shadow economy
Shadow Economy - Knight Ridder picks up on the Hawala angle I mentioned earlier. The author misses a big part of the equation, though, by saying that things will eventually even out between the Hawala dealers in different countries. Not without smuggling, they won’t. There are a heck of a lot more people in America who send money to India than there are people in India that send money to America. Actually, it is possible for things to even out eventually in cases where barter is used. Especially where that barter takes place through multiple parties; one famous example being the “triangle trade” of rum, sugar, and slaves that created an ever-revolving wheel of colonial power.
Essentially, money is nothing more than a barter system that involves everyone. If you imagine a barter system that lets you trade goods or services, using “credits” as a proxy, and then trade those “credits” back for something else at a later time, you have imagined money. You could buy and sell things using this imaginary money, and the taxman would have a very difficult time figuring out your income or consumption. In fact, corporations are more frequently using imaginary money as a way to buy and sell goods, to the tune of billions of dollars per year. Technically, you would still have to pay taxes on whatever the dollar value of your imaginary money transactions was; but you are the one setting the exchange rate with dollars (you imagined it, after all) and there aren’t any bank records for the taxman to audit you with.
In fact, it is the ability for bater communities to avoid currency exchange rates which makes barter so appealing to people in places like Russia. Barter has some serious drawbacks, but when the government-sponsored currency is devaluing like crazy, barter seems like a stable option. In essence, Hawala and other forms of barter are simply mechanisms by which people exchange value outside the confines of a state-sponsored currency. Or to put it another way, they are alternative currency systems created by the particpants because particular aspects of existing currency systems were not acceptable. A very simple example that makes this clear is the BREAD community, who print their own money in Berkeley, CA. Interestingly, their money represents hours of labor in an attempt to enforce the ideal that everyone should receive the same hourly wage. This seems like the most effective way possible to ignore value in favor of effort and prove how stupid Marxism is. In true Berkeley fashion, they claim to be a “movement”, and make lots of “grass roots” noises. This comprehensive report on the size and scope of the world’s “shadow economy” should expose the BREAD people as nothing more than enthusiastic amateurs. The report shows that the over half of the GDP of Ukraine is barter-based; and even in the U.S., the use of shadowy economic exchange techniques increased to account for an extra 2% of our GDP in the last decade (from 6.7% of GDP to 8.9%). It is interesting to note that “increasing social security burden” is cited by this report as the number one reason for increase in shadow economy activities. This point alone has got to keep policy makers squirming these days…