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And finance Allah shmoop What is thie Underground economy the

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black market the shadowy economy the underground The unregulated wild

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Wild West becomes well The underground economy includes all illegal

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economic transactions Well some economic transactions might break the law

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

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no While others might break it more directly like selling

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cigarettes under the table to avoid paying high cigarette taxes

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you know smoking up X free Well what else in

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the underground economy is there Well there are more obvious

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ones like the sale of illegal drugs and prostitution and

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all things mafia and you know smuggling things or people

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across borders You know the stuff you see on the

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

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the less obvious illegal transactions did Billy the neighbor boy

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

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laws All shame on you Billy Shane How dare you

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break Okay Even if Billy was old enough to not

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be violating child labor laws did he report that income

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to the I R S did his parents Well probably

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

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a permit for that lemonade stand their little seven year

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

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yeah that really has happened in some cities Well the

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underground economy has got some obvious illegal activity and some

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

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so just how widespread is all this illegal economic activity

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Well the underground economy is notoriously hard to measure But

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according to the IMF the International Monetary Fund the average

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size of the underground economy of one hundred fifty eight

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countries between nineteen ninety one and two thousand fifteen is

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almost a third of GDP thirty one point nine percent

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It includes country like you know Zimbabwe in Soviet Georgia

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

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the GDP The smaller shadow economies can be found and

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highly regulated Highly technically audited places like the U S

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And Austria and Switzerland which have underground economy is estimated

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to be in the seven eight nine percent range Well

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

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that after the two thousand eight financial crisis the US

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underground market doubled from a trillion to two trillion dollars

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As the legal economy plummeted the underground economy picked up

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the slack Which begs the question Why is the underground

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

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will feel away usually even if the thing being demanded

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is illegal for sellers If the benefits of selling on

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the black market outweigh the costs and the risks well

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then the market will exist For instance marijuana was made

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illegal around the time of the Great Depression right The

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laws around it theorized that high unemployment and fears of

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Mexican immigrants led to marijuana being made federally illegal Well

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fast forward to today and well over half the states

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in America have generally legalized marijuana medicinally and many states

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recreational e well what changed as marijuana transition from the

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underground economy into the legal economy or overground economy While

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first governments get to tax marijuana increasing their revenues providing

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more money for for schools in theory and then roads

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and whatever government spend money on the second wealth money

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that used to be funneled through the underground economy is

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now being funneled through that legal economy which has different

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rules and enforcement protocols and competition in the legal economy

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

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to enforce the rules in the underground economy Everyone has

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

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the black market often results in violence well as the

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black market for a good like marijuana is being displaced

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by marijuana in the legal market it also means that

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legal enforcement is displacing illegal enforcement courts and cops Replacing

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black market violence for enforcement is a societal benefit When

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

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consider the economic effect of bands and high taxes on

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

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think high taxes will bring in a ton of revenue

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

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just not the case If the trade offs are worth

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it and the demand is there well then taxes and

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bands can simply push transactions into the underground economy Well

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just as marijuana is moving from the shadow economy to

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the legal one drastic tax increases on commodities and bands

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can move goods and services from the legal economy into

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the illegal one as in all of economics whether transaction

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is in the legal market or the illegal market It

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comes with its own set of tradeoffs For instance food

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stalls on the street that avoid paying taxes mean less

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money for the government But they could also result in

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

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

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to pay taxes Since these things do thrive well it

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means more money for them but also more money injected

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

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

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taxes while feeling like the government is being well some

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governments have their own underground economy to government officials tapping

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government coffers for their own purposes A corruption and fraud

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is nothing new Ironically when governments are the enforcers of

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the legal economy many have their own share of behind

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

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child labor laws and hiding income from the I R

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Rest or you know do just make sure there are

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no neighborhood sticklers against lemonade stands or freshly reclines Our

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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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