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Econ: What is Underground Economy? 2 Views


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Description:

What is Underground Economy? The underground economy encompasses all sources of income that are illegal. For example, activities like selling drugs and prostitution are part of the underground economy.

Language:
English Language

Transcript

00:00

And finance Allah shmoop What is thie Underground economy the

00:08

black market the shadowy economy the underground The unregulated wild

00:14

Wild West becomes well The underground economy includes all illegal

00:18

economic transactions Well some economic transactions might break the law

00:22

directly Like you know human trafficking It's a big no

00:26

no While others might break it more directly like selling

00:29

cigarettes under the table to avoid paying high cigarette taxes

00:33

you know smoking up X free Well what else in

00:35

the underground economy is there Well there are more obvious

00:38

ones like the sale of illegal drugs and prostitution and

00:41

all things mafia and you know smuggling things or people

00:44

across borders You know the stuff you see on the

00:46

news or well when you're binging on breaking bad Well

00:49

the less obvious illegal transactions did Billy the neighbor boy

00:53

who rakes everyone's yards in the fall violate child labor

00:57

laws All shame on you Billy Shane How dare you

01:00

break Okay Even if Billy was old enough to not

01:03

be violating child labor laws did he report that income

01:06

to the I R S did his parents Well probably

01:09

not Same goes for Bonnie The baby sitter don't have

01:11

a permit for that lemonade stand their little seven year

01:14

old girl and we're going to shut you down And

01:17

yeah that really has happened in some cities Well the

01:19

underground economy has got some obvious illegal activity and some

01:23

less obvious illegal activity But it's still all illegal Well

01:27

so just how widespread is all this illegal economic activity

01:31

Well the underground economy is notoriously hard to measure But

01:34

according to the IMF the International Monetary Fund the average

01:37

size of the underground economy of one hundred fifty eight

01:40

countries between nineteen ninety one and two thousand fifteen is

01:43

almost a third of GDP thirty one point nine percent

01:46

It includes country like you know Zimbabwe in Soviet Georgia

01:50

and Bolivia the shadow economy there's about two thirds of

01:53

the GDP The smaller shadow economies can be found and

01:56

highly regulated Highly technically audited places like the U S

02:00

And Austria and Switzerland which have underground economy is estimated

02:04

to be in the seven eight nine percent range Well

02:06

underground economies aren't necessarily stable For instance there's some evidence

02:10

that after the two thousand eight financial crisis the US

02:12

underground market doubled from a trillion to two trillion dollars

02:16

As the legal economy plummeted the underground economy picked up

02:20

the slack Which begs the question Why is the underground

02:23

economy even a thing anyway Well where there's demand supply

02:26

will feel away usually even if the thing being demanded

02:30

is illegal for sellers If the benefits of selling on

02:33

the black market outweigh the costs and the risks well

02:35

then the market will exist For instance marijuana was made

02:38

illegal around the time of the Great Depression right The

02:41

laws around it theorized that high unemployment and fears of

02:44

Mexican immigrants led to marijuana being made federally illegal Well

02:50

fast forward to today and well over half the states

02:52

in America have generally legalized marijuana medicinally and many states

02:57

recreational e well what changed as marijuana transition from the

03:01

underground economy into the legal economy or overground economy While

03:05

first governments get to tax marijuana increasing their revenues providing

03:09

more money for for schools in theory and then roads

03:13

and whatever government spend money on the second wealth money

03:16

that used to be funneled through the underground economy is

03:18

now being funneled through that legal economy which has different

03:21

rules and enforcement protocols and competition in the legal economy

03:25

We've got police courts and laws that we can use

03:28

to enforce the rules in the underground economy Everyone has

03:31

to fend for him or herself That's why enforcement in

03:34

the black market often results in violence well as the

03:37

black market for a good like marijuana is being displaced

03:40

by marijuana in the legal market it also means that

03:43

legal enforcement is displacing illegal enforcement courts and cops Replacing

03:48

black market violence for enforcement is a societal benefit When

03:52

we make economic laws and policies well it's important to

03:55

consider the economic effect of bands and high taxes on

03:59

the entire economy including the underground economy We'd like to

04:02

think high taxes will bring in a ton of revenue

04:05

and that bands will be respect But in reality that's

04:07

just not the case If the trade offs are worth

04:10

it and the demand is there well then taxes and

04:12

bands can simply push transactions into the underground economy Well

04:16

just as marijuana is moving from the shadow economy to

04:19

the legal one drastic tax increases on commodities and bands

04:23

can move goods and services from the legal economy into

04:25

the illegal one as in all of economics whether transaction

04:29

is in the legal market or the illegal market It

04:32

comes with its own set of tradeoffs For instance food

04:35

stalls on the street that avoid paying taxes mean less

04:38

money for the government But they could also result in

04:41

economic stimulus There's a good chance than many food stalls

04:44

that aren't paying taxes wouldn't exist if they did have

04:48

to pay taxes Since these things do thrive well it

04:50

means more money for them but also more money injected

04:53

into the economy from all the economic transactions that they're

04:56

creating It's the same idea behind job creation versus relaxing

05:00

taxes while feeling like the government is being well some

05:04

governments have their own underground economy to government officials tapping

05:08

government coffers for their own purposes A corruption and fraud

05:12

is nothing new Ironically when governments are the enforcers of

05:15

the legal economy many have their own share of behind

05:18

the curtains Illegal dealings So yeah I don't try violating

05:22

child labor laws and hiding income from the I R

05:24

Rest or you know do just make sure there are

05:27

no neighborhood sticklers against lemonade stands or freshly reclines Our

05:32

prisons filled with seven a nine year old a waitin 00:05:35.363 --> [endTime] for mom and dad to come and bail amount

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