Black market

A market in which certain goods or services are routinely traded in a manner contrary to the laws or regulations of the government in power. Typical reasons why the market goes underground in this way include the desire by substantial numbers of buyers and sellers to evade restrictive government price controls or inconvenient rationing schemes, to avoid paying heavy taxes on the good or service in question, or simply to be able to obtain forbidden goods or services that the government does not want the people to have at all. The size and relative importance of black markets vary greatly from one country to another and from one historical period to the next within any single country. In general, the greater the extent to which the government tries to dominate and control the economy, the larger the fraction of economic activity that takes place through the black market can be expected to be. Partially offsetting this tendency of more interventionist policies to spawn ever larger black markets, the size of the black market in any given country at any given time also reflects the size and effectiveness of the bureaucratic machinery the government mobilizes to catch people who violate its economic regulations and the severity of the punishments that are routinely inflicted on those who get caught. Thus it was surely no accident that the ultra-highly regulated economic institutions of Nazi Germany, Soviet Russia, Eastern Europe and Communist China coexisted in symbiosis with gigantic regulatory and secret police establishments, extensive informer networks, crowded prison systems featuring thousands of slave labor camps, and frequent imposition of the death penalty for so-called “economic crimes.” The Nazi regime was destroyed by World War II before it was old enough to undergo any very extensive modifications, but it was surely no accident that even the first very tentative and partial gestures by the various Communist regimes to abolish or restrain many of their more extreme “police-state” practices during these last few decades quickly resulted in an enormous expansion of black market activity, despite the fact that these governments were also just beginning to loosen up their control of the economy at the same time.

In the United States, government efforts to regulate and micro-manage the economy have historically been much less extensive than in Communist or socialist countries. In fact, the American commitment to the general ideal of “free enterprise” has typically been considerably stronger than has been the case in virtually all of the more advanced industrialized Western countries. Nevertheless, we can easily identify at least a few rather large examples of the black market in the United States. First of all, the US government has typically been more ambitious and aggressive in its attempts to regulate and control economic activities during times of perceived national crisis (especially during wartime). World War II rationing and price controls were accompanied by extensive black market activity involving illegal dealings in meat, sugar, automobile parts, penicillin and other regulated commodities as well as widespread evasion of rent controls. Even in relatively normal times, however, there are important areas of black market activity in the US economy. First of all, and most clearly “criminal” in the eyes of the general public, there is always a certain amount of illicit trade in stolen goods passed on directly (or indirectly, through “fences”) from burglars, jewel thieves, cattle rustlers, hijackers, shoplifters, light-fingered employees, and the like. In addition, black market trade remains very widespread (and probably still is growing) in certain demerit goods which remain strongly in demand, even though federal and/or state governments have sought to prohibit them entirely (narcotics and most other psychoactive recreational drugs, hard-core pornography, the services of prostitutes, false i.d. cards, ozone-depleting Freon for automobile air conditioners, Cuban cigars, the gall bladders of bears, products made from elephant tusks) or to monopolize the product in government hands (running of lotteries-for-profit, fully automatic firearms) or to tax them very heavily in a discriminatory fashion (moonshine whiskey, bootleg cigarettes). Heavy rates of taxation on otherwise perfectly legitimate wages, salaries, and unincorporated small business profits (currently a minimum federal tax take of 18% for income tax plus more than 15% for social security tax, even before beginning to tally up state and local income taxes and license fees) provide strong incentives for illegal working “off the books” for cash to evade taxes, at least in low capital or temporary service occupations where government detection is unlikely and/or punishment would probably be mild (lawn care services, free-lance handymen, automobile mechanics, household servants, baby-sitters, plumbers, electricians, part-time beauticians, locksmiths, appliance repairmen, temporary day-laborers, computer consultants, tutors, etc.). Putting even an approximate number on the full extent of black market activity in the US (or in any country) is very hard to do and necessarily rather imprecise, but, for what it is worth, economists who have made serious and systematic efforts at estimation claim that black market activity probably amounts to at least 10% of US GNP. In many Third World countries (which tend to put a tremendous number of detailed economic regulations on the books but have only very inefficient bureaucratic capabilities for enforcing them), black market activity is believed to produce well over half of GNP.