Tuesday, July 21, 2015

The Glorious Underground Economies and How Folks are Learning to Survive and Thrive While Pissing Off Statists, Socialists and Tax Collectors

Image credit on size of European shadow economy: http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2013/04-2/20130506_shadow1_0.jpg

Man has always survived through his labor - he simply must produces, trade and/or sell; it's how he feeds, houses and clothes himself and family or, put another way, it's absolute survival in the rawest sense.  It's been that way throughout history and that paradigm will never change.  But along comes government that literally extorts the product of his labor at the point of a gun, and the bigger the government theft machine the greater the efforts of man to skirt the robbery and extortion of taxation and government regulations. In the modern world, the activity of toiling to survive outside the expropriating system is called the underground economy or the shadow economy, and governments and bureaucratic goons are literally launching wars against folks for the crime of merely trying to survive because, well, human survival is verboten in the New World Order of corporatism, massive regulation, statism, socialism and command and control economies.

It's been estimated that the underground economy in Greece is 30-50% of GDP.  The Greeks have a long history of avoiding taxes, a practice that dates back to the days when Greece was part of the Ottoman Empire and subject to heavy taxation.  The Greeks understand that all government is corrupt and thieving, hence the high level of motivation to conduct commerce in a manner that lessens government expropriation.  Statists have been whining for years that the real problem with Greece is that the Greeks don't pay taxes.

However, Greece is far from the only European nation with a high level of underground economic activity.  Bulgaria and Romania (both joined the EU in 2007) hold the #1 and #2 spot for underground economic activity, leaving Greece 3rd.

A Bloomberg article, here, offers insights on how and why folks flee to underground economies.
After quitting his job as a driver to focus on peddling imported shampoo and coffee at a Bucharest market, Costin Dumbrava is on the lookout for Romanian anti-fraud agents intent on ruining his flourishing business.

The 45-year-old runs a stall selling goods shipped over from Hungary and Austria to throngs of customers lured by prices that undercut local supermarkets by a quarter. The secret of his success? He doesn’t pay income tax and he doesn’t charge his clients value-added sales tax. “I couldn’t afford to sell at these prices if I paid taxes,” said Dumbrava, whose wares included brands from Procter & Gamble Co and Unilever NV. “I saw the crackdown and the raids on television. If my turn comes, I’ll have to give up.”

As nations such as Greece struggle to clamp down on tax evasion, Romania is making inroads to curb its more than $40 billion shadow economy, the European Union’s second-largest. With as much as a third of gross domestic product still off the books a quarter-century after communism, the push is designed to swell coffers and help the government reverse painful austerity.

The highlighted sentence above borders on sheer lunacy but is typical of what one would expect from a statist loving Bloomberg article.  The fact that the article clearly states that the goal of cracking down on underground economic activity is to 'swell [public] coffers' is instructive on many levels. However, the assertion that giving governments more money reverses painful austerity is ludicrous to the point of being hilarious.  When folks keep the product of their labor, there is far less economic hardship and poverty.

Most taxes fund huge government bureaucracies or in the case of America, taxes and an $18 trillion mountain of federal debt funds wars, the empire, government bureaucracies and socialism.  Since joining the EU in 2007, Romanian debt has skyrocketed from 12.6% of GDP in 2008 to 39.6% in 2014, and undoubtedly that debt increase paid for the gargantuan government bureaucracy dictated by the EU bureaucrats and technocrats.

Source: http://www.tradingeconomics.com/romania/government-debt-to-gdp

Unlike clueless westerners of America and the original EU members of northern and southern Europe that religiously worship the state as their benevolent savior, the folks from the former Communist block nations of central Europe don't trust any government as far as they can throw it and they aren't about to pay the taxes to raise another oppressive government.  Indeed, those who survived the harsh days of communism owe their very survival to underground economies and these folks are well aware that communist bureaucrats were high paid and had the best food and housing while most of the people were condemned to misery, starvation and deprivation.

Although Romania has more than doubled its debt since joining the EU, the world's largest European underground economy of Bulgaria is safer because the Bulgarian government didn't pile on debt and it's debt to GDP ratio is a reasonably healthy 18.9 percent. Granted, Romanian debt is still way lower than Greek debt as a percentage of GDP but the pressure to grow government and taxation by declaring war on the underground economy is a recipe for disaster.

Western European nations are also discovering the benefits of the underground economy.  Nasty economies and public corruption have resulted in soaring unemployment, Fortune chirped in on the underground economies in Spain and Italy, here.
According to a recent report by Spain’s Ministry of Finance, at the end of 2012 the underground economy accounted for 24.6% of GDP, up from 17.8% at the time the crisis began in 2008....

Spain’s economic crisis, the government’s reaction to it, and pervasive political and business corruption have inspired a black market boom....

A recent European Commission report found that 95% of Spaniards thought corruption was widespread in their country, outdone only by Italy (97%) and Greece (99%).....
Arrogantly, the Spanish government's response is typical - instead of cracking down on corruption "the government raised taxes to the point that Spain — one of Europe’s poorer countries — now has among the highest personal income tax rates on the continent, providing more motivation to work off the books" according to Fortune.

