Posted on 03/19/2013 10:23:36 AM PDT by Ernest_at_the_Beach
Wages are down. Jobs are stagnant. The economy hasnt generated the kind of growth that should fuel consumer spending. Yet we are seeing consumer confidence and spending numbers that belie the normal metrics that measure economic health. According to US News Rick Newman, economists suspect that an underground economy has begun to bypass the normal channels of commerce:
Something fishy is going on in consumers wallets.
Household spending has held up surprisingly well in recent months, even though new taxes have reduced paychecks and other problems are holding back the economy. Incomes havent risen by nearly enough to explain the entire boost in spending. Nor has the use of credit cards.
When your teenager starts wearing expensive clothes and flashing bling he couldnt possibly afford through his part-time job, you start to wonder where the money is coming from. Some economists are asking the same question about consumers who seem more flush than they ought to be. The answer may lie in the large underground economy that doesnt show up in official statistics.
There are always some businesses and individuals operating on a cash basis to dodge taxes, evade regulations or conceal illegal activity. Economists now speculate that the underground economy may have swelled during the last few years, given all the people who cant find full-time work at decent pay.
Severe recessions have historically driven jobless Americans into the shadow economy, writes Bernard Baumohl of the Economic Outlook Group. We suspect the destructive nature of the last downturn and the prolonged weak recovery pushed a record number of people into that murky world of cash transactions.
First, it should be noted that a black market economy is not a healthy sign, even if it provides an alternative boost to a stalled overall economy. Its not safe for any of its participants, for while it avoids irrational regulation, it also avoids rational regulation as well. The cash economy might make it easier for some of the chronically unemployed to find ways to make ends meet, it represents no investment in either direction in future health and growth of the markets involved. Further, its not healthy for the government that creates or amplifies such a market, if for no other reason than it cannot extract rational revenues from its participants, putting more of a burden on legal commerce.
If this is indeed the reality of the current American economy, we should ask ourselves how we arrived at this situation. Because of everything I described in the preceding paragraph, its usually more risky than lucrative to engage in underground commerce, and often more costly in various ways. Only when government expands regulation (and especially irrational regulation) enough does that imbalance tip toward taking the riskier route. We have spent the past five years since the financial crisis making regular hiring more expensive via ObamaCare especially, but also through Dodd-Frank, too.
Thanks to these new costs, the value of the regular hire has declined dramatically. Its not terribly surprising, then, that were seeing less of that kind of employment. Our labor-force participation rate has dropped to 63.5%, a 34-year low, and those who have been out of work the longest have the least value now in the above-ground labor market. It costs too much now for companies to create open positions that carry the costs of mandated health insurance. Instead, more employers appear to be paying cash for what used to be called piece work in a bygone era.
As long as this remains the case, the regular economy will never right itself, and we will lose the opportunity for positive investment and long-term economic health until we correct these issues.
If the government here is going to tax Americans at Greek rates, then one can expect Greek levels of tax compliance.
If it weren’t for black market dealins, I’d be screwed.
We’re experiencing a ‘cook-the-books’ boom........
Here’s what I think: People haven’t bought much for five years. Our patio umbrellas are finally shot, our cars are held together with coat hanger wire, we haven’t vacationed, we buy the cheap beer — you know, living an austere (but fair!) lifestyle that the morons voted for five years ago.
Over these five years, we’ve slowly paid down our credit cards and feel like we’ve been down long enough. We’re starting to buy stuff again out of necessity. And we have these pretty much clean credit cards sitting there.
Screw it! I’m actually thinking about a little trip to Bermuda after going absolutely nowhere for five years. Mmmmmmmm. Bermuda.
I’m looking for a deal on capsized canoes.
nothing better than supplementing your government support -welfare, unemployment, disability, etc. - with a cash paying job that will not jeopardize your benefits.
I don’t do the black market, but I do avoid commerce whenever possible. I’ll do my own repairs rather than work for income that can be used to hire a professional for the same repair work. I have no desire to contribute to an economy that will support Obama’s agenda. I’ll reenter the economy if we restore freedom and democracy in 2016.
One area where I have changed is that I no longer look down on those who cheat the system. That now strikes me as a rational and legitimate choice, both in terms of taxes and in terms of courts. Telling the truth creatively to get on a jury and nullify bad laws is a civic duty in these times when government is no longer of the people, by the people, or for the people. Similarly, bartering when possible to avoid any records of taxable income may be the best possible option for protecting our country from those in power.
Simple: When you need to buy relatively the same amount of food to feed your family every week, but the price of that food doubles, you spend more.
I used to go grocery shopping at a local morket and spend about $200 each trip.
Since Odumbass took office I rarely get out of there spending less than $300 and have twice crossed $400.
This is with the same general purchasing patterns.
So while my ‘spending’ is up, that is NOT a measure of ‘consumer confidence’
The most pernicious aspect of the cash or underground economy is the resentment it breeds in the people. If you are playing by the rules, but others are not or do not, then the taxes you pay are not equally born by all.
Such a circumstance is not sustainable, it some think they are getting the short end of the deal, then they will find a way to even up the playing field.
This issue is especially pervasive in the small construction business. More regulation/regulators just makes it worse.
sschu
Americans are buying freeze dried foods, medical supplies, warm clothes, firearms and ammunition in record numbers.
That doesn’t reflect any “faith” in the American economy or in the current administration; quite the opposite.
It just means everyone wants to be well-stocked before the SHTF.
My observation is that it is not just one thing.
I am buying things now because price will go up and may not be available.
I run into cash deals very often. Underground economy is going to be growing for a variety of reasons.
The attitude of screw the govt, they don’t care about me and I don’t care about them is valid.
Business may be buying to avoid taxes, especially farmers.
I would add one more thing. I might as well spend my money NOW before the govt destroys everything.
A little on the “eat drink and be merry” line of thinking.
By the way there are two versions of that:
1) for tomorrow we die
2) and enjoy what God has given us.
Ed Morrissey still thinks our government is benevolent, and follows all of its own laws.
Barbadoes is pretty cool, too.
In addition to what you are saying, I think people are buying larger ticket items before they are hit further by inflation.
I’m heading for Tampa to go fishing. I’m paying 25% less for cash, told where to sell my fish for a profit, will use that to take a second trip out and eventually go home. Life might get good, without these government turds.
I had a Davis-Bacon wage job come up recently- needed a few guys for 6 weeks, at a wage well over the prevailing rate here- talked to several guys of a contractor who I knew had been laid off and were on unemployment. Not one of them would take the job. Too lucrative to be on unemplyment- it's very close to your regular rate, its steadier than actual work, and you become eligible for all sorts of other benefits, too.
Consumers are loading up the plastic again. The next wave of bankruptcies will take place later this year.
How much of America’s consumerism is tied to maxed out credit cards living paycheck to paycheck?
Spending money that you don’t have (just like Big Daddy Sam).
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