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Otherwise legal off-the-books economic activity is on the rise again in much of the world, says a new report, with the "shadow economy" comprising huge chunks of many nation's economies. There's no need for speculation as to why, say the authors. High taxes and stringent regulations have made it very attractive and even necessary for people to earn their keep and conduct their business out of sight of tax collectors and bureaucrats. Not surprisingly, the report recommends tax reduction and deregulation as keys to getting people back into the official economy where they can contribute to governmental coffers, and (more important, I would say) also have access to insurance, courts and the various benefits of operating in the open.

In the foreword to The Shadow Economy, published today by Britain's Institute of Economic Affairs, IEA's Editorial and Programe Director, Philip Booth writes:

As this monograph – written by two of the world’s leading figures in this area – shows, the level of tax is one of the major drivers of shadow economic activity. If governments keep tax rates low, the shadow economy is likely to be smaller. Furthermore, if tax rates are low and the shadow economy smaller, then it is more likely that citizens will think that the tax system is ‘fair’. This, in turn, raises ‘tax morale’ and puts further downward pressure on the shadow economy.

Authors Friedrich Schneider, of the Johannes Kepler University of Linz, Austria, and Colin Williams, of the Inter-disciplinary Centre of the Social Sciences (ICOSS) at the University of Sheffield, are both recognized authorities on underground economies. Schneider, in particular, is a go-to authority when it comes to measuring shadow economies around the world. He pretty much sets the standard for measuring economic activity that would be legal if it was taxed and regulated, but which has gone underground for reasons that always include high taxes and strangling red tape.

In recent years, Schneider and other authorities had found shadow economic activity decreasing in many countries, possibly because many countries lowered taxes and loosened regulations. That trend appears to have "stalled or even reversed after 2007." As a result, according to current figures, says the report, "[a] shadow economy of around 9–12 per cent of total economic activity is not untypical for Anglo-Saxon countries, and levels of 20–30 per cent are common in southern Europe."

Why is this?

The main drivers of the shadow economy are (in order): tax and social security burdens, tax morale, the quality of state institutions and labour market regulation. A reduction in the tax burden is therefore likely to lead to a reduction in the size of the shadow economy. Indeed, a virtuous circle can be created of lower tax rates, less shadow work, higher tax morale, a higher tax take and the opportunity for lower rates. Of course, a vicious circle in the other direction can also be created.

The temptation for many governments (a hint here for American politicians) is to turn to enforcement as a means for bringing economic activity back under state control where it can be taxed. That's a really bad idea, says the report.

Policies focused on deterrence are not likely to be especially successful when tackling the shadow economy. The shadow economy is pervasive and made up of a huge number of small and highly dispersed transactions. We should also be wary about trying to stamp out the shadow economy as we may stamp out the entrepreneurship and business formation that goes with it.

Instead of the stick, the authors recommend the carrot. Specifically, they suggest making it simple and attractive for off-the-books operators to get on the books without penalty.

There are, however, huge potential benefits from allowing the self-employed and small businesses to formalise their arrangements. Businesses cannot flourish if they remain in the shadow economy. They might be reluctant to formalise, however, if it involves admitting to past indiscretions. Worthwhile policies include: reducing business compliance regulation; amnesties; providing limited tax shelters for small-scale informal activity such as the provision of interest-bearing loans to relatives and friends; and allowing businesses to formalise using simple ‘off the shelf’ models. Such policies have been successful in other countries – and to a limited extent in the UK – with high benefit-to-cost ratios.

Of course, they point out, this only works if formal status is attractive — that is, if taxes are lowered and regulations eased so that the aboveground economy is actually a better place in which to do business than the shadow economy.

While the United States has traditionally had a proportionally small shadow economy when compared to other countries, American economists and pundits have recently noted that it seems to be growing by leaps and bounds, with tax compliance dropping and the gap between the income Americans are thought to have earned and what they're reporting now adding up to two trillion dollars. That may well be because the U.S. is acquiring a European-sized government and stiffer regulations.

