One of the most portentous statistics of the current recession is the rise of the Underground Economy, sometimes called the Shadow Economy by economists. It consists of people who have dropped out of the regular economy and conduct business out of sight of the Government, particularly the IRS.
It's a fairly good predictor of how ordinary people protect themselves during a down economy, or during periods when they view government as interfering too much in the private sector.
One of the best statistical sources for this is Economics Professor Emeritus Edgar Feige of the University of Wisconsin-Madison who has spent much of his adult life making sense of the numbers. According to him, during the past 10 years the ratio of unreported income to reported income has risen dramatically, reaching levels not seen since the Great Depression and World War II when rationing contributed greatly to a black market in nearly everything consumable. Almost one-quarter of American income is now unreported to the IRS, up from about 9% when the economy is functioning well.
But that's only the tip of the iceberg, according to Stuart Staniford, Chief Scientist at FireEye, a cyber security firm. He says the actual Underground Economy is closer to 75% of the real economy worldwide because it also includes things like domestic households, the barter economy, the volunteer economy, the "under the table" economy, and the criminal economy. He says the more dysfunctional economies, such as third world countries and collapsing economies like Greece, have a greater share of their economic activity go Underground.
Underground Economy statistics are driven by several factors, according to a study by the World Bank. They include:
- higher tax rates
- increased government regulation
- higher Social Security benefits
- unemployment
- decline of loyalty towards public institutions
Which leads us to Greece, the most ominous predictor of what the future holds for everyone, including America. The public institutions of that heavily-taxed, overregulated, social welfare state have fallen into disfavor in the eyes of its increasingly unemployed citizens ever since the government started cutting back on all the lavish pay, vacations, pensions, medical care, and other free stuff.
You've probably seen the Greek riots in the streets, many organized by their formerly all-powerful unions who are now enraged by the drastic cuts in freebies. Greek citizens enjoyed a bountiful living for years on borrowed money. But then the money ran out and the debt came due. Greece is not only out of money, but out of borrowing power, so the only thing left for its citizens to do is flail out at their own government for its inability to let the party roll on.
Greek politicians talk of restoring the benefit cuts by "catching tax cheats," that is, going after people who have joined Greece's Underground Economy in their own attempt to survive. I doubt that will work. People trying to survive are too clever for governments.
The best case scenario for Greece, at least as far as the rest of the world is concerned, is that the violence is confined to Greece and does not travel throughout Europe as other economies disintegrate. Political instability in Europe has historically led to a big war of some sort.
An American response
If Greece is a harbinger of the future, and if Professor Feige's statistics about America's Underground Economy are accurate, they may very well be accurate predictors of how ordinary Americans will take back their country from a runaway state.
Ordinary Americans, especially young people, are fleeing our own Government's attempt to take over greater segments of the economy. Young people, especially, have caught on to Ponzi schemes like Social Security and Medicare, and they understand that multiple multi-billion-dollar bailouts are a statistical nightmare for their dollars of the future. They also see the job numbers in the regular economy and realize the Government is lying about them, that the real unemployment statistics reveal not an 8.2% unemployment rate but a near 15% rate if you include people who have stopped looking for work.
I've predicted in the past that America's revolution would come from the young as they seek to take back the futures that have been stolen from them. This may be how they conduct their revolution — by ceasing to participate in the above-ground economy and descending instead into the Underground Economy.
Instead of waiting in vain for government to reform the system from within, they're going to try to starve the beast, as it were, until it either collapses and they can rebuild their futures or it starts generating policies that make sense for their futures.
