The Ambiguous Moral Foundations of the Underground Economy

Abstract

Most treatments of the underground economy presuppose that underground economies cannot be morally justified. This moral condemnation is suggested by the conventional taxonomy of activities comprising the underground economy itself: illegal, unreported, unrecorded, and informal. A recent U.S. Department of Labor publication, for example, defines the illegal sector of the underground economy as "economic activities pursued in violation of legal statutes defining the scope of legitimate forms of commerce," presenting examples such as prostitution or the trade in drugs. The same publication defines the "unreported economy" as comprising "those economic activities that circumvent or evade . . . the tax code"; "the unrecorded economy" as those "that circumvent the institutional rules that define the reporting requirements of government statistical agencies"; and "the informal economy" as "those economic activities that circumvent the costs of... the laws and administrative rules covering property relationships, commercial licensing," or other governmental regulations. These various activities are obviously similar in their circumvention of rules or regulations, but they are similar in a deeper sense because their existence is presumed to directly impede legitimate government actions, as well as broader values of the citizenry. For example, in a recent essay, Professor Feige, the most prominent scholar of the underground economy, explains the "conceptual linkage among underground economies" as comprising two elements: concealment and immorality. The intentional concealment of this set of economic activities from government and policymakers biases and distorts economic data—data which the government relies upon to control the economy.