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Forget China, 'System D' Is World's Second Largest Economy (Infographic)

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By EconMatters

A recent article at Foreign Policy noted that the $10 trillion global black market is now the world’s fastest growing economy, and that in 2009, the OECD concluded that half the world’s workers (almost 1.8 billion people) were employed in the shadow economy.

 

By 2020, the OECD predicts the shadow economy will employ two-thirds of the world’s workers. This new economy even has a name: ‘System D’.

 

According to an IMF economic study, black market, also called the shadow, underground, informal, or parallel economy, "includes not only illegal activities but also unreported income from the production of legal goods and services, either from monetary or barter transactions. Hence, the shadow economy comprises all economic activities that would generally be taxable were they reported to the tax authorities."

 

The IMF study also outlined the the potentially serious consequences of worlds fastest growing economy:

  • The growth of the shadow economy can set off a destructive cycle. Transactions in the shadow economy escape taxation, thus keeping tax revenues lower than they otherwise would be. If the tax base or tax compliance is eroded, governments may respond by raising tax rates—encouraging a further flight into the shadow economy that further worsens the budget constraints on the public sector. (On the other hand, at least two-thirds of the income earned in the shadow economy is immediately spent on the official economy, resulting in a considerable positive stimulus effect on the official economy.)
  • A prospering shadow economy makes official statistics (on unemployment, official labor force, income, consumption) unreliable. Policies and programs that are framed on the basis of unreliable statistics may be inappropriate and self-defeating. 
  • A growing shadow economy may provide strong incentives to attract domestic and foreign workers away from the official economy.

 

Based on an estimate by BusinessWeek, “[G]iven US GDP of $14.26 trillion, the world’s largest, that could still be as much as $1.2 trillion in taxable income that slips through Uncle Sam’s fingers each year."

 

In fact, shadow economy is part of the contributory factors to the current Euro crisis in the context of reduced government tax revenue and driving up consumer price levels. The IMF study showed in the 21 OECD countries in 1999–2001, Greece and Italy had the largest shadow economies, at 30% and 27% of GDP, respectively. In the middle group were the Scandinavian countries, and at the lower end were the United States and Austria, at 10% of GDP, and Switzerland, at 9%.

 

More importantly, the rise of System D highlights the inadequacy of global governments policies, processes, red tapes, and bureaucracies. This infographic lays out everything about the black market, how it affects our economy and our culture.

 

Further Reading - Debt Crisis 2012: Forget Europe, Check Out Japan

Black Market

 

Infographic Created by: Business Degree 

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Mon, 01/23/2012 - 10:35 | 2088448 ebworthen
ebworthen's picture

After watching crooks like Mozillo and Corzine walk and theft be sanctioned for those elites "in the club" I'm going to look the other way and say nothing for regular real people just trying to make it.

Why be an informant for oppressive tyranny?

Mon, 01/23/2012 - 12:31 | 2089015 IQ 101
IQ 101's picture

" theft be sanctioned for those elites" You have put it in a nutshell,

If you're not in the club and do not have a license to steal, all your trading must be on the table for taxation.

As more people wake up and quit feeding the beast, it's demise draws closer.

Mon, 01/23/2012 - 12:58 | 2089160 Bananamerican
Bananamerican's picture

it's time once again for my annual Lew Welch posting of an excerpt from that inestimable Beat poet's opus "Chicago Poem"

All things considered, it's a gentle and undemanding 
planet, even here. Far gentler 
Here than any of a dozen other places. The trouble is 
always and only with what we build on top of it. 

There's nobody else to blame. You can't fix it and you 
can't make it go away. It does no good appealing 
To some ill-invented Thunderer 
Brooding over some unimaginable crag. 

It's ours. Right down to the last small hinge it 
all depends for its existence 
Only and utterly upon our sufferance. 

Driving back I saw Chicago rising in its gases and I 
knew again that never will the 
Man be made to stand against this pitiless, unparallelled 
monstrosity. It 
Snuffles on the beach of its Great Lake like a 
blind, red, rhinoceros. 
It's already running us down. 

