The Underground Economy: Crash Course Economics #32

CrashCourse
7 May 201609:01
EducationalLearning
32 Likes 10 Comments

TLDRThe informal or 'underground' economy refers to economic activities that happen outside government regulation and taxation. It includes illegal activities but also legal work like babysitting or selling goods without licenses. Economists estimate the informal economy accounts for 10-20% of GDP in developed countries and over 30% in developing countries. It provides jobs but has downsides like lack of protections for workers. Trying to measure the informal economy involves comparing statistics on income and spending or observing cash usage and electricity consumption. Some argue parts of the underground economy, like the market for human organs, should be legalized and regulated to improve conditions.

Takeaways
  • 😀The 'underground economy' refers to economic activities that happen outside of government regulation and taxation
  • 🤔It includes illegal activities but also legal work like babysitting, roadside fruit selling, and off-the-books nannying
  • 📈Economists estimate the underground economy accounts for 10-20% of GDP in developed countries and over 30% in developing countries
  • 💰The global underground economy is worth trillions of dollars, with organized crime activities totaling around $870 billion per year
  • 🤑Drug trafficking ($320B), counterfeiting ($250B), and human trafficking are major illegal underground activities
  • 😟Work in the underground economy often lacks protections and safety nets of the formal economy
  • 😎The underground economy can provide jobs and income not available in the formal economy
  • 🤔Legalizing certain underground activities like kidney selling could provide regulation but has ethical risks
  • 📉Growth of the underground economy can reduce tax revenue and encourage misguided government policies
  • 🤝Integrating the underground economy, rather than fighting it, may benefit individuals and the overall economy
Q & A

  • What are some of the terms used to describe the underground economy?

    -The underground economy is also referred to as the shadow economy, informal economy, black market, unofficial economy, hidden economy, etc.

  • What percentage of the global GDP is estimated to come from organized criminal activity?

    -According to the UN, organized crime accounts for about 1.5% of the global GDP, which is around $870 billion per year.

  • What everyday activities are considered part of the informal economy?

    -Common informal economy activities include unlicensed services like haircutting or childcare, street vending, under-the-table jobs like housekeeping, and private transactions like babysitting or lemonade stands.

  • How do economists estimate the size of a country's informal economy?

    -Economists look at metrics like the difference between a country's reported income and expenditures, demand for cash, electricity usage, etc. to estimate the size of the informal economy.

  • What percentage of workers in developing countries are estimated to work in the informal economy?

    -The International Labor Organization estimates that 50-75% of non-farm workers in developing countries have jobs in the informal economy.

  • What are some of the main risks associated with illegal organ trafficking?

    -Key risks include unfair pricing, lack of follow-up care, diseased or non-matching organs being transplanted, and having little legal recourse as a buyer of an illegally trafficked organ.

  • How did the informal economy in the US change during the 2008 financial crisis?

    -Researchers estimate that the US informal economy doubled in size during the financial crisis, as laid off workers picked up side jobs and odd jobs to earn income.

  • What can drive more activity into the underground economy?

    -Cuts in social safety net spending and increases in taxes on the formal economy can push more people into taking jobs in the informal economy.

  • What are some of the main disadvantages of having a large informal economy?

    -Drawbacks include lack of protections and benefits for informal workers, inaccurate government statistics on unemployment and income, and falling tax revenue.

  • What was the Kowloon Walled City in Hong Kong known for?

    -The Kowloon Walled City was known for being an entirely informal settlement, with essentially no government oversight or regulation over its economy and activities.

Outlines
00:00
🎥 Introducing the Underground Economy

Paragraph 1 introduces the concept of the underground economy, also known as the informal economy or black market. It encompasses illegal activities as well as legal but unreported trade and labor, like domestic work, roadside vending, etc. This economy is difficult to accurately measure but likely accounts for 10-20% of GDP in developed countries and over 30% in developing countries.

05:04
😨 The Scale and Impact of Illegal Trade

Paragraph 2 discusses estimates of the massive global scale of illegal trade, with organized crime generating $870 billion annually. It also covers associated issues like exploitation, violence, and lack of regulation in these underground markets.

Mindmap
Keywords
💡underground economy
The informal, hidden economy that operates outside of government regulation and taxation. This includes illegal activities like drug dealing, but also legal work like babysitting or selling goods without reporting the income. A major theme of the video is defining and analyzing the size and impact of the underground economy.
💡informal economy
A synonym for the underground economy - economic activities that happen 'off the books' without being taxed or regulated by the government. Examples given include unlicensed haircutting services and street vending.
💡black market
An illegal underground market where goods or services are bought and sold outside of formal business channels and in violation of applicable laws and regulations. An example is illegal trade in human organs or endangered animal products.
💡organized crime
Illegal coordinated criminal activity by groups seeking power and financial gain. A major component is the global drug trade, worth over $300 billion per year.
💡money laundering
The process of concealing the origins of money obtained illegally by passing it through legitimate businesses. An activity common in the underground economy.
💡safety net
Social welfare programs and protections like healthcare, unemployment benefits, and overtime pay. Workers in the informal economy lack these safety nets available to formal employees.
💡vicious cycle
The self-reinforcing negative feedback loop where growth of the underground economy reduces tax revenue, leading to cuts in social spending, pushing more people into the informal economy.
💡economic output
The total value of goods and services produced in an economy. Much of this output occurs in the informal economy and is not counted in official GDP statistics.
💡developing countries
Countries working to improve economic well-being and quality of life. The video states the informal economy accounts for over a third of output in many developing countries.
💡decriminalization
Removing criminal penalties for an activity, such as legalizing and regulating kidney sales, while keeping bans on coercion in place. Presented as an option to reduce dangers of illegal underground markets.
Highlights

Neural networks show promise for natural language processing tasks like machine translation.

Recurrent neural networks can develop an understanding of context and language over time.

Attention mechanisms allow neural networks to focus on the most relevant parts of the input.

Transformers use attention to draw global dependencies between input and output.

Pre-trained language models like BERT require less data to fine-tune for downstream tasks.

Multilingual models allow transfer learning across multiple languages.

Generative adversarial networks can create synthetic training data for low-resource languages.

Meta-learning optimizes the learning process itself to adapt quickly to new tasks.

Causal language models show potential for reasoning, summarization and question answering.

Sparse access memory efficiently stores previous activations for very long-term dependencies.

Multimodal models combine vision, language and other sensory inputs for richer understanding.

On-device training allows personalization while preserving privacy.

Quantum machine learning may one day surpass classical limits for certain AI tasks.

AI safety research aims to create reliable, interpretable and beneficial intelligent systems.

Clear guidelines are needed for ethical AI to uphold human values and avoid potential harms.

Transcripts

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