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Thursday, April 25, 2013

$2 Trillion Underground Economy Flourishing in US


The underground economy in America has nearly doubled its activity since 2009. This isn't too surprising, it's just often overlooked.

From CNBC:

The growing underground economy may be helping to prevent the real economy from sinking further, according to analysts.

The shadow economy is a system composed of those who can't find a full-time or regular job. Workers turn to anything that pays them under the table, with no income reported and no taxes paid — especially with an uneven job picture.

"I think the underground economy is quite big in the U.S.," said Alexandre Padilla, associate professor of economics at Metropolitan State University of Denver. "Whether it's using undocumented workers or those here legally, it's pretty large."

"You normally see underground economies in places like Brazil or in southern Europe," said Laura Gonzalez, professor of personal finance at Fordham University. "But with the job situation and the uncertainty in the economy, it's not all that surprising to have it growing here in the United States."

Estimates are that underground activity last year totaled as much as $2 trillion, according to a study by Edgar Feige, an economist at the University of Wisconsin-Madison.

That's double the amount in 2009, according to a study by Friedrich Schneider, a professor at Johannes Kepler University in Linz, Austria. The study said the shadow economy amounts to nearly 8 percent of U.S. gross domestic product.

Much of that money goes into cash registers, said Gonzalez, as personal consumption has risen since the recession.

"There is consumer spending in the short term, with people having money even if it's not reported, and that's boosting the economy," she said. "But in the long run, an underground economy is telling us that things have to change." 
Shadow economies are usually associated with illegal activity, such as drug dealing. But anecdotal evidence indicates that off-the-books work in today's job market includes personal and domestic workers, such as housekeepers and nannies. 
"The jobs are in service industries from small food establishments to landscaping." said David Fiorenza, an economy professor at Villanova University. "Even the arts and culture industry is not immune to working off the books in areas of music and entertainment."

It also includes firms that hire hourly or day construction labor, information technology specialists and Web designers. Many who have a job that doesn't pay enough take another one that pays under the table [emphasis mine].
Gonzalez then goes on to make a rather ridiculous statement that ties the underground economy to the need for illegal immigration reform. Kind of cute how she tries to make this issue which has really taken off since 2009 to tie directly to today's hot topic for debate. Gimme a break, Gonzalez...

Shadow economies flourish when the cost of doing business legitimately is either too costly or legally restricted. This is why the black markets prospered in places like Russia back when it was the Soviet Union, Communist China prior to 1990s economic reforms, and places with highly restrictive economic laws like Brazil. Yes, illegal immigration does have plenty to do with the underground economy in the United States. However, the fact that the underground economy has probably doubled since Obama and his regulators took office coupled with the fact that illegal immigration to the US has decreased, suggests that Obama's economic policies are to blame.

As long as Obama and his ideological amateurs continue to pass unworkable laws (ObamaCare) that hold unemployment levels high and stagnate the legal economy, the underground economy will flourish. It's just a fact.

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