You can't fix it. You can't make it go away. 
I don't know what you're going to do about it. 
But I know what I'm going to do about it. I'm just 
going to walk away from it. Maybe 
A small part of it will die if I'm not around. 

feeding it anymore.

Mon, 01/23/2012 - 12:59 | 2089159 Bananamerican
Bananamerican's picture

nice, isn't it.

Mon, 01/23/2012 - 11:18 | 2088598 flattrader
flattrader's picture

Agreed.

But, FYI--Having been on both sides of the line it has been my experience that people involved in black and grey markets are their own worst enemy.  If you are doing something quasi-legal or out and out illegal, STFU about it.

Many, many brag about it...Your story is, "I don't know why tax rates need to be raised when I'm paying enough taxes for everyone"...ad nauseum...

Oddly, this approach is not evident to many.

Mon, 01/23/2012 - 11:04 | 2088546 CH1
CH1's picture

Cute piece on Corzine: http://www.globalspeculations.com/

Mon, 01/23/2012 - 10:27 | 2088424 Snidley Whipsnae
Snidley Whipsnae's picture

When my government tells me I must use their fiat currency with the threat of going to jail if I do not, there is no voluntary compliance involved.

 

Mon, 01/23/2012 - 10:42 | 2088477 GMadScientist
GMadScientist's picture

When did they outlaw barter?

Your compliance is voluntary.

Mon, 01/23/2012 - 10:48 | 2088494 Snidley Whipsnae
Snidley Whipsnae's picture

I cannot offer my bartered services in lieu of dollars for tax settlement. Neither can I offer rolls of quarters for they will tell me to take them to a bank for conversion to paper... which is against their own law since quarters are money. Nor can I offer to settle my taxes in gold... Is this what you deem voluntary complicance.

Flea Markets Rule!

Mon, 01/23/2012 - 14:57 | 2089745 Lord Koos
Lord Koos's picture

In addition, bartering is supposed to be reported on your income taxes.

Mon, 01/23/2012 - 10:20 | 2088397 Snidley Whipsnae
Snidley Whipsnae's picture

As I posted on another thread yesterday; Around here the farmers and flea markets have grown so large that finding parking, even on the county fairgrounds, is difficult. Meanwhile, the shopping centers are being boarded up at a faster pace. Taxes, regulations, rent, etc, is driving the shopping centers out of biz as surely as downtowns were driven out of biz by the advent of the shopping center.

Anyone remember what drove the shoppers from downtown? The parking meter had a lot to do with it. People got pissed off when meters were installed and the shopping centers got a big boost.

Every Wednesday my county fairgrounds turns into a giant market. Everything that you can imagine is for sale there and at very good prices (compared to similar purchases at brick and mortar stores). No one charges sales taxes on any transaction. There is no fee to enter and no fee to park.

An added benefit is that if one likes to put up fruits and veggies in Mason jars, there are tons of Mason jars for sale. If one needs ammo there is tons of ammo for sale, same with firearms. Same with PMs. Want cigarettes, there are big on site rolling machines with various tobaccos to blend any taste you prefer... for $20 per carton. Veggies are about 1/3 the cost of a supermarket and are much fresher and tastier. Need new or used furniture, it's there. Want a $7 flat of strawberries picked yesterday in Plant City, no problem...

Do some sheep get sheared buying fake coins made in China? Yes. Do the sheep get a quick education about coins? Yes.

Shopping in these markets makes shoppers really think about what they are buying... unlike a supermarket where one throws a bundle of celery in a cart... and if there is one thing Americans need it is to learn to be discerning shoppers and not buy bs because the brick and mortar has a 50% sale sign hung on it.

Mon, 01/23/2012 - 10:30 | 2088437 ebworthen
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Oooh, where is this now?  Florida? 

Good points, agree.

