The Underground Economy

Because the population is growing and new people are continually coming onto the job market, we need to produce roughly 1.5 million new jobs a year—about 125,000 a month—just to keep from sinking deeper.

Don Peck “How A New Jobless Era Will Transform AmericaThe Atlantic March 2010


Jobs Creation and the Unemployed

  • It will take 10 million additional jobs to bring the U.S. back to a 5% Unemployment Rate
  • At 600,000 new jobs/month it will take us two years to return to 5% Unemployment
  • The Unemployment Rate is around 10% or approximately 12.5 million people
  • The Underemployment Rate is at least 17%, or approximately 22 million people

In a sense every time some one is laid off now, they need to start all over. They don’t even know what industry they’ll be in next.

Gary Burtless, Labor Economist, Brookings Institution

The Failures of a Growth Economy

 Because of short term results rather than long term value creation, and “financial engineering” rather than funding business innovation: “natural” rate of unemployment will be between 6.5 and 7.5 percent even if the country reaches complete “recovery”.

 Edmund Phelps, Nobel Prize Economist, Harvard Business Review


Trained throughout childhood to disconnect performance from reward, and told repeatedly that they are destined for great things, many are quick to place blame elsewhere when something goes wrong, and inclined to believe that bad situations will sort themselves out-or will be sorted out by parents or other helpers. Sense of entitlement and highly structured childhood results in a lack of independence and entrepreneurialism in many 20-somethings. 

 Twenge/Alsop  Atlantic Monthly  March 2010


Compounding all of the above is that skills diminish, behavior changes, and people age as unemployment lengthens. What is going to happen to all these people?


The Major Players in the Underground Economy

It is estimated that the Underground Economy could be as large as 8 to 15% of  U.S. GDP (Gross Domestic Product) or $14 trillion.  That is a total of $970 billion to $1 trillion, and is most likely expanding at a rate of 5 to 6% per year!

  1. Labor/Goods/Services: Paid in Cash
  2. Illegal Drugs/Organized Crime: UN Report Retail Value $321.6 billion Worldwide
  3. Prostitution
  4. Weaponry: Smuggling, Theft from Arms Manufacturers
  5. Alcohol/Tobacco: Tax Avoidance, Smuggling
  6. Copyrighted Media: DVDs, Music CDs, Computer Software, Video Games
  7. Currency: Counterfeiting, Exchange

The Major Factors Stimulating  the Underground Economy

  • Unemployment
  • Underemployment
  • Illegal Immigration: 9 to 20 million people plus
  • Complex/Unfair/Unenforceable/Uncollectable Tax Codes and Revenues
  • Greed

Tax Gaps and Tax Avoidance

Illegal immigraton is estimated at $50 billion per year in lost tax revenues.

Private cash contracting is estimated at $400 billion per year in lost tax revenues.

Criminal activity is estimated somewhere around $1 trillion per year in lost tax revenues.

The U.S. government deficit is 10.6 % of GDP or $1.5 trillion.

The Bottom Line 

  • America’s infrastructure including streets, roads, highways, bridges are all deteriorating at an alarming rate
  • Our Public Education System of primary, secondary, and higher learning is approaching a shambles
  • The Public Services sector including police, fire and emergency services are understaffed with rising crime rates and declining morale and are all quickly reaching crisis proportions
  • Escalating Medicaid and other social services expenditures mirror our rising underclass with poverty rates and illegal immigration a major drain on scarce resources

If individuals are unemployed, underemployed, or illegal immigrants where might they turn to support themselves and their families? The best guess is that the Underground Economy would look more and more attractive all the time. Some would simply avoid taxes by working for cash. Others of course would most likely turn to more illegal and much more lucrative forms of tax avoidance, which not only means billions in lost tax revenue, but is also costly to regulate and control by police and other agencies. 

We the Taxpayers Take a Substantial Double Hit 

  • We pay more for our share of infrastructure and schools
  • We pay more for police, security agencies, jails and prisons to regulate and control illegal activities and warehouse lawbreakers. 

As populations increase so do all the problems above, in fact if history is any indicator they will undoubtedly accelerate faster than population growth in terms of percentages and therefore overall numbers. 

Consequently, the arguments for decreasing populations rather than allowing them to increase look better and better all the time! 



1 Comment

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  1. theultimateoutcast
    Jan 20, 2011 @ 12:08:15

    This is a great post! I just started a account and will submit it. I’m surprised no one comments on your blog. It’s very good and very informative without picking enemies and pointing fingers at a particular group or person.

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