The U.S. Shadow Economy

I've seen several articles recently about the U.S. "Shadow" or underground economy. It's easy to find examples if you Google for them, so I'm not going to provide examples. The underground economy is steadily increasing as a share of the U.S. economy. I participate in it every day, myself, though I do have an "on-the-books" day job.

This is a very bad thing for the U.S. as a nation. One of the most important books on economics in decades is Hernando De Soto's The Mystery of Capital: Why Capitalism Triumphs in the West and Fails Everywhere Else. The underground economy is not the focus of the book, but it turns up as a feature in every failed attempt at capitalism he examines in the course of the book.

When societies make capitalism difficult -- byzantine regulations, onerous taxes, uncertain property rights, organized efforts to prevent outsiders from breaking into protected cartels -- the underground economy develops as a result.

If the underground economy is starting to become popular here in the U.S., it means we are failing at enabling people to engage in open free enterprise. People are sensing that they are being taxed too much, that the regulations they are supposed to comply with are burdensome, expensive, arbitrary and all-too-often ridiculous.

So, it's no surprise when small businessmen start routinely dealing with each other in cash-only and service-for-service transactions: "I provide a service you need, you provide a service I need. We help each other out and the tax man never has to be the wiser."

The advantages of operating in the underground economy are starting to outweigh the disadvantages. People are losing their respect for the government, because they see the government operating recklessly, foolishly and without respect for its constituents, but still thinking it has a right to our support and our taxes.

I'd guess that a plurality, if not a majority, of Americans do not feel our Federal government deserves our respect or support -- we don't want to give it money any more than we'd give money to the drunken sailor whose spending it emulates.

That's a bad sign for the republic, because a republic that doesn't have the respect or support of its citizens won't long stand.