31 March 2010

The 70% "Solution"

From The Washington Times, this Cato Institute observation:

"The underground or 'black' economy is rapidly rising, and the fault is mainly due to government policies. 

Here is the evidence. The Federal Deposit Insurance Corp. (FDIC) released a report last week [December 2009] concluding that 7.7 percent of U.S. households, containing at least 17 million adults, are unbanked (i.e. those who do not have bank accounts), and an "estimated 17.9 percent of U.S. households, roughly 21 million, are underbanked" (i.e., those who rely heavily on nonbank institutions, such as check cashing and money transmitting services). As an economy becomes richer and incomes rise, the normal expectation is that the proportion of the unbanked population falls and does not rise as is now happening in the United States."

The Cato Institute often suffers from Strabismus Rectum, or seeing cross-eyed out their asses, but even a cross-eyed squirrel can find its nuts every once in a while. By focusing on the growth of the non-banking percentage of the population, We can see the yellow tint of a canary in a deepening coal Mine. (I mean, "coal mine." Force of habit.)

More from the article:

"Countries such as the United States, Switzerland and Japan historically have had relatively small, nonreporting and/or illegal sectors, a typical estimate being 13 percent of GDP. 

Most European countries have had somewhat larger underground sectors (typically 20 percent or so) in part because of the desire to escape higher tax rates. Italy and some of the other Southern European countries are believed to have underground sectors that account for 30 percent or more of all economic activity... In some developing countries and/or highly corrupt countries, underground or "off the books" activities are estimated to be as high as 70 percent of all economic activity."

Uh-huh. So what contributes to this increase in the black economy, according to the Cato folks? Government regulations, bank fees and taxes: "Many studies have shown that when people believe the taxes they are required to pay are reasonable and the political leaders tend to spend their tax dollars wisely, tax compliance rises, and vice versa. In the United States, there is increased evidence that many tax dollars are not being spent wisely and are often used to pay off political cronies."

Oh. Kay. Anything else you want to add to this picture? "Not surprisingly, a majority (71 percent) of the unbanked have household incomes of less than $30,000 per year."

Now let Me see if I have this straight: the estimated size of the "black" or "underground" economy depends on whether people feel they have a chance to overcome government regulations, pay increasing bank fees, have reasonable taxes and a perception that said taxes are used largely free of corruption. Oh, and have incomes over $30,000. In countries with good economies and fairly honest governments, We're looking at roughly 20% "black" economy; in bad economies and corrupt government, more like 70%.

Therefore, given that We have a depressed economy, long burdened with over-regulation and outright obstacles for growth, unreasonable taxes on the rise, higher banking fees, an openly corrupt government and an income hovering around $18,000, would you place Our underground economy closer to 20% or 70%?

Then think about what that means to all of Us, because when the "underground" economy is bigger than the "ground," where do We go with it?

The Jenius Has Spoken. 

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