The Rise Of The Cash Economy


eibiggerA puzzling thing emerges if you study the economic statistics for the Developed World.  The productivity index for the Eurozone is up only 3% since 2005, and while this may be understandable for the benighted countries within the single currency, not so simple to explain is why UK economic recovery shows a ‘productivity puzzle’.  In Britain, employment has held up better than the Gross Domestic Product (GDP).  There is more UK employment than the levels of growth should allow.

unemploymentIn North America, a research company study shows U.S. GDP per hour growth of only 0.3% per annum since 2010, compared with an annual rate of 1.5% in the 20 years before that.  Seemingly, too many people are either out of work, or not working hard enough, to account for the increased level of demand-led spending in the economy.  Where is money to fuel the rise in the price of homes in parts of the U.S. coming from?

Dhaval Joshi of BCA Research says that in Britain 360,000 self-employed jobs have been created since 2008, which is 40% of the total increase in UK employment.  The self employed work longer, but their official hourly earnings are less than half of those of employees.  There is also the issue of the ageing population in the English Speaking World,  As the ‘Baby Boomers‘ retire or take part-time work, so the number of Full-Time-Equivalent (FTE) staff shrinks.  Less working hours should mean more unemployed, and this isn’t much happening outside the GIPSI economies.

cotton_gin9The types of industry that officially gained the most self-employed workers were Information Technology, Communication and Support Services.  All technology based.  The role of technology in improving productivity is under debate.  Robert Grace of Northwestern University suggests that the impact of the internet is much smaller than prior innovations, such as those introduced by; Jethro Tull, Eli Whitney, Thomas Newcomen, Richard Trevithick, Henry Ford and Milton Hershey.  Really, now there’s a surprise, because the internet is more akin to Johannes Gutenberg‘s 1450 invention of the movable type printing press than it is to a machine for pumping water out of mine workings.

All this may be fine if those entering self-employment were budding internet entrepreneurs of the Apple / Google / Facebook ilk, but most of those entering self-employment seem to be one-man-bands.  We’re talking painters and decorators, plumbers, joiners, gardeners, electricians, gas fitters, bricklayers, jobbing builders, hairdressers, entertainers, publishers and retailers…  We’re not talking Detroit production lines here.  However, the internet has made it much easier to freelance.  Not everyone in the local internet cafe is watching cute kittens or exploring soft porn on YouTube, some of them are creating websites, writing blogs, emailing potential clients.

Showa_Steel_WorksThis is almost a step back in time from the regimented workforces in the satanic mills, railroads and factories of the 19th and 20th Centuries.  As in the days of cottage industries, more and more workers now own and control their own capital, working hours, payroll, bought and sold ledger, tax returns…  And, there’s the key to it all.  A lot of these people don’t put all of their earnings through traceable business bank accounts.  Even Paypal, Ebay, Amazon can work as quasi-personal rather than business transactions.  And, physical cash just vanishes into thin air as far as the banks and governments are concerned.  Which is why banks and governments don’t like cash.

cashThe image of the Baby Boomers becoming the poor, vulnerable elderly may be an urban myth.  They may well be supplementing their pension by fitting your kitchen, for cash in hand.  Measuring the extent of the cash economy is more than ordinarily difficult ~ cash leaves few tracks in the sand.  Rick Newman of U.S. News calls it the underground economy, and cites the government data on the percentage of Americans who forego banking services, finding other ways to handle their money.  The percentage of ‘unbanked’ and ‘underbanked’ rose from 25.8% in 2009 to 28.3% in 2011.  Not all of these people may be fully declaring their earnings to the IRS.

The important points are;  Statistics are never the real picture.  Government statistics should be regarded with the utmost suspicion .  Pay all the taxes you are legally obliged to pay, but not a penny more.  Tax avoidance is perfectly legal, tax evasion is illegal.  Taxation is the most iniquitous plague ever inflicted on the ordinary man.  It is not your job to make sure the other fellow is paying his taxes.  There is nothing wrong with painting your neighbour’s fence in return for his fixing your car.  There is nothing wrong with paying the neighbour kids to sweep your yard ~ they will want cash.


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