WEBVTT NOTE 24. America’s Underground 1 00:00:00.000 --> 00:00:05.200 America's Underground 2 00:00:05.200 --> 00:00:10.040 These were sharp businessmen, the four guys, who pointed out that there were three dead 3 00:00:10.040 --> 00:00:14.200 trees in my backyard that needed to be cut down lest they attract horrible bugs that 4 00:00:14.200 --> 00:00:16.360 would infest my entire property. 5 00:00:16.360 --> 00:00:24.880 They would cut them down and remove them for $475 in cash. 6 00:00:24.880 --> 00:00:31.220 We dickered back and forth and finally settled on $350, in cash. 7 00:00:31.220 --> 00:00:36.400 They attacked the trees like ants on ice cream, 45 minutes. 8 00:00:36.400 --> 00:00:39.460 The trees were gone, without a trace. 9 00:00:39.460 --> 00:00:43.220 I paid them, in cash. 10 00:00:43.220 --> 00:00:45.860 I didn't break any laws by paying them this way. 11 00:00:45.860 --> 00:00:49.520 They broke no laws in accepting cash only. 12 00:00:49.520 --> 00:00:54.840 The state is egregiously invasive in our financial affairs, but it hasn't actually banned 13 00:00:54.840 --> 00:00:57.960 and the use of cash. 14 00:00:57.960 --> 00:01:02.860 So it was last weekend when I was travelling and needed some copies made from a Pakistani-owned 15 00:01:02.860 --> 00:01:05.400 copy shop in the Midwest. 16 00:01:05.400 --> 00:01:10.980 They would provide them on high-quality coloured paper for 15 cents each, but only if I paid 17 00:01:10.980 --> 00:01:12.480 in cash. 18 00:01:12.480 --> 00:01:14.520 And so I did. 19 00:01:14.520 --> 00:01:16.200 I asked for a receipt. 20 00:01:16.200 --> 00:01:21.740 Whoops, the printer on the receipt machine was acting up, so she had to write a receipt 21 00:01:21.740 --> 00:01:23.320 by hand. 22 00:01:23.320 --> 00:01:27.780 It was indecipherable, but I took it anyway. Again, I wasn't breaking any laws in paying 23 00:01:27.780 --> 00:01:31.320 with cash. And she wasn't either. 24 00:01:31.320 --> 00:01:35.720 And yet we all intuit that there is some reason why cash payments are more valuable in the 25 00:01:35.720 --> 00:01:40.360 American service sector than checks or credit cards. Nudge, nudge, know what I mean? 26 00:01:40.360 --> 00:01:45.480 With cash, you enjoy the highest likelihood of staying out of harm's way. If you don't 27 00:01:45.480 --> 00:01:49.640 want to formalize your business model and get embroiled in the entire public sector 28 00:01:49.640 --> 00:01:54.880 apparatus of withholding tax, social security, mandated healthcare, minimum wages and the 29 00:01:54.880 --> 00:02:00.520 rest of the mind-boggling apparatus of central planning, doing a cash-only business is the 30 00:02:00.520 --> 00:02:02.880 wisest choice. 31 00:02:02.880 --> 00:02:06.280 Now this is interesting. 32 00:02:06.280 --> 00:02:12.880 The social apparatus of taxing and regulating is said to be good for us all. 33 00:02:12.880 --> 00:02:15.320 Without it, our sense of well-being would plummet. 34 00:02:15.320 --> 00:02:20.000 We need worker protection and all the glorious services of the state. 35 00:02:20.000 --> 00:02:26.020 We need protection in old age and protection from exploitative capitalists. 36 00:02:26.020 --> 00:02:30.140 We comply with the whole command-and-control burden because we are better off as a people 37 00:02:30.140 --> 00:02:33.920 than if we acted merely on our own. 38 00:02:33.920 --> 00:02:38.120 So let's say that I apply this in the two cases mentioned above. 39 00:02:38.120 --> 00:02:44.640 I have a sneaking suspicion that my tree-cutting friends are cutting their tax burden as well. 40 00:02:44.640 --> 00:02:48.200 I wonder about this Pakistani printer. 