A Tutorial On The Ills Of Regulation
I heard a new phrase today: The informal economy.
It's a lovely turn of phrase, sounding much more pleasant and legal than "'the black market economy," but it means the same thing
It was used on a BBC broadcast -- not surprising, given their use of gentle, forgiving terms for everything but American foreign policy. I don't believe it's their term, though; it's from Brazil, where the informal economy makes up about half of the national economy. And yes, the other half is called the formal economy.
Those in the informal economy don't get business licenses, get paid in cash for their services and don't pay taxes.
How could Brazil, thedead sleeping giant, come to lose so much of its legitimate economy? It's a one word answer, and it's a word America should hear with fear: Regulation.
Business is heavily regulated in Brazil, from the permits you need to start a business, to the paperwork you have to file to stay in business, to the fines you have to pay if you get crosswise with the regulations. The social bureaucrats in Brazilia have placed such a high penalty on business success, many opt simply not to be successful.
A successful informal economy entrepreneur knows that if he is successful and grows his business, he'll be mired down in a regulatory quagmire, so many opt to just stay small. Imagine the impact on America's economy if Bill Gates had decided it wasn't worth all the hassle to get big, and had continued providing BASIC programming for Altair 8800 computers. Or if Henry Ford had kept turning out Fords one at a time instead of developing the assembly line.
What happens when half of a nation's economy is under the table? Obviously, the Brazilian government receives much less tax revenue because half of its economy is all cash/no taxes. And just as obviously, a country that created this mess because of its propensity to regulate will address the subsequent economic problems with more regulations, more fines for violators ... driving more people to stay away from the whole mess by working for cash on a small scale.
Brazil's problem is repeated in economies around the globe when government thinks it has all the answers.
As yet, the problem hasn't hit America, where most of our economy remains formal, legit, tax-paying and regulated to some extent. But if the trend towards more government, and more government intervention into our lives continues, it could happen here.
If you suddenly start reading about the growing "problems" presented by the informal economy in the U.S., you'll know it's probably already too late; the tipping point has been passed and we're on our way to becoming a sleeping giant.
It's a lovely turn of phrase, sounding much more pleasant and legal than "'the black market economy," but it means the same thing
It was used on a BBC broadcast -- not surprising, given their use of gentle, forgiving terms for everything but American foreign policy. I don't believe it's their term, though; it's from Brazil, where the informal economy makes up about half of the national economy. And yes, the other half is called the formal economy.Those in the informal economy don't get business licenses, get paid in cash for their services and don't pay taxes.
How could Brazil, the
Business is heavily regulated in Brazil, from the permits you need to start a business, to the paperwork you have to file to stay in business, to the fines you have to pay if you get crosswise with the regulations. The social bureaucrats in Brazilia have placed such a high penalty on business success, many opt simply not to be successful.
A successful informal economy entrepreneur knows that if he is successful and grows his business, he'll be mired down in a regulatory quagmire, so many opt to just stay small. Imagine the impact on America's economy if Bill Gates had decided it wasn't worth all the hassle to get big, and had continued providing BASIC programming for Altair 8800 computers. Or if Henry Ford had kept turning out Fords one at a time instead of developing the assembly line.
What happens when half of a nation's economy is under the table? Obviously, the Brazilian government receives much less tax revenue because half of its economy is all cash/no taxes. And just as obviously, a country that created this mess because of its propensity to regulate will address the subsequent economic problems with more regulations, more fines for violators ... driving more people to stay away from the whole mess by working for cash on a small scale.
Brazil's problem is repeated in economies around the globe when government thinks it has all the answers.
As yet, the problem hasn't hit America, where most of our economy remains formal, legit, tax-paying and regulated to some extent. But if the trend towards more government, and more government intervention into our lives continues, it could happen here.
If you suddenly start reading about the growing "problems" presented by the informal economy in the U.S., you'll know it's probably already too late; the tipping point has been passed and we're on our way to becoming a sleeping giant.
Labels: Economic Policy, Economy
posted by Laer at 8:07 PM
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