If the U.S. adopts the taxes and regulations of other over-governed countries, we get their shadow economies, too. Surprise.

Chicago officials are opening their checkbooks in an effort to get rid of a controversy over a brutal police beating of two brothers. Why? Because the whole thing was caught on video and posted to YouTube for the world to see. That makes the situation impossible to ignore and very difficult to explain away. As we worry, rightly, over the growing surveillance state, it's worth remembering that cameras work both ways — observing the public, but also the state's enforcers.

From NBC Chicago:

City officials are attempting to settle the case of a store clerk beaten on tape by Chicago Police officers in 2011.

A city finance committee recommended a $156,000 settlement in the civil case brought by two brothers alleging pain and suffering. The recommendation will be voted on by the full City Council on Wednesday.

Michael Ayala, who was 23 at the time, was closing up 7911 Food and Liquor Store in the 4800 block of South Archer when he was beaten by officers. The surveillance video was later posted on Youtube.com.

Ayala said he was punched in the ribs and kicked by the officers to the point of blacking out.

Ayala says he was closing the store early while his 18-year-old brother waited outside on his bike. He noticed officers handcuffing his younger brother on the hood of a car, and when he went outside to clear up the matter, police let the teen go. But after Ayala yelled that he had videotape of the incident, he says a ssergeant "flipped" and put his head into a side window.

A 2011 news report makes it clear that the beating of the older brother was initiated after he intervened on behalf of his brother and told a police officer, "I got you on camera, and I’m not going to let this go." In response, a police sergeant slammed his head against a store window so hard that it "was left cracked in a spider web pattern."

Note that the police officers in the video, posted below, knew they were being recorded. This is how they behave when they're aware that cameras are pointed at them. Then again, none of them appear to have been disciplined after an Independent Police Review Authority investigatiion.

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Via Instapundit and Judicial Watch comes this troubling article in Tennessee's The Tullahoma News about an upcoming conference entitled "Public Disclosure in a Diverse Society," in which Kenneth Moore, special agent in charge of the FBI's Knoxville Division, and Bill Killian, U.S. attorney for the Eastern District of Tennessee, will warn citizens about the criminal dangers of Facebooking hate speech. Excerpt:

Killian and Moore will provide input on how civil rights can be violated by those who post inflammatory documents targeted at Muslims on social media.

"This is an educational effort with civil rights laws as they play into freedom of religion and exercising freedom of religion," Killian told The News Monday. "This is also to inform the public what federal laws are in effect and what the consequences are." [...]

Killian said Internet postings that violate civil rights are subject to federal jurisdiction.

"That's what everybody needs to understand," he said.

Killian said slide show presentations will be made.

I sincerely hope they make that Power Point public, since I'm unaware of any federal civil rights prosecutions for "inflammatory" Facebook postings, and want to keep up to speed with the Obama administration's increasingly brazen encroachment on free expression.

Reason on free speech and Islam here.

Interesting video that went up on YouTube a couple of days ago (the date of the incident uncertain) of two pamphleteers handing out "End the Fed" flyers near the Liberty Bell---Oh the irony!--who are handcuffed on the ground and eventually ticketed by park police. Their flyers were also taken by the park police.

According to the female of the pair of pampheteers, the ticket was for "interfering with agency function" and "failure to obtain a permit." 

My 2009 Reason feature on the "End the Fed" movement.

The full video, in which the videographer does a great job being a consistent thorn in the side of the huge pack of park police, and a bystander wonders what sort of lesson in liberty is being taught to her son, there by the Liberty Bell:

Since November, more than a thousand Bangladeshi garment workers have perished in two tragic factory calamities: a fire in Tazreen and a building collapse in Savar, outside the capital, Dhaka. Bangladesh is a major exporter of apparel to the West and “is set to become the world’s largest apparel exporter over the next few years,” the Economist reports. Wages are lower there than most places, including China, and a large percentage of the 4 million garment workers are women.

