Letter to the Senator
Dear Sherrod Brown
I am writing in regard to the black market economy in the country, which is characterized by the sale of contraband, hard drugs, and other illegal activities such as gambling and prostitution. The underground economy makes unprotected and unreported transactions that are never included when measuring the Gross Domestic Product (GDP). In the long run, the activities do not help much in the improvement of the economy since the government does not earn taxes (Boyd, Levine & Smith, 2001). It is, therefore, imperative to eliminate these underground activities to improve the GDP of the country.
To curb this menace, the government should regulate the taxes it imposes on individuals. Alternatively, the government can reduce tax. High taxation by the government makes individuals resort to the underground economy for survival. Since black market products are not taxed, they are cheaper than regular products and therefore their prices are attractive to consumers. As a result, much money is transacted and never reported to the government (Dallago, 1990). This can affect the GDP largely because a huge part of the population now relies on the black market to access affordable items. Additionally, Low-income individuals should have tax incentives. This will encourage them to move to the formal system, consequently reducing the underground activities. It is thus, upon the government to take control of this matter and deliberate on ways to regulate the taxes in order to reduce the amount of underground economic activity.
The high rate of inflation is also a major contributor to the rise of numerous underground activity in the country. Since March 2012, the inflation rate has increased significantly. Furthermore, in January 2017, there was 2.5 percent increase in inflation. High inflation in consumer products is a major threat to the GDP since citizens get the products in black markets with ease. The products are also cheaper compared to purchasing products in the formal markets.
Therefore, it is my humble that the government should regulate the prices of commodities. By doing this, the country’s Gross Domestic Product will improve since citizens will prefer a more formal way of purchasing their products. Moreover, a major decrease in underground economic activities will be witnessed if the inflation rate is reduced.
Most significantly, the issue of gangs and organized crimes in the US is another concern because it is one of the largest underground economic activities in the country. These gangs are mostly associated with the sale of illegal weapons and drugs. Millions of dollars are transacted in the illegal weapon trade. Proceeds from this illegal business mostly go to cartels. As a result, the money obtained via such transactions does not improve the country’s overall GDP. Rather, the money poses a great threat to the economy as it encourages crime, which is a major demeanor (Dallago, 1990).
The government should, therefore, take action and fight these cartels, and in the process, seize their property and illegal cash and put it to better use in the improvement of the economy. This is because the underground activities have inimical effects to the economy as highlighted above. It is my sincere hope that these factors will be considered in the fight against underground activities for the improvement of our economy.
Boyd, J. H., Levine, R., & Smith, B. D. (2001). The impact of inflation on financial sector performance. Journal of monetary Economics, 47(2), 221-248.
Dallago, B. (1990). The irregular economy: the” underground” economy and the” black” labour market. Dartmouth Pub Co.