Money and Markets: Essays in Honor of Leland B. Yeager

246 Gordon Tullockwhich they later use to supplement their earned incomes. With the recent changesin the United States old age pension system, it could be said that that is the objectivetoward which the system aims.The black economy is frequently regarded as a problem. If you’re trying toreduce official unemployment the black economy does increase the problem byhaving unofficial employment which competes with official. But that seems to bemerely a bookkeeping matter. To have older people continue working as long asthey want is surely desirable both from the standpoint of their own income and ofthe nation. Those economists who devoted so much work and so much ingenuityto determining how large the black economy is have no doubt improved ourknowledge. In many cases, however, they rather imply that they are discoveringsome sort of social disease. This is not true. They are discovering that our officialstatistics are frequently wrong, but that is a minor matter. We are better off as aresult of the black economy than we would be if the rules were in fact strictlyenforced. Of course we would be even better off if we repealed all of these ruleswhich require that part of the national product and part of individual incomes mustbe concealed. We are better off than our official statistics show.The effect of the Social Security system on the size and government is bothparadoxical and ironic. It is usually listed as increasing size and government, andin part it does. There is the Social Security Administration, very elaborategovernment-sponsored medical facilities in many countries, and very heavy generalgovernment taxes. These increase the measured size of the government. On theother hand the black economy performs services which without the black economywould probably mainly be performed within the official economy. Hence it reducesthe size of the government as a share of the national economy by providing thatpart of our national product is produced “in black.” There’s no doubt that the taxesand the rules on working in your old age reduce the economy of Germany. There isno doubt also that the large number of people working “black” increases it. As longas our data on the black economy are incomplete, we don’t know the exact effect ofthe second term. There is a small but ingenious collection of economists who workhard on attempts to measure the black economy. Should their activity be regardedas increasing the national economy or as simply wasted?In order to avoid giving a mistaken impression, I should like to emphasize thatthe pension system is by no means the only reason for part of the economy beingblack. The income tax is clearly an important matter and indeed all other taxesprovide a motive for production being kept off the books. I have no idea which ofthese rules which lead to part of the economy being quasi-concealed is the mostimportant in empirical effect.There are, of course, additional industries which are illegal per se and whichconsequently do not appear in our official accounts. Prostitution and dope smugglingboth support significant industries with many people employed. Normallythey are not included in our accounts. I am not arguing that they should be. Thereare also other crimes which are nonproductive, but which involve investment oflabor and resources, bank robbery for example. They also are not included in ournational income accounts. All of this is not intended as a criticism of our accounting