Mon, 01/23/2012 - 10:39 | 2088467 Snidley Whipsnae
Snidley Whipsnae's picture

Yes, Florida... Volusia County Fairgrounds... and almost any other fairgrounds in Florida that you can name. I see very little stuff made in China... maybe some 2 for a dollar sunglasses, cheap plastic containers, not much else. Lots of Snap On, Craftsman, old Stanley tools. Chinese stuff don't sell well at our flea markets.

Perhaps flea mkts up north are different now but when I lived for over twenty years in Calvert County Maryland we had a mostly Ahmish mkt that had wonderful assortments of all things good to eat, a lumber mill, lots of used tools, and no Chinese junk.

Mon, 01/23/2012 - 11:42 | 2088682 YC2
YC2's picture

386 FTMFW

Mon, 01/23/2012 - 10:29 | 2088432 blindfaith
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Veggies are about 1/3 the cost of a supermarket  ....really, well so far all I find are of such poor quality they must have bounced off the truck in the middle of the night...and they ain't no cheaper than most supers and sometimes a lot more because folks THINK they are getting better at the flee market.

99% of what I see in the flee markets is Chinese crap.  If I want Chinese crap, I can shop on eBay, get free shipping, and I don't have to get off the sofa.

Flee market is more like flece market.

Mon, 01/23/2012 - 11:14 | 2088581 DosZap
DosZap's picture

blindfaith

 

99% of what I see in the flee markets is Chinese crap

What do you think you are buying ANYWHERE you shop?.

TRY to buy for just one week the things you use that are not made in china.(excluding foodstuffs,thats Mexico, SA grown).

It's Impossible.

Mon, 01/23/2012 - 10:44 | 2088480 Snidley Whipsnae
Snidley Whipsnae's picture

Sounds like you want to remain on sofa and watch tv. Thats fine, enjoy. Walking around a few miles of flea market and talking to vendors and other shoppers is an excellent way to find out what others are thinking. I consider this important... face to face one on one.

Mon, 01/23/2012 - 09:59 | 2088338 sethstorm
sethstorm's picture

Start cracking down.  If it's not trackable, it's not protected. 

 

Mon, 01/23/2012 - 11:08 | 2088555 CH1
CH1's picture

Has to be sarcasm - the Fed trolls who live here aren't that overt.

Mon, 01/23/2012 - 10:44 | 2088465 ebworthen
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Protecting who?  Chinese overlords enslaving the peasants?  Wall Street banks?  Just who are the police, courts, and politicians protecting?  After the past four years do you think it is you?

Mon, 01/23/2012 - 11:44 | 2088676 sethstorm
sethstorm's picture

As more business tries to escape government, they will cross a line when they have effectively attacked their own.

Those that lose their jobs as a result of business action & System D will, at some point, have little issue with turning System D into System Defunct.

How about not trying to create collateral damage in one's quest to nullify the Federal Reserve's influence?

Mon, 01/23/2012 - 15:28 | 2089900 Things that go bump
Things that go bump's picture

Sorry, I pay for everything except on line purchases with cash to encourage just that sort of behavior.  Get with the program. 

Mon, 01/23/2012 - 10:15 | 2088384 BrocilyBeef
BrocilyBeef's picture

wtf?

Mon, 01/23/2012 - 09:58 | 2088336 Azannoth
Azannoth's picture

Thanks for this Heartening Article, 1st since a looong time :) Shadow Economy Rulez!

Mon, 01/23/2012 - 09:56 | 2088331 sabra1
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listen to what i'm writing here peoples! once the one world bank is set up, a digital currency will be brought in. cashless society has already started to be implemented. kiss black markets good-bye! barter is the way to go!

Mon, 01/23/2012 - 13:35 | 2089332 fwchiro
fwchiro's picture

It's been commented here before that politicians will never allow a cashless society as that make their back room payoffs traceable.

Mon, 01/23/2012 - 11:09 | 2088563 CH1
CH1's picture

I call FUD.

