The Federal Reserve bank has expressed displeasure at the fact that all of the funny money it printed hasn’t been circulating in the economy. As always the Fed is blaming people who save, err, hoard (I really need to get a newer version of the Newspeak dictionary) money for all of our country’s economic woes. But one economist has put forth an interesting theory. Edward Feige hypothesizes that a lot of the “hoarded” money is making it’s way around the more awesome economy, which is usually referred to derogatorily as the black or underground market:
Maybe. But another explanation was put forward by the economist Edward Feige, who argued recently that a lot more cash than traditionally assumed is circulating domestically. Where others estimated that half or more of all U.S. currency flows overseas, he said 75 percent or so is actually at home.
Again, is it just sitting there because of low interest rates
and economic doldrums?Nope. Feige estimates that, in 2009, “18-23% of total reportable income may not properly be reported to the IRS.” That missing $2 trillion or so makes for a rather lower income tax compliance rate than the official 83.1 percent estimated by the IRS.
Which is to say, according to Feige, the money isn’t being hoarded (although some is certainly stashed for a rainy day), but
it’s being channeled into the shadow economy of otherwise legal goods and services to escape taxes and regulations. Much of it probably flows to outright illegal black market activities, too. But the huge increase in cash in private hands suggests less in the way of massively increased demand for hookers and blow than it does a growing parallel economy.
If so this is good news as it indicates that people are still producing and consuming but they’re also not paying the violent gang known as the state its demanded protection money. As we know every dollar of tax revenue obtained by the state allows it to build more bombs, hire more armed thugs, and improve its surveillance apparatus. Every dollar kept from the state is therefore helping protect innocent lives and thus the larger the more awesome economy becomes the safer most of us will be.