Western governments and its bureaucratic goons are in an absolute panic.  Drowning under poverty inducing statist economies and mountains of debt that is becoming increasingly difficult to service, they are going full blown totalitarian Nazi by increasing public plunder.  Moreover, they have declared war on the underground economies and are attempting to OUTLAW cash.

Cash is the mothers milk of survival for folks struggling to survive.  If anything, the schemes of the central planners will only serve to grow the underground economies which are growing everywhere. Despite the best efforts of government goons to criminalize cash and productive work-commerce among consenting people (true free trade), the survival instincts of humans will always trump government and bureaucracy.

The failures of statism-socialism will propel folks to seek new paradigms of survival and folks will always revert back to the only proven system of survival - work-produce-trade-sell.  For a while, folks did in fact vote for big bad governments because they perceived a benefit from authorizing the government to rob somebody at the point of a gun to give them the freebies that they wanted or thought they deserved.  However, the glory days of entitlements are in steep decline.  There are no 'freebies' as manna from the heavens of central banks and bloated governments.  There is only the misery of significant declines in the standards of living in the West because, well, the cradle to the grave entitlement state was all a farce anyway.

What will happen next?  It will be the productive people working hard to survive vs. the strong arm of the militarized police state.

The murderous and ruthless communism of Stalin, Lenin and Mao that killed 100 million folks and mostly through starvation, did not have the luxury of a rich and productive economy to loot and plunder. But the West is already substantially plundered and mostly from unsustainable entitlement promises, statism on steroids and the policies of central banks and governments that force the poor and middle class to bailout bondholders and banksters.

Such a situation is destined to turn ugly and violent.  Those in power will not voluntarily relinquish their absolute power and would gladly immerse the planet under a nuclear mushroom cloud.

But there is one certainly - governments are going down, the fiat banking systems are destined to implode and mass civil unrest will terrorize and rattle humanity to its core. History keeps repeating itself over and over as this is nothing new.

Meanwhile the bureaucrats and central planners will continue crush any and all entrepreneurial spirit that exists among industrious folks.  In 2013, Zero Hedge estimated the total size of Europe's shadow economy at $3.55 trillion with an estimated tax loss of nearly 900 billion Euros.
On an unweighted average basis, European shadow economies are 22.1% of total economic activity or around $3.55 trillion (as large as Germany's whole economy). A report by Tax Research, suggests that Austria and Luxemburg have the smallest shadow economies in the euro area at 9.7% of GDP, while Bulgaria at 35.3% and Romania at 32.6% top the list. Of the major economies, Germany clocks in at 16%, France at 15%, Italy at 27% and Spain 22.5%. Stunningly, in terms of tax revenues lost, the shadow economy translates into an estimated €864bn or just over 7% of euro area GDP and, in context, accounts for 105.8% of the enture healthcare spending of the EU. It appears that more and more Europeans have no choice but to shift to a shadow economy (as taxes rise among other things), and this is the biggest threat to the entire economy. This is likely one reason the 'austerity' actions have not been successful since far less taxes are being paid via the conventional channels.

The average shadow economy is 22.1% of the nation's economy...Read the rest here.
It literally takes millions of working and producing folks to generate $3.55 trillion in underground GDP.  I'm sure that the underground stats have increased since 2013, although shadow economy stats are difficult to measure and are at best a guess.   Furthermore, nearly all underground economic activity is un-banked.  The last thing these folks will do is deposit their money in a thieving bank, Greece or Cyprus style.

Governments will argue that underground economic activity involves mostly drugs and all kinds of illegal activities but that's simply not true.  A consultant that advocated for the abolition of cash, here, clearly defined the shadow economy: "The shadow economy comprises legal business activities that are performed outside the reach of government authorities". 
Bingo, that's it - outside the reach of government authorities is the operative wording.  In New York City, a dude named Eric Garner was literally choked to death on a New York street by NYPD because he was selling 'loosie' cigarettes on a street corner. In severely Nazified and progressive places like NYC, underground economic activity carries the death penalty.

If anything, the shadow or underground economy represents true free market capitalism, and before corporatists, oligarchs, government goons, progressives, socialists, tax collectors etc. demand their pound of flesh for every morsel of economic activity.

Finally, I applaud the underground economy and the hardworking and brave folks who make it happen!  Some government officials have even acknowledged that clamping down on underground economies will result in more economic hardships so they begrudgingly look the other way or accept a bribe. Even statists are learning that the 'command' and 'control' aspects of the command and control economy are ultimately unenforceable.

In America, the underground economy has been estimated at $2 trillion and deprives the IRS of some $500 billion a year in tax revenues, here.

Yeah!  Go Baby!  Grow the underground economy and deprive the tyrannical and corrupt monster known as government of revenues.  That's precisely how you slay the statist monster.  Democracy won't vote it out of office, you can only starve the monster to death.

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