong.” Poor guy had such a thin skin I think I hurt his feelings every time I said it, every time I saw him wear it. I’m so nice and considerate.

    2. Card-reading magnetic strips for stripper’s buttcracks. Just slide and your tip is applied.

      1. That did not work so well for Quagmire

      2. Just the tip?

    3. “How will I tip lapdancers? Square”


      1. /trademark application filed

      2. BRILLIANT!

        1. So who got the domain?

    4. Seriously, though, it seems the state should set up communal accounts that are drawn from every time someone pushed a button for a lapdance. Guaranteed income for the “dancers” and if any part of our economy needs to be collectivized…

  4. Denmark, which has the highest tax rates in Europe and a correspondingly booming shadow economy, is already moving in that direction. With almost half the workforce in construction and agriculture laboring, at least sometimes, off the books, the Danmarks Nationalbank will stop internal printing of banknotes and minting of coins in 2016.

    You know, it’s one thing to predict an event. It’s completely another to watch it actually happen.

    1. I predict Denmark switching to the dollar or pound soon.

      But it sounds like an opportunity for Bitcoin, too.

      1. The Danes will just use Euro as a means of payment in their shadow economy.

    2. It’s adorable that people even entertain the thought that stuff like this might work. “If we just eliminate the currently used medium of exchange, people will stop exchanging in ways that we don’t like or can’t tax!” It’s just not that easy. People will find a way.

      1. I’m curious how prepaid visa cards are going to fly off the shelf in these places…

      2. Of course it works. That’s why all the cities that banned handguns have no more homicides.

    3. All these countries surrounding Denmark all using a common currency known as the Euro. Wonder what the black market will use when the Krone goes away? Hmmm…

      1. I prefer the Vietnamese Dong…the money that is.

  5. They probably long to do it like Demolition Man: everybody has a chip implanted that tracks how many “credits” you have, and tracks your location 24/7 as well.

    1. What do you think your smart phone is for?

      1. Mobile porn.

        1. No, that’s what 4g is for.

    2. I’m just waiting to figure out how the shells work…

      1. You shit on one, scrape with another and lap water onto your anus with the third. It’s so obvious.

        1. After that burrito last night, I could really use a fourth shell.

  6. developing the social contract between the state and citizens

    I was wondering how deep I’d have to read before I got to ‘socialist contract’.

    1. Didn’t Lysander Spooner already explain that a contract signed under duress isn’t valid. I signed no contract- and if I did it must have been under threat.

      1. And besides, I was underage!

  7. Who knows what evil lurks in the hearts of men? The Shadow (economy) knows!

  8. Making trade more difficult should be good for trade.

  9. What’s truly amazing about the control freaks is that there is a historical record absolutely rife with examples of how people have always gotten around control and have resisted exactly what the control freaks are trying to do. Yet instead of looking at past and present evidence and going “ok this isn’t going to work”, these fucking mongoloids just say “this time it will!”

    There is a staggering egomania and narcissism in these control freaks. No one in the past has succeeded in the things they are trying to do. Yet somehow these mediocre fucks are going to be the ones to get it right?

    How do the utterly banal get such inflated opinions of themselves?

    1. To be fair- certain people on this site are claiming a libertarian moment… despite a historical record absolutely rife with examples of how that never happens.

      1. They’re not trying to control anyone.

        1. or ARE they?!

      2. Foolish optimism is something else entirely. Things do change and new things do occasionally happen.

      3. Really? Humanity has never gotten freer? You really shouldn’t be criticizing the intellect of others if you even imply such a statement.

    2. You think these people have actually read history?

      1. It’s as if ignorance of both history and economics is required to be in a decision-making capacity in government.

      2. It’s not even reading history. Anyone who pays the slightest attention can see what happens with the myriad control attempts around you, from high cigarette taxes to illegal weed to the fucking speed limit. The evidence is all around even if you’re illiterate and can’t read history.

        It’s willful ignoring of reality.

        1. It’s willful ignoring of reality.

          Attending public university where they hold your hand to make sure you never encounter contrary opinions helps as well. I sort of imagine Danish universities looking at Oberlin College and exclaiming, “Why do you even have controversies over your policies? Just ban dissent!”

          1. Do you know that that is how Danish universities are, or are you just making it up?

            I don’t know myself. But it seems like, despite the socialistical nature of how it is paid for, a lot of Euros do higher education pretty well. One advantage of not having to market to all of the idiots who wouldn’t have gone to college a generation ago is that you can just do education and don’t have to make college some kind of lifestyle resort. If you aren’t up for college, you can learn a trade.

