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NewAlchemist (69.08)

How Large is the Underground Economy?

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March 21, 2013 – Comments (1)

Some stats from an interesting article

4.8 million unemployed Americans -- 40 percent of all those jobless -- who have been out of work for more than 27 weeks, even as the economy has been growing since June 2009

America's shadow economy includes activities that are actually illicit -- prostitution and drug dealing -- and more benign jobs like working construction for a day for cash, or even the $2 a kid that Kalmes gets for walking neighborhood children to the bus. Added together, economists estimate $2 trillion could be involved. 

puzzling discrepancies in economic data. One example: Explaining why retail sales have outpaced gains in reported income for almost four years

Unemployment (USURTOT) is 7.7 percent, up from 4.4 percent in 2007

The underground economy relies largely on untraceable cash payments. Data from a Federal Deposit Insurance Corp. survey, released in September of last year estimates that 8.2 percent of U.S. households, almost 10 million, have neither checking nor savings accounts.

Another gauge economists use to track the size of the shadow economy is currency in circulation, the total stock of physical bills. That measure has surged since the onset of the recession, reaching a record $1.18 trillion on March 13 from $803 billion in 2007, according to data from the Federal Reserve.  That's an increase of $373 billion in cash. While not a precise estimate of the U.S. cash economy, because more than half may be held in other countries, according to the Fed, even if part of the residual remains in the U.S. it illustrates the informal economy's growth.

While overall unemployment fell to 7.7 percent last month, a rate that includes the underemployed was 14.3 percent.

 

I've often wondered how large the underground economy is.  If we have a 2 trillion dollar underground economy and a 16 trillion dollar above ground economy that would put us at roughly 11%.  Call me cynical but I'd argue the undeground economy is at least 11%.  Drug trade, prostitution, construction work off the books, waiters and waitresses not reporting tips, bartering on craigslist, importing fake Chinese products, day labor in front of Home Depot, babysitting, cutting your neighbors grass, snow shoveling, theft, unclaimed gambling winnings, Mob activities etc.

You don't see a lot of this in the mainstream media however the article is somewhat odd.  Rather than focusing on the plight of the people suffering in the underground economy,  there is a tone of "the US is losing tax revenue".

Another stat that was left out of this article, the nearly 48 million Americans on food stamps or roughly 15% of our population.

I must admit that I was unaware of the additional cash in circulation and it makes sense.  In a lot of other countries you see a lot of cash and off the books transactions.  

One of the things to keep in mind is that the economy and the stock market are two totally different things. 

My opinion is that a lot of people are becoming less trusting of the data.  A lot of people who don't even follow the market are critical of the inflation numbers.  Most people believe the true unemployment rate is higher than 7.7%.  There is a general feeling that we are being lied to by politicians, economists and the media.  

 

1 Comments – Post Your Own

#1) On March 22, 2013 at 1:09 AM, awallejr (79.57) wrote:

You'd be surprised at the stats on the "underground economy."

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