In what follows I will call upon youthful memories of when we used a mixture of washing-up liquid, water, and a plastic circle to aimlessly and harmlessly blow bubbles into the air. I raise this childish image because a series of bubbles is uncannily like how even a mature adult economy looks. Not so much that at any moment parts of it risk bursting – rather because one can imagine bubbles representing an economy’s ‘white’, ‘grey’ and ‘black’ elements. For even generally ultra-law-abiding nations are made up of this trinity of parts, changing shape and size in different ways and not collectively accurately measurable.GDP, or whichever other measure you prefer to capture the expanse of an economy, can never truly encompass the whole; cannot, that is, see into the shadows.
By way of another illustration, consider the biggest peacetime non-recessionary measurement hits ever experienced by US GDP. On 17 January 1920, a sharp downward shock hit the US economy. It came with the implementation of the 18th amendment imposing the prohibition of booze. This sent a sizeable part of the hitherto white economy into the unmeasurable shadows. Then, on 5 December 1933, the 21st amendment was ratified, repelling the 18th. All of a sudden, the booze business was back under the light of the measured white economy. During the close to 14 years the Volstead Act held sway, there was considerable but unmeasurable grey – doctors prescribing medicinal whisky for a considerable fee – and black bootlegging activity and employment going on to subvert it. In more modern times, mobs and cartels have created sizeable but unmeasured black markets dealing in all types of drugs and other illegal activities.
“During periods of elevated inflation and economic uncertainty – even more than normal – typically law-abiding folk turn to the grey economy”