            1. I get the impression that a lot of Euro universities are academic ghettos.

      3. I’m sure many of them have read plenty of history. The world is full of economic leftists who are just as smart and well read as anyone. Their problem isn’t ignorance. It’s not as if explaining the historical examples of the same sort of thing not working will change their minds.

        It’s easy to assume that people who disagree with you are simply ignorant and just need all the facts. But it’s almost always wrong.

        1. The Knowledge Problem can’t be solved by technology or new theories any more than Schroedinger’s equation can be solved for the particles that make up the Earth. And yet there is always someone who thinks they can/do/should know which resources people will and will not be allowed to exchange and at what exchange rate. Its like saying, “Yes, I understand that we canot produce an exact solution for anything more complex than a hydrogen ion, and that all of the tricks we know alow us to approximate several hundred atoms to a very high degree of accuracy, therefore we can extrapolate everything else.”

    3. I think that that inflated opinion of themselves is a requirement to get the job.

    4. Epi, nobody as smart and as well informed and right thinking have tried it before. Its like watching a bigger baboon come along and trying to fuck the same football. You and I know that the size of the baboon has nothing to do with whether or not it can effectively copulate with an inflated plastic bladder.

  10. Shit got real last night on GoT. Nowhere near as sadistic as in the books, but that Ramsay character is still evil.

    1. Yes, Westerosi trafition is to have all the wedding guests watch the newlyweds first coupling. Just having Theon in the room was perverse!

    2. No spoilers

      1. Somebody dies

        1. Spoiler: just this episode – everybody lives.

          1. Well, except for all the dead people

            1. …particularly the euthanasia victim.

          2. Even they guy who was poisoned?

      2. Here’s a spoiler: they’ve started their total deviation from the books in earnest this season and soon enough the show will bear little to no resemblance to the books. And here’s the real spoiler: they aren’t nearly as good of writers as Martin.

        1. It is not a complete deviation. Similar things happened in the books but they are becoming increasingly skewed, like certain characters being in the wrong plotline, and plotlines that seemed important not existing at all.

          1. No. We’ve reached complete deviation – and Epi is right, the show writers suck.

            They still pick up some scenes from the book, but everything’s off the rails.

  11. What was, what is, what will be, may yet fall beneath the Shadow Economy. Let the Regulator ride again upon the winds of time!

    1. +1 Wheel of Prog!

  12. I love it when parasites start whining about free riders.

    1. Parasites view everyone who does not feed them as free riders.

      1. Not giving is taking, after all.

  13. I knew a libertarian activist who wore a “No Cash, No Crime” button. And he was right: Abolishing cash would very near abolish economic crime. In a free society, the abandonment of cash would be a boon. The trouble is that to get there, we have to go thru a gov’t against whose grabby paws one of the few defenses is cash.

    1. You can’t abolish cash. People will find something to use as a medium of exchange. I don’t think organized crime will go away because they don’t have $100 bills anymore.

    2. “And he was right: Abolishing cash would very near abolish economic crime”

      Well, it introduces a nifty way for the state to engage in widespread economic crimes of its own.

    3. WAT? The state did not invent cash, the market invented cash. A free society would have cash simply because cash is convenient. Possibly something like little plastic cards with magnetic strips will replace cash, but the idea that no cash means no crime is silly. No cash merely means that pickpockets get replaced by hackers.

      1. No cash merely means that pickpockets get replaced by hackers.

        I think I just found my next career.

  14. Lowering taxes and refusing regulations? That’s just crazy talk, 2 chilli.

  15. this is really frightening

  16. My best friend’s mother-in-law makes $85 /hour on the internet . She has been out of work for 5 months but last month her pay was $16453 just working on the internet for a few hours.
    Visit this website ?????

  17. Oh ya, those proposals will work wonder for Greece. Italy will be turned right around. Oh shoore…

  18. He frets that old-fashioned notes enable undeclared work and black markets, and stand in the way of central bank monetary policy.

    Also known as “one of the very best things about cash.”

  19. Try to remember that government is simply the name we give to things we choose to do together.

    So, what role will banks play in this cashless society? Last year I rented three apartments in three European cities. All required payment in cash. When I was in Rome, I didn’t use my credit card once (although my debit card got a good workout at the ATM) as everyone everywhere, even the owner of my pensione, wanted cash. It will be a challenge, but people will find a way around this just like they always do.

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