[Nettime-bold] The size of the underground economy (was: Deflation, anyone?)

[Francis Hwang <sera@fhwang.net>]

Brad wrote:

>I'm not even sure how to ask this: but is there any way of
>gauging the extent of "illicit" and/or "escaped sectors"
>of The Economy? I've a nagging suspicion, coupled with known
>instances, that a relatively large proportion of the global
>populace operates in a vastly different/indifferent
>financial climate, and that the global economic rhetoric is
>a needlessly servile ruse.

 From the Left Business Observer #91, August 31, 1999. (If you haven't 
subscribed to LBO already, I recommend it. LBO's site is at: 
http://www.panix.com/~dhenwood/LBO_home.html) Short answer: Nobody 
knows.
------
Now and then, when you talk about official economic stats, people ask 
how much do they miss? Just how much of the economy is underground, 
black, unreported, whatever?

Six articles in the June 1999 _Economic Journal_ review the state of 
the art, theory and practice. It's clear no one has a good idea. 
Economists have looked at growth in the currency supply, or anomalies 
in the national income accounts, or known data on tax evasion to 
guess the size of under-the-radar activity. Lately, a high 
unemployment rate has been treated as suggesting a large unreported 
sector, which may be true, but which may also be callously explaining 
away structural unemployment. There's no doubt that people on welfare 
work -- they couldn't survive otherwise -- but the amounts involved 
are small.

In his introduction, Huw Dixon presents the estimates graphed nearby. 
(These cover only unreported cash activity -- not unpaid household 
labor like cooking, cleaning, repairs, or gardening, estimated by 
Robert Eisner as almost a third of U.S. GDP in 1981. More about this 
in a future issue.) Though economists keep trying out ever-more 
sophisticated computer models -- contributors to this issue estimate 
the unreported GDP for New Zealand and India, and for unreported 
taxable income in the U.S. -- the estimates are tremendously 
sensitive to assumptions and techniques. IMF economist Vito Tanzi 
points out in his paper that estimates of the black economy range 
from 1.4% to 47.1% of official GDP for Canada, 6.2-19.4% for the 
U.S., and 14.5-31.4% for Germany. Attemps to produce estimates over 
time with wildly, almost implausible volatile series; the volatility 
seems more a measure of the imprecision of the estimates than a 
description of economic reality. Some estimates show a rising trend 
of illegality over time; others, a falling one. Who knows?

Of course, a major hotbed of off-the-books activity is the drug 
trade. Estimates of its size vary widely -- with drug czars happy to 
come up with big numbers, like Cold Warriors goosing up the Soviet 
threat. A UN paper by Douglas Keh cites early-1990s estimates of 
$100-500 billion. Keh speculates that lots of this money is laundered 
in freshly deregulated systems in Latin America and the former 
socialist world. He's probably right, but again no one has any idea 
for sure. And while $500 billion is a lot of money -- let's be 
expansive and use the maximum -- it's a lot less than the $5.5 
trillion in recorded worldwide exports and some $30 trillion in 
global product -- or $73 trillion in U.S. financial assets.

-- 

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