A few days ago I posted a review of an essay by Ivan Illich which dealt with the "shadow economy" and the "subsistence economy". Essentially, Illich argued that the shadow economy consisted of work that is supportive of the market economy -- e.g. housewives doing domestic work in support of husbands working in the market economy -- and should therefore be included in measurements of the market economy, whereas the subsistence economy is an alternative to the market economy and should not be included in such measurements.
For want of something better to do, I'm rereading and editing a diary I've kept for some thirty years. During that period, in 1995, I spent a month as a student in Moscow. Russia was a chaotic place in 1995, a mere four years after the collapse of the Soviet state. As the following news item indicates, I encountered another kind of "shadow economy" while there, an immeasurable one which grew rapidly as the market economy, aided and abetted by what was left of the state, rapidly disintegrated. Ed -------------------------------------------------------------------------------- Moscow Times, June 3, 1995 (Geoff Winestock) notes the money supply grew by 25% in April according to a report published by an influential economist, Mikhail Delyagin, of the Presidential Economic Analysis Unit. In the previous three months it had grown only three percent for the whole period. It would appear that much of the recent increase reflects another "burst" of government spending in order to avoid a "social explosion". According to Delyagin, the government needed to compensate the public for a 25% drop in real household incomes that accompanied huge jumps in prices during the winter. Inflation will therefore continue unless the IMF exercises control via the leverage it has with respect to the monthly installments on its $6.8 billion loan (drawing rights?) to Russia and the central bank begins to seriously maintain a low inflation stance. What this suggests is that the government "taxes" by inflation - i.e. if it cannot amass enough money via the tax system, it will do so by printing what money it needs. It spends that money at the currently prevailing price level, but in so doing drives the price level upward and the value of the rouble downward. Those who have the ability to raise their own prices can adjust, those who are on long term contractual arrangements, such as pensioners, cannot. As a method of taxation, inflationary bursts of government spending are extremely regressive. Real-wage incomes continue to fall behind, and more and more people are forced into liquidation or the shadow economy. Wages are currently believed to make up only about half of personal income, the rest coming from the shadow economy. But given the high rate of inflation, even the shadow economy provides little refuge. To maintain real value, prices there must also go up or people must work harder to maintain a livable income. Via printing money and causing inflation, government is not only able to tax the mainstream economy, but the shadow economy as well.
_______________________________________________ Futurework mailing list [email protected] https://lists.uwaterloo.ca/mailman/listinfo/futurework