Mon, 01/23/2012 - 10:31 | 2088440 Snidley Whipsnae
Snidley Whipsnae's picture

There will never exist a cashless society. Some, including me, will always resist, we will always find a way to barter, we will always defy the fucking bankers.

Support your local vendors and your local flea markets. It's one more way to crash the fucking banks and rotten governments.

Mon, 01/23/2012 - 11:41 | 2088678 DaveyJones
DaveyJones's picture

well said.

Mon, 01/23/2012 - 10:21 | 2088402 blindfaith
blindfaith's picture

WOWA....you are talking about Paypal .....and being FORCED by ebay to use it or ELSE.

Long live Paypal the new world currency. 

Hip, Hip Hurray no more nasty dirty cash to lug around.

Mon, 01/23/2012 - 14:17 | 2089520 Matt
Matt's picture

Paypal is just the platform for the exchange of currency for a good; it isn't a currency on its own, at least not yet. Credit and debit systems likewise are traceable.

This reminds me of that articel about, which state was it (Louisianna?) where used goods cannot be bought with cash or some such nonsense.

Mon, 01/23/2012 - 10:19 | 2088395 LawsofPhysics
LawsofPhysics's picture

"barter is the way to go"

Contradict yourself much?  Everytime I buy something on the black market it always involves bartering. What the fuck?  I never have to barter when I walk into Publics or the Food Lion.  Bartering IS the backbone of the black market.

Mon, 01/23/2012 - 11:54 | 2088732 A Lunatic
A Lunatic's picture

Cold, hard, untraceable cash plays a major role as well, which is why cash transactions above a very limited amount will be illegal in the future........an act of "Terrorism" even. Buy local, buy often, and use CASH or BARTER.

Mon, 01/23/2012 - 10:46 | 2088486 Beau Tox
Beau Tox's picture

You have a problem with English.  The word you are not using is 'haggle'.  Black market transactions are almost always cash with haggling.  Barter is most often a 'Grey Market' economy.  The reason that markets are Black, is they they very often involve the illegal laundering of cash.  True barter will never involve cash, but may or may not include haggling.  Haggling is an honorable skill, except at Food Lion.  If you bought a car with cash, but didn't haggle, I would term you a 'braindead sucker'.

Mon, 01/23/2012 - 11:03 | 2088538 Snidley Whipsnae
Snidley Whipsnae's picture

BTox... Obviously you haven't visited a big, thriving flea mkt in some time, if ever. Haggling ensues for every transaction, be it fruit, veggies, or whatever.

BTW, ever wonder to yourself why in the US only autos are haggled for (among new items) while in the rest of the world all items are fair game for haggling?

In America, haggling is a lost art... but the advent of flea mkts is bringing haggling back.

Mon, 01/23/2012 - 15:13 | 2089836 MachoMan
MachoMan's picture

Don't forget furniture!

Mon, 01/23/2012 - 12:34 | 2089033 sethstorm
sethstorm's picture

That's because it introduces too much uncertainty into prices.

Mon, 01/23/2012 - 10:53 | 2088503 LawsofPhysics
LawsofPhysics's picture

 

bar·ter  

[bahr-ter] 1.
to trade by exchange of commodities rather than by the use of money. No fucknut, I have traded one physical asset for another on the black market, troll harder next time.  It may involve haggling, but the actually transaction has involved exchange of physical assets (remember gold and silver are not money according to the Bernanke)

 

Mon, 01/23/2012 - 14:09 | 2089481 Matt
Matt's picture

I think what the other poster is saying is that commodity exchange is the future of the unregulated market.

While you may already use this system, currently, I suspect most black market transactions are done with paper money; in the future, they will have to be done with commodity trades - or trades for a finished good or a service.

For example, most people don't trade silver or gold for cocaine or heroine. They use paper bills, which may at some point in the future be banned, leaving only digital, traceable currency for the regulated (white) market.

Mon, 01/23/2012 - 09:49 | 2088319 HD
HD's picture

It's pretty simple. When the rats have to run an ever longer, harder maze to get less and less cheese...eventually the rats stop running and find their cheese elsewhere.

