Few people world wide seem to understand the basic phenomenon of black markets. When Diane Strickland, a financial specialist at Wachovia bank in New Smyrna Beach was asked for her opinion on black markets, she said it is wrong to have them, but added she did not think they are really bad for the country. Her response is typical of people the world over.
Ironically, some of out citizens engage in mild black market activity without even realizing it.
Tragically, in all too many situations black markets are the only means to perform the critical function of allowing humans to survive when governments impose conditions that make it difficult or impossible to exist.
For example, millions of people in communist countries have avoided starvation through the black market in the production and distribution of food. About 30 percent of the food in the former Soviet Union was grown on illegal private plots, representing about 1 percent of the arable land.
In many cases, officials had the good sense to look the other way while black market farming went on. No doubt black market activity in the continent of Africa and Third World countries elsewhere keeps many people from starvation.
Looking at it from the standpoint of economics a black market can only exist when governments impose regulations and taxes which make it profitable. Under reasonable conditions a black market is too awkward and inefficient to exist.
The black market is hindered by the facts that it is usually confined to be a small operation without any economy of scale. You must stay hidden; you can’t advertise; you can’t get the authorities to help enforce your contracts and you are always in danger of being caught.
Therefore, when you see significant widespread black market activity anywhere, you should ask the question what bad government policies are engendering and enabling this kind of behavior.
For example, in German Reader’s Digest issued in May 2008, Carmen Molitor bemoaned the fact that about half the German citizens are holding a job that is off the books. According to Molitor, these off-the-book jobs called "schwarz arbeit" are bad for the German economy.
Never did it occur to the author that maybe the taxes on labor were too high and everyone would be better off if they were lowered.
Unfortunately, the German taxes will remain too high, the workers will continue to work off the books, the government will run around in vain trying to stop it and the German economy will continue to tank.
Molitor also noted that the level of black market jobs in the U.S. is less than 10%.. This implies that our rules and regulations are much more reasonable that in Germany.
You can bet that in other countries such as France there is an active black market in labor.
Looking at the black market here at home we see exorbitant taxes on cigarettes. In New York, the price of a pack of cigarettes is over $9. No matter whether you smoke, you know full well that there is a very active black market in cigarettes.
As a little boy during World War II, I watched my friends and neighbors perform various illegal operations to get around the rationing and other stupid rules and regulations.
On one occasion my mother ordered fuel oil for heating the house. She had only enough oil ration stamps to fill half the tank.
The man delivering the oil ignored her request to stop at the halfway point and filled it all the way. He then said, "Lady please take the oil; we have so much of it backing up we will have to pour it out if you don’t take it."
Here in New Smyrna Beach, some citizens have fixed their houses without the proper permits or allowed their 10-year-old kid to sell lemonade without the proper permits.
If you have ever cut down a tree in your yard without the permission of the tree police, you are guilty of black market-type activity.
No doubt some people bribed gas station managers to fill their tanks by the light of the moon to avoid the long lines during the early 1970s gas crisis.
If you are "guilty" of any activities similar to these, you are an "evil black marketer."
When the situation really demands it Americans are second to none at black market activities. Let’s hope the situation never really demands it.
One often heard argument against black markets is that they deprive government of tax revenue.
The first problem with this argument is that without the black market the activity would not exist at all.
The second problem with this argument is the implication that we would be better off if the politicians of the country had more revenue to work with.
It is also inferred that overall taxes would be lower if they could collect revenue from the black market.
History shows that the extra revenue will always lead to even more spending, not tax cuts.
Governments have always responded to black markets with repressive techniques. Usually these repressive techniques have very limited or no success.
The best, simplest and most productive way to get rid of a black market is to get rid of the rules, regulations and excessive taxes that make the black market a viable economic option in the first place.
Black markets have always tried to come to the rescue of people who are suffering from the stupidity or evil of their own governments.
When you see rampant black market activity don’t blame the people; blame the bad government policies that lead to it.