Arrangement in Grey and Black: Whistler’s Economy

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"Make big money working from home! Or you can come in regularly and we'll pretend that we don't have to pay your Worker's Comp and our share of SSDI and Medicare! What could go wrong?"

Every once in a while, I get a story idea from someplace like TIME magazine, and everyone once in a long while, they get a story idea from CNBC’s fizzling Mento-in-a-Coke-bottle-with-a-couple-of-holes-in-it Jim Kramer, and everyone once in a long while one of those ideas are worth broader note and discussion, and we have come to one of those improbable days.

Apparently business writers have started to understand the previously quiet idea that after a long bout of economic troubles, people give up on seeking a proper job through the normal economy, and therefore not appearing on the unemployment rolls.  (Why do they only figure out that unemployment is understated when a Democrat is in the White House?  It’s not like this wasn’t happening a whole lot under the previous administration.  Oh, well: it’s still true, it’s just not new.)

So: hat tip to Massimo Calabresi at TIME’s Swampland for the following link to Kramer’s recent musings:

I’ve been talking about the squatter economy. People in their homes for 600 days, they haven’t paid. Those are people who can go to the mall, all right. Not paying your mortgage, get a lot of money away from that. Off the books income, staggering. Because if you’re an employer and you really do not want to pay all those taxes… the pressure to not pay your employees on the book is remarkable. There are a lot of people I know who are doing it.

Note that that’s two different ideas.  First, people are just thumbing their noses at banks and refusing to pay, living on the boon of retaining their would-be mortgage payments.  Second, more and more people are earning income by working off of the books — and while that’s not new qualitatively, in may be new in quantity.  Calabresi himself then continues with this fine analysis:

This would make sense. Gray markets benefit employers and employees in the short term, as neither has to pay taxes. In the long term, these results are damaging, as state and national budgets, labor protections and general social cohesion get hurt. You see that most prominently nowadays in Greece, which had about one third of its economy off the books and which after 40 years of everyone cheating the greater public interest now has no reservoir of trust to fall back on in its moment of great crisis.

But even if Kramer is correct and some U.S. small businesses and unemployed workers are moving off books to get by, the U.S. is not even close to facing the traditional European gray market problems. Americans still believe in paying their taxes: 87% surveyed in 2010 said it was never acceptable to cheat on your income taxes, near its highest level, according to an IRS oversight board’s poll. And a little expansion in the gray market is stimulative.

Still, the shadow of the unresolved crisis in Europe continues to hang over the U.S. recovery. If the E.U. fails next Friday to deliver on hints of tighter integration of fiscal and monetary controls, the markets will tank, and rates for borrowing for European banks will spike, increasing the likelihood of a major bank failure. That could become the “Lehman Event” triggering another global credit crisis and potential recessions worldwide.

The gloom and doom over economic prospects is just a bonus to keep everyone here informed.  But what about the first part of that analysis, the one that compares and contrasts us to Greece?  (And kudos again to Calabresi for noting that the gray economy is not a problem that gets solved by austerity, but that becomes necessary due to austerity!)

So — an arrangement in gray to keep people in the black, eh?  How appropriate that the artist’s mother in the painting I’ve abused above is named Whistler — evoking everyone whistling nonchalantly as people break the law (including minimum wage laws), whistling in astonishment as the unemployment rate falls (as the labor pool shrinks), and whistling in the dark as we think that this means our economic problems are being fixed.

Here’s the cool thing about an underground economy — if you’re a plaintiff’s employment lawyer, like me.  It’s really illegal.  And employers who do really illegal things to their employees can get really serious consequences.   The  part of that illegality that jumps out at one first is that if an employer has a regular employee coming in to work for them, they are supposed to pay Worker’s Comp.  So, if there’s an on-the-job accident — well, hello, expensive legal system!  Then we can talk about cheating Social Security and Medicare, about trying to evade minimum wage laws — honestly, it’s all intoxicating for someone in my line of work!  Off-the-books is on the hook!

I know that a lot of people these days — including, ahem, some of those who take very seriously the requirement that people not camp out on public parkland without permission — think that all of the above laws and requirements are simply advisory or something, and that breaking them is some sort of blow for freedom.  Well, guess what!  The scythe of “law and order” cuts both ways!  Those laws — including those minimum wage laws — are serious and significant laws.  They are currently in place.  And if employers think that they can get a competitive advantage by breaking them — well, if this is the great new trend in our economy, I look forward to meeting many of them some day from the other side of a conference table, plaintiff in tow.

It’s the law, people!  What does that mean to you?  I guess we’re going to find out.  (Should I bring pepper spray?)