In "The Underground Recovery," James Surowiecki at The New Yorker reports that Americans may have made two trillion dollars in off-the-books, unreported income last year, a conclusion supported by powerful circumstantial evidence. Although the percentage of Americans officially working has plunged since the Great Recession and household income has not recovered, personal consumption is higher than it was, and retail sales continue to grow. We're not yet Greece, but the implications of an underground economy are worth pondering. Surowiecki sums up:
It’s obviously a good thing that people are able to find work to keep themselves afloat when the legitimate economy has been terrible at creating new jobs and raising incomes. And the size of the shadow economy means that our economy as a whole is probably doing better than we think. But the damaging effects of this trend are clear. It’s hard for businesses to play by the rules if their competitors aren’t paying payroll taxes or workers’ comp. And off-the-books workers have no benefits or Social Security, and not much recourse if a boss decides to shortchange them. What’s more, when a sizable chunk of the population avoids taxes, confidence in the system diminishes. “Too much off-the-books work is not good for the social contract,” Venkatesh says. “Economies work best when people have some sense, however abstract, that they are all tied together.”
Bottom line: no social contract, no work for lawyers.
P.S. Don't miss the clever graphic.