The underground economy

The underground economy is fascinating because it involves civil disobedience, desperation or criminal behaviour.

My understanding of the underground economy is that it is economic activity that contradicts some legislation and is thus illegal.  By this definition, people who live on the economic margins may not be participating in the underground economy as most of what they do is not illegal.  How can you break the tax laws if your income is not enough to be taxable?

trapdoorCivil disobedience is a complex subject with lots of moral issues and variations. (Are there other ways of protesting a law?)   I think of it as deliberately disobeying a law because one disagrees with that law.  As most economic legislation works to limit competition so that a few people can make profits they otherwise would not get, there are a lot of unjust economic laws and many opportunities for civil disobedience.  Examples include subsidies, trade restrictions,licensing, copyright and patents.  Legislation that imposes morals, religious values or sexuality upon people who don’t share those values also invites civil disobedience.

Economic civil disobedience  might be more effective if it were organized and stated to be civil disobedience.

Generally people living on welfare are living very close to the subsistence margin.   As the welfare rules tend to be restrictive  the only way these desperate people can get anything extra is to break the rules and/or not declare any extra income they can scrap up.  I think a lot of these people are there through no fault of their own.  They deserve a lot of sympathy and more generous welfare rates.  I believe we should have a collective responsibility to ensure everyone has the opportunity to live the same standard of living as most other people.  Illegal immigrants are also probably here out of desperation or because they are better off here illegally than they were in their home countries.

There is also a double standard in hitting welfare recipients  in that wealthy people are good at ensuring tax legislation has lots of loopholes from which they can benefit.

A third type of underground economic activity is exploitive and/or deliberately criminal.  I am thinking of people who employ illegal immigrants and get away with inhumane working conditions because their employees are afraid of deportation.  We cannot tolerate inhumane working conditions in Canada or the United States although Bangladesh is somehow different.

This post was inspired by a post on a weblog by Eric Hare titled “Cheers for the Underground Economy!”  I wish there were no need for an underground economy although when we hire neighbors to do some little job for us I usually pay in cash.

 

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Regulating banks and competition

This week’s The Economist has an article about a small bank in Texas which is challenging in court the Dodd-Frank act passed two years ago to increase the regulation of the banking industry.

I have a theory that most if not all economic legislation works to restrict competition and it appears the Dodd-Frank act does this by making life difficult for the small banks.

It also appears small banks, or at least this one, being small have to follow prudent banking practices and have fewer opportunities to gamble with other people’s money.

Maybe the best way to regulate the financial industries is to ensure they are highly competitive and repeal legislation which restricts competition.

Of course the big banks would turn their lobbyists loose on this one.

 

If you liked this post your are invited to comment, press the like button and/or click  one of the share buttons. If you disagree you are invited to say why in a comment.  While I like the idea of sharing this platform, my personality is such that I don’t reply to many comments.

Right to know rather than regulations

The cover feature on this week’s The Economist about regulations in the United States.

Mostly the rationalization for economic legislation and regulations is to protect the public, but I have a theory that most of these work to restrict competition so that some producers of goods and services can make excessive profits at  the expense of consumers.

What we really need is protection from those who would restrict competition.

In the final analysis we as individuals are the ones who suffer when we do stupid things.  When governments make regulations to protect us from our own stupidity they are taking away from us the responsiblity to know what we are doing.

I figure the economic role of government should be to make sure we all have the information upon which to make decisions according to our values and the risks we are prepared to take.

Therefore, rather than lots of economic legislation and regulations governments should require producers of goods and services to make available full information about their products, their companies and their industries.  Right to know legislation should go so deep that legislators would need police protection  from all the lobby groups in the country.

Competition, governments and economists

I believe, a s a general rule most economic legislation works to restrict competition by overruling the fundamentals of the perfect competition model.  Patent and copyright, licensing, tariffs and subsidies all restrict competition.  Therefore business people have a large interest in ensuring that only that type of legislation gets passed.

I also believe the main function of economist is not to solve economic problems but to provide a sort of religious legitimacy to our economic activity.  They allow us to feel we are doing something good as we use up scarce resources and as some people exploit others.

Now, I encourage you to have a look at this article economists working in academia , the financial industry and government.

 

 

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