The only markets government can create are Black markets and artificial markets auctioning off things that no one really ‘owns’ like the electromagnetic spectrum. Why does government insist on creating black markets?
Black markets emerge when demand exceeds supply for highly regulated or forbidden commodities or when excessive taxation drives buyers and sellers to enter into illicit transactions. Essentially, government creates black markets through laws, excessive regulation, taxation or a combination of the three. Many of these activities arise out of the political elite’s ‘need’ to be perceived as doing something when the population is upset with a circumstance or tragedy. Many of these laws are designed to do nothing more than to ‘protect’ people from themselves or their own poor decisions. Other laws are designed to limit people’s choices to those sanctioned by the political elite or their influence block.
For example: The temperance movement of the last century led to the 18th Amendment to the U.S. Constitution banning the sale of alcohol. This law didn’t stop drinking but it did outlaw the enormous, taxpaying, domestic alcohol industry and create a black market so lucrative that criminal gangs were willing to go to ‘war’ over distribution territories. When the 18th Amendment was repealed by the 21st Amendment this alcohol driven gangland violence ceased. Incidentally, prohibition didn’t just make millionaires out of the likes of Al Capone, it also catapulted the Kennedy family to financial prominence.
Some additional Examples of Black Markets:
Currency Exchanges: I was traveling in East Germany…back when there was such a place and was approached by a black market currency exchanger…complete with black leather trench coat and a handful of cash. He was offering an exchange rate about ten times the official exchange rate (I was required to change a certain amount of dollars to East German Marks when we crossed into the ‘Socialist paradise’).
Cigarettes: With Federal taxes on each cigarette over 20 cents it’s no wonder that there’s a thriving business in black market cigarettes and counterfeit tobacco tax stamps. Some of these cigarette bootlegging rings have even been tied to the funding of terrorist groups.
Cuban Cigars: Are Cuban cigars really any better than Dominican cigars or American cigars produced by Cuban exiles? They certainly sell at a premium since we banned their importation and sale.
Weapons: As President Obama pointed out in the presidential debates and numerous times since…there’s a lot of gun violence in his hometown of Chicago. With the strictest gun laws in the nation the outlaw element of Chicago is still able to purchase firearms and frequently uses them knowing that law abiding victims will be pleasantly unarmed. Since this article was written there has been some loosening of firearms restrictions.
Sex Trade: Human trafficking and any form of slavery is abhorrent…however there have been men and women who willingly sell their favors since we inhabited the caves and no amount of prohibition and enforcement seems to have even decreased the incidence.
Drugs: Of course the biggest black market of all is the sale of illicit drugs (illegal and prescription sold through illegal transactions). The horror that our demand creates for the residents of Northern Mexico as well as certain other areas of the world is unprecedented and enough to make even a Chicago-land gangster like All Capone blanch with horror. The profits created for these criminal organizations mean they are willing to take incredible risks and commit tremendous violence in securing their right to traffic in certain territories. Even before state legalization, California’s biggest cash crop wasn’t lettuce or any kind of kitchen vegetable… it was marijuana.
Note: I don’t encourage the use or abuse of any of the above (except for the controlled use of firearms for sport, training and self defense)…I just really don’t care what you do when it doesn’t effect me and the social and financial costs associated with prohibition effect me a lot and cause us to have incarceration rates higher than totalitarian regimes. Let’s stop insisting letting our government take away our choices and give people their freedom back because it really is government creating black markets. Let’s look at some black markets that aren’t so unsavory:
Farm Products: It’s now illegal for farmers to sell many of their products directly if processing is involved (meat) or unless processing is involved (dairy). Farmers have always made direct sales and often had roadside stands but the USDA is cracking down on these operations because they don’t have a rigorous, costly inspection scheme. In one notorious act the USDA fined the owners of a 3 acre rabbit farm in Nixa, Mo nearly $100,000 for selling ‘unlicensed rabbits.’ The USDA backed down after they received pressure from the man’s senator but the regulations remained unchanged.
Fuel: When I was in Iraq the Maliki government legislated the price of gasoline at an artificially low level (seems to me it was around 50 U.S. cents per gallon). consequently, fuel was in such short supply that it wasn’t available through gas stations. Much of the Iraqi produced gasoline was actually smuggled out of the country and what remained was sold at huge premiums on the side of the road.
Information: I’m not talking about state secrets here…well maybe a type of state secrets…I’m talking about provisions like the one in the Affordable Care Act (how misnamed) that makes it illegal for tax professionals to suggest that their clients not take all the deductions to which they are entitled because it affects the eligibility for tax credits and subsidies…that’s right if you make too little you have to pay your tax credit back. If your Modified Adjusted Gross Income goes below the Federal Poverty Level ($23,550 for a family of four) the Federal government wants the State government to take care of you. If you create a set of rules…don’t make explaining the rules illegal.
Labor: If someone taking 100% of the fruits of your labor is slavery…at what point does taxation become fractional slavery. Don’t get me wrong, I have no issue with reasonable taxation but ‘reasonable’ has a different meaning to a New England ‘liberal’ or Hollywood mogul than it does to the libertarian minded. There has always been a black market for labor but I’ve noticed a marked increase in recent years as the economy has tanked and taxation has increased. Black Market labor manifests itself through a number of mechanisms including cash payments, ‘casual labor,’ off the books side jobs, illegal ‘subcontractor’ arrangements and the hiring of illegal immigrants. The largest increase I’ve seen in black market labor is among those receiving Social Security disability. The ‘disabled’ find cash jobs, often for short time periods, to supplement their government benefits and there is no reasonable mechanism for them to report such income without endangering their overall benefits status. That said, I’ve actually tried to hire the Social Security ‘disabled’ to perform jobs that were within their capability but have always been refused either because of their sense of entitlement or the logic of making half to three/fourths the income without work or taxation trumps showing up, having a boss and rolling up your sleeves.
Prohibition has NEVER worked and if you try to regulate human activity through mechanisms such as prohibition, excessive regulation and even some licensure schemes all you end up with is powerful bootleggers, increased corruption (both public and private) and the potential for gang violence to secure distribution territories. There’s another group that gathers tremendous power out of prohibition and regulation schemes as well and that’s governments, By identifying a ‘problem’ and solving it with a prohibition our political elites get to create a mechanism to ‘police’ the violators….and you can’t have a ‘war on drugs’ without a tremendous amount of tax dollars diverted into prosecuting that ‘war.’
I propose to you that we can eliminate the majority of the black market activity if we limit regulation, reduce taxation and remove prohibitions on ‘crimes’ that are primarily issues of self harm. What other black markets do our governments unnecessarily create?