Sudhir Alladi Venkatesh explores the underground economy of Chicago’s South Side, in The Boston Globe’s Field Notes from the Underground:
Most of us could probably identify hidden economic activity in our own communities and indeed in our own homes. Inner cities have their crack dealers, but the shady economy can also include kids selling lemonade, bars that host poker games, carpenters who work under the table, neighbors who offer day care. In fact, trying to uncover each and every unregulated exchange would seem implausible.
Academics and policymakers continue to try, however, in large part because the costs of unregulated and hidden economies are so high. The tax coffers are depleted when income is not reported. Many underground workers are working for less than minimum wage, and most are failing to report their income. And when we throw in drugs, sex work, and guns, we are of course forced to consider even greater social problems.
How big is the underground economy? The General Accounting Office and the Internal Revenue Service produce estimates every few years that differ widely, but one government study calculated that $500 billion in income fails to be reported each year. Another estimate, based on consumer behavior, suggests that 4 out of 5 Americans turn to the unregulated world for goods and services which would raise the $500 billion figure appreciably.
But the underground economy is more than just a set of cash transactions. Cash, as it turns out, isn’t necessarily the preferred medium of exchange: on Chicago’s South Side, barter is just as common. I interviewed the owner of an auto body shop who threw out his cash register because customers were paying their bills in kind. They offered him cellphones, microwaves, furniture, and IOUs. He, in turn, started selling these goods from the back of the store, and now auto repair constitutes only a fraction of his income.
Venkatesh, author of Off the Books: The Underground Economy of the Urban Poor, observes how these oases of underground economy interact with the above-ground economy and the government that is parasitic on it and jealous of its competitors. “Watching how these communities self-regulate,” for instance through real-life mutually-acceptable private mediators of the sort often found in theoretical anarchist literature, “I witnessed sophistication and creativity not usually associated with neighborhoods of concentrated poverty.”