The curse of the shadow economy
What happens when politicians, instead of ordinary people, decide what's important?
In general, when people transact in an economy, those transactions represent the values of those people involved in the transactions. That is to say, for example, that a person who wants to be an apple grower can do so because someone is willing to buy his apples at a price that covers the cost of production and affords him the opportunity to cover his expenses.
A woman can become realize her dream of being a veterinarian not just because she enjoys working with animals but because people have a need to keep their dogs and cats healthy.
The dance instructor loves to move her body in time with music, and so she embarks on in a job that allows her to teach youngsters about the mechanics of movement. So long as parents have the money and motivation to pay the instructor, she gets to remain in business.
One can move further down the economic chain to see other synergies. The apple farmer needs fertilizer, ladders, buckets, and other items to harvest his fruit. The veterinarian needs microscopes and stethoscopes. The dance instructor needs special clothing and music.
People produce these items, which themselves contain products that are desired by their creators and their users. The apple farmer’s ladder, for example, may contain metal and wood and rubber, which contributes to its creation. All of this happens independently of one another to the benefit of each company and worker in the economic chain.
This spectacular and almost invisible synergy is best captured in Leonard Read’s essay “I, Pencil” in which the pencil anthropomorphically describes the miracle of so many different people, components, and industries coming together, as if by magic, to create it:
Here is an astounding fact: Neither the worker in the oil field nor the chemist nor the digger of graphite or clay nor any who mans or makes the ships or trains or trucks nor the one who runs the machine that does the knurling on my bit of metal nor the president of the company performs his singular task because he wants me. Each one wants me less, perhaps, than does a child in the first grade. Indeed, there are some among this vast multitude who never saw a pencil nor would they know how to use one. Their motivation is other than me. Perhaps it is something like this: Each of these millions sees that he can thus exchange his tiny know-how for the goods and services he needs or wants. I may or may not be among these items.
So then, what happens when an economy is spun into existence that people don’t want? We see this today, as vast portions of the U.S. economy are moved not by creators, producers, and consumers, but by government and its institutions. Economic transactions aren’t taking place because of the desires of the people making a product or service, but because such products and services are ushered into existence through the imaginations of politicians and the agencies they oversee.
This reality came crashing home a couple of weeks ago when President Trump ordered a federal spending freeze that sent organizations and businesses through the country into a tizzy. The impact of the threat of a freeze was enough to derail pre-kindergarten programs, solar energy projects, job training programs, just to name some identified in media reports.
But if the economy — the producers and the customers — of these products really wanted these things, it wouldn’t require a government intermediary to deliver on the programs. They’d exist on their own without the involvement of an agency, politician, or a single cent from taxpayers.
Because so much of the economy is dependent on federal grants, loans, and transfers, it doesn’t reflect the reality of what society actually deems important. It’s a kind of shadow economy that represents the values of the State, and not its residents.
What’s more is that one could argue that the American economy today — as illustrated by the threat of a federal spending freeze — represents as much of anything the values of the lobbyists and other politically-connected characters who pay for that government via campaign donations, ad campaigns, and relationship building. There’s more of that shaping the economy than there is the pure will and imagination of inventors and investors, big and small, urban or rural.
The impact of this economy-dreamed-into-being-by-government goes beyond just a state, nonprofit, or company’s dependency on federal funds. It’s really the story of how the societal trajectory is quietly being shaped in ways that are inorganic and manipulative, and therefore, counter to human flourishing.
Agree or disagree? Have something to add? Let me know in the comments.