Where the Well-Regulated Economy Ends

What would happen if you had a well-regulated economy and nobody came?

Several excerpts from a recent New Yorker article by James Surowiecki give an indication.  First, there's "Greece, where tax evasion is a national sport and the shadow economy accounts for twenty-seven per cent of G.D.P."  In other words, Greece is more than one-quarter of the way to operating outside the well-regulated economy.

Surowiecki notes that the U.S. is headed in the direction as well:

"When we all finished filing our tax returns last week, there was a little something missing: two trillion dollars. That’s how much money Americans may have made in the past year that didn’t get reported to the I.R.S., according to a recent study by the economist Edgar Feige, who’s been investigating the so-called underground, or gray, economy for thirty-five years. It’s a huge number: if the government managed to collect taxes on all that income, the deficit would be trivial. This unreported income is being earned, for the most part, not by drug dealers or Mob bosses but by tens of millions of people with run-of-the-mill jobs—nannies, barbers, Web-site designers, and construction workers—who are getting paid off the books. Ordinary Americans have gone underground, and, as the recovery continues to limp along, they seem to be doing it more and more."

There are many factors pushing in that direction.

But the forces pushing people to work off the books are powerful. Feige points to the growing distrust of government as one important factor. The desire to avoid licensing regulations, which force people to jump through elaborate hoops just to get a job, is another. Most important, perhaps, are changes in the way we work. As Baumohl put it, “For businesses, the calculus of hiring has fundamentally changed.” Companies have got used to bringing people on as needed and then dropping them when the job is over, and they save on benefits and payroll taxes by treating even full-time employees as independent contractors. Casual employment often becomes under-the-table work; the arrangement has become a way of life in the construction industry. In a recent California survey of three hundred thousand contractors, two-thirds said they had no direct employees, meaning that they did not need to pay workers’-compensation insurance or payroll taxes. In other words, for lots of people off-the-books work is the only job available.

Most, if not all of those factors, are strongly related to the desire to avoid being well-regulated.

Increasingly onerous regulations can be followed by either draconian enforcement which strongly discourages private business formation leading to requiring massive government intervention in the economy ultimately leading to the situation where people pretend to work and the government pretends to pay them (per the old saying about the Soviet Union), or continuing lax enforcement, where the regulations are ignored and are therefore pointless and counterproductive (like in Greece).

A well-regulated economy is a shrinking and/or non-existent economy that exists mostly in the minds of collectivists.