People drop out of society when they don't benefit from participating in it.

 

Mon, 01/23/2012 - 13:29 | 2089300 DoChenRollingBearing
DoChenRollingBearing's picture

Word.

Mon, 01/23/2012 - 09:49 | 2088312 Widowmaker
Widowmaker's picture

Obviously "white" markets are the fools market, cant be trusted and has no confidence whatsoever in soon to be 2/3 of transactions.

Good! Whitey has earned no cred and should be done away with entirely.

Take the income tax clusterfuck with it.

Mon, 01/23/2012 - 09:45 | 2088308 Bahamas
Bahamas's picture

are Otc derivatives considered gambling? If so, the number should be higher.

Mon, 01/23/2012 - 09:44 | 2088305 smlbizman
smlbizman's picture

right....their corrupt, incompetent leadership has nothing to do with it....so my lovely state continues to raise sales tax...so i become a fucking criminal because i travel to delaware to save hundreds of dollars on bigger purchases....when i should do the "right" thing and give these guys more of my  money so they can use that money to set up new ways to fuck me more....yeah, i'm the criminal....

 

Mon, 01/23/2012 - 15:12 | 2089829 Things that go bump
Things that go bump's picture

Is it against the law to buy things in Delaware and carry them home to another state?

Mon, 01/23/2012 - 09:43 | 2088298 falak pema
falak pema's picture

the biggest culprits in this scam are the same, usual suspects as in the other scam : the financialised oligarchy that off shores its "legal" but illicit gains just like it does its illegal and illicit gains here. The sheeple really are sheeple if they don't act to bring this double ponzi down.

Mon, 01/23/2012 - 09:48 | 2088295 LawsofPhysics
LawsofPhysics's picture

Been saying this for a while.  When the idiocracy of doing business under the <state your favorite kleptocracy> governemt becomes insane, black markets always do very well.

Now if there had only been and ETF for the black market.

Just imagine how much more tax revenue could be generated if "it" was simply legalized.  Ron Paul 2012.

Mon, 01/23/2012 - 10:15 | 2088386 blindfaith
blindfaith's picture

much of this "information" was taken from WIRED magizine interview with another wiz guru.

Flaws...lots of flaws and assumptions are wqritten as if fact.  I am really getting tired of un checked-made up numbers, facts, and figures.

You go down to your local street corner and try to sell pencils and see how long it is before Code Enforcement sites you.

Sure all of us corner vendors are going to have our $700 Ipads ready to swipe your credit card and stay invisable.  Sure.

PLEASE!!!!  The biggest underground enonomy is drugs, and it ain't street vendors.

Mon, 01/23/2012 - 14:55 | 2089729 Lord Koos
Lord Koos's picture

Yep and I notice there are no figures on most the charts, they are measuring sticks without numbers.

Mon, 01/23/2012 - 13:23 | 2088997 A Lunatic
A Lunatic's picture

You are not seeing this for what it is. This is all bout shifting public perception, such as, we can't have people running around trading goods and services under the table..........."we can't have people buying goods and services with cash because it is unaccountable.............we can't have people using cash to buy big ass bags of rice, or beans, or flour, or guns, or ammo, or seeds, or etc, etc, etc. People who do these things are stealing from society. They have too much freedom. They are not compliant. They are a danger to you, to me, to society as a whole and especially our economy. In fact, it is the "black market" that is destroying our economy, not FED policies........not corrupt bankers.......not self serving politicians........not freeloaders and entitlement junkies. You will not be allowed to remain a Free human doing for much longer, it is unpatriotic, selfish, and criminal."  You see, the numbers do not need to be accurate, they only need to sound good at the emotional level, for this is where the bulk of decisions are made amongst the sheeple. They do not crunch numbers, they do not research facts, they do not consider the possibility that freedom is something more than choosing where they will work , what color to paint the living room and what to watch on the T.V. It's revolting to think about the direction this nation is taking.

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