41 00:02:48.200 --> 00:02:52.800 Maybe they are not paying minimum wage to those employees, nor taking out social security, 42 00:02:52.800 --> 00:02:55.880 nor providing medical benefits. 43 00:02:55.880 --> 00:02:58.600 So as a good citizen, I make an inquiry. 44 00:02:58.600 --> 00:03:01.800 I demand to see their immigration papers and tax records. 45 00:03:01.800 --> 00:03:07.880 I look them up in the official directory of obedient businesses, if such a thing exists. 46 00:03:07.880 --> 00:03:11.480 I conclude that these are unseemly operators. 47 00:03:11.480 --> 00:03:16.360 It's true that I know I can get good service from them, but I do not want to partake in 48 00:03:16.360 --> 00:03:20.440 a transaction that will hurt others in society. 49 00:03:20.440 --> 00:03:25.640 Regulations and taxes are good for everyone, and so I will have no part in this black market 50 00:03:25.640 --> 00:03:27.260 activity. 51 00:03:27.260 --> 00:03:29.600 So I decline to hire these tree cutters. 52 00:03:29.600 --> 00:03:31.560 I decline to let this lady make copies for me. 53 00:03:31.560 --> 00:03:37.460 I wash my hands of the unsightly mess and move on. 54 00:03:37.460 --> 00:03:38.460 What happens? 55 00:03:38.460 --> 00:03:44.820 Well, my dead tree still stands, and my copies are unmade. 56 00:03:44.820 --> 00:03:49.580 The suppliers are denied a chance to serve others and profit from it, a transaction that 57 00:03:49.580 --> 00:03:54.080 both sides desired does not take place. 58 00:03:54.080 --> 00:03:59.020 Under the theory that regulations and taxes are good for us, we should both feel better 59 00:03:59.020 --> 00:04:01.580 that we didn't exchange. 60 00:04:01.580 --> 00:04:05.140 Somehow we don't. 61 00:04:05.140 --> 00:04:11.400 Or let's say that the suppliers of these services suddenly experience a conversion, and newly 62 00:04:11.400 --> 00:04:17.380 enlightened as to their civic obligations, they decide to formalize their operations. 63 00:04:17.380 --> 00:04:22.660 But of course that means that the tree-cutting service is now one-third more expensive, and 64 00:04:22.660 --> 00:04:25.220 the copies cost that much more too. 65 00:04:25.220 --> 00:04:30.420 I decide that it's just not worth it, and the exchange doesn't happen. 66 00:04:30.420 --> 00:04:36.300 Again, we should feel better, but somehow we do not. 67 00:04:36.300 --> 00:04:42.940 The question I keep asking is, how is society actually better off? 68 00:04:42.940 --> 00:04:49.520 My copies are unmade, my trees are uncut, and these businesses lose profits, which means 69 00:04:49.520 --> 00:04:55.660 they have less for providing for their children and for making a good life for themselves. 70 00:04:55.660 --> 00:05:00.500 This is especially tough in recessionary times when the prices of everything are rising and 71 00:05:00.500 --> 00:05:04.360 unemployment threatens all marginal workers. 72 00:05:04.360 --> 00:05:10.680 Try as I might, I just don't believe that anyone is really getting hurt in a cash exchange 73 00:05:10.680 --> 00:05:18.020 that enters into the grey area between the underground economy and the official economy. 74 00:05:18.020 --> 00:05:23.720 In the developing world where government bureaucrats rule everything with outrageous arbitrariness, 75 00:05:23.720 --> 00:05:30.620 The sector of society that functions in this grey area is called the informal sector. 76 00:05:30.620 --> 00:05:34.480 It is a burgeoning area of study for many academics on the right and the left, and for 77 00:05:34.480 --> 00:05:36.020 different reasons. 