Wednesday, March 3, 2010

Economists in fantasyland

Voltron says: In my forecast (sidebar) I have been saying for a while that "The economy is fake and is dominated by fraud and criminal activity." What do I mean? I'm sure you remember this exchange from "Back to School"

Thornton Melon: Oh, you left out a bunch of stuff.
Dr. Phillip Barbay: Oh really? Like what for instance?
Thornton Melon: First of all you're going to have to grease the local politicians for the sudden zoning problems that always come up. Then there's the kickbacks to the carpenters, and if you plan on using any cement in this building I'm sure the teamsters would like to have a little chat with ya, and that'll cost ya. Oh and don't forget a little something for the building inspectors. Then there's long term costs such as waste disposal. I don't know if you're familiar with who runs that business but I assure you it's not the boyscouts.
Dr. Phillip Barbay: That will be quite enough, Mr. Melon! Maybe bribes, kickbacks and Mafia payoffs are how YOU do business! But they are NOT part of the legitimate business world! And they are certainly not part of anything I am doing in this class. Do I make myself clear, Mr. Melon!, not withstanding Mr. Mellon's input. The next question for us is where to build our factory?
Thornton Melon: how 'bout fantasyland?

Here's a chart that shows the percent of GDP for different countries that is part of the "underground economy"

Comparison with regular economy

CountrySize of shadow economy in percent of GDP, average over 1990-93[24]
Developing economies
Nigeria and Egypt68-76%
Tunisia and Morocco39-45%
Central and South America
Guatemala, Mexico, Peru and Panama40-60%
Chile, Costa Rica, Venezuela, Brazil, Paraguay and Colombia25-35%
Philippines, Sri Lanka and Malaysia38-50%
Hong Kong and Singapore13%
Transition economies
Central Europe
Hungary, Bulgaria and Poland20-28%
Romania, Slovakia and Czech Republic7-16%
Former Soviet Union
Georgia, Azerbaijan, Ukraine and Belarus28-43%
Russia, Lithuania, Latvia and Estonia20-27%
Developed economies
Greece, Italy, Spain, Portugal and Belgium24-30%
Sweden, Norway, Denmark, Ireland, France, The Netherlands, Germany and Great Britain13-23%
Japan, United States, Austria and Switzerland8-10%

Voltron says: What meaning does economic analysis have when, as mainstream economists do, you exclude the "dark matter"? There is a lot of hidden money sloshing around. As I previously reported, During the height of the crisis, banks desperate for cash took in an estimated $352 Billion in illicit drug money. So what "saved" the economy? The stimulus package or the drug money? What happens when it runs out? How will you see it coming?

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