78 00:05:36.020 --> 00:05:42.480 It is mostly populated by the poor, and the poor have the largest stake in the outcome. 79 00:05:42.480 --> 00:05:47.320 Hans Senholtz wrote an excellent little study on the topic for the Mises Institute back 80 00:05:47.320 --> 00:05:49.740 in 1984. 81 00:05:49.740 --> 00:05:54.980 The upshot is that the larger and more intrusive the government, the more the informal sector 82 00:05:54.980 --> 00:05:56.640 flourishes. 83 00:05:56.640 --> 00:06:02.880 It is a safety valve of sorts, one that is ignored by GDP counters and nearly invisible 84 00:06:02.880 --> 00:06:05.980 to macroeconomic planners. 85 00:06:05.980 --> 00:06:12.420 One wonders just how large the US informal sector truly is. 86 00:06:12.420 --> 00:06:16.140 I'm not just talking about the drug trade or prostitution or off-the-books gambling, 87 00:06:16.140 --> 00:06:21.420 I'm referring to wholly legitimate and wholly legal trades of goods and services that take 88 00:06:21.420 --> 00:06:26.500 place outside the purview of the public sector. 89 00:06:26.500 --> 00:06:31.260 I'm going to venture a guess that every single reader of this article is capable of telling 90 00:06:31.260 --> 00:06:34.740 stories similar to mine above. 91 00:06:34.740 --> 00:06:39.540 The cash-only economy is pervasive in the United States. 92 00:06:39.540 --> 00:06:40.780 How big? 93 00:06:40.780 --> 00:06:43.100 No one knows for sure, obviously. 94 00:06:43.100 --> 00:06:48.540 The lesson here represents a wholesale overturning of the official rationale for the interventionist 95 00:06:48.540 --> 00:06:52.620 state that it is good for us. 96 00:06:52.620 --> 00:06:59.260 You can turn these informal scenarios around in your head again and again, and still fail 97 00:06:59.260 --> 00:07:04.940 to see how we as a society are better off when mutually beneficial exchanges that would 98 00:07:04.940 --> 00:07:12.980 take place absent intervention fail to take place because of the intervention. 99 00:07:12.980 --> 00:07:18.180 What's more, the existence of the informal sector provides a useful blueprint for reform. 100 00:07:18.180 --> 00:07:23.540 They can be completely abolished by lowering the costs associated with compliance. 101 00:07:23.540 --> 00:07:29.220 If the costs of compliance fall low enough, what is informal becomes formal, and no one 102 00:07:29.220 --> 00:07:32.780 has any reason to continue to hide anything. 103 00:07:32.780 --> 00:07:39.220 The agenda for a free market might be summed up as nothing more than the complete legalization 104 00:07:39.220 --> 00:07:45.580 of the Prevailing Informal Sector, which itself is created and sustained by a tax and regulatory 105 00:07:45.580 --> 00:07:50.380 burden that is too heavy to be sustained. 106 00:07:50.380 --> 00:07:56.660 And yet, the impetus for reform is precisely the opposite. 107 00:07:56.660 --> 00:08:02.700 The politicians believe that if they could stamp out the informal sector, crack down 108 00:08:02.700 --> 00:08:08.540 on cash-only businesses, shut down the fly-by-night tree cutters and photocopiers, we would all 109 00:08:08.540 --> 00:08:11.140 be better off. 110 00:08:11.140 --> 00:08:16.860 What will it take for the public sector to begin seeing the informal sector as a model 111 00:08:16.860 --> 00:08:22.820 to replicate rather than a symbol of antisocial economic activity? 112 00:08:22.820 --> 00:08:28.940 In a phrase, it will take an enlightened political class that is more interested in the well-being 113 00:08:28.940 --> 00:08:34.180 of Society and the Power and Glory of the State.