Are dangerous factories the price of progress? A passionate debate now rages over whether international safety standards should be enforced against manufacturers in the developing world and their Western retailers. Proponents of standards argue that the costs would be small and the benefits great. An Accord on Fire and Building Safety has been signed by major retailers in Europe and a few in North America, but the Huffington Post says that 14 other North American retailers have refused to endorse it.  “Some retailers, like Walmart, claim they are working on separate initiatives to improve conditions and workplace safety in Bangladesh,” the online publication states, but this claim has been met with skepticism.

Opponents of government regulation argue that artificially raising the costs of manufacturing in poor countries would harm intended beneficiaries by destroying jobs. If so, workers would face worse options, including life on the streets and prostitution.

Unfortunately, the debate is unnecessarily narrow. What needs discussing — and radical changing — is the country’s political-economic system, which benefits elites while keeping the mass of people down. The economists are correct that under the status quo, imposing safety standards would raise costs, cause unemployment, and aggravate poverty. But we can’t leave the matter there. We must go on to examine how the political-economic system constricts people’s employment opportunities, including self-employment, and otherwise stifles their efforts to improve their lives. Thus, a debate over whether garment factories should be subject to safety regulations, while the status quo goes largely undisturbed, misses the point.

According to a report (PDF) written for the Netherlands ministry of foreign affairs, most Bangladeshis, unsurprisingly, are victimized by a land system that has long benefited the rural and urban elites. “Land-grabbing of both rural and urban land by domestic actors is a problem in Bangladesh,” the report states.

Wealthy and influential people have encroached on public lands…, often with help of officials in land-administration and management departments. Among other examples, hundreds of housing companies in urban areas have started to demarcate their project area using pillars and signboard before receiving titles. They use local musclemen with guns and occupy local administrations, including the police. Most of the time, land owners feel obliged to sell their productive resources to the companies at a price inferior to market value. Civil servants within the government support these companies and receive some plot of land in exchange.

Women suffer most because of the patriarchy supported by the political system. “Women in Bangladesh rarely have equal property rights and rarely hold title to land,” the report notes. “Social and customary practices effectively exclude women from direct access to land.”

As a result,

Many of the rural poor in Bangladesh are landless, have only small plots of land, are depending on tenancy, or sharecropping. Moreover, tenure insecurity is high due to outdated and unfair laws and policies…. These growing rural inequalities and instability also generate migration to towns, increasing the rates of urban poverty.

Much as in Britain after the Enclosures, urban migration swells the ranks of workers, allowing employers to take advantage of them. Since Bangladesh does not have a free-market economy, starting a business is mired in regulatory red tape — and worse, such as “intellectual property” law — that benefit the elite while stifling the chance for poor individuals to find alternatives to factory work. (The owner of the Savar factory, Mohammed Sohel Rana, got rich in a system where, the Guardian writes, “politics and business are closely connected, corruption is rife, and the gap between rich and poor continues to grow.”) Moreover, until the factory collapse, garment workers could not organize without employer permission.

Crony capitalism deprives Bangladeshis of property rights, freedom of exchange, and therefore work options. The people need neither the corporatist status quo nor Western condescension. They need radical land reform and freed markets.

This article originally appeared at FFF.org 

As the jury sat in deliberation around 9 p.m. Friday, dairy farmer Vernon Hershberger stood in a prayer circle with his family, holding hands in a room just downstairs from where he’d hear the verdict of the case against him – in a trial the state insisted was definitely not about raw milk.

After five days of testimony, the jury took four hours to find Hershberger not guilty of three misdemeanor licensing charges and guilty of one misdemeanor violation of a state Department of Agriculture Trade and Consumer Protection hold order. Judge Guy Reynolds said sentencing would occur at a later date. Hershberger faces up to a year in jail and a $10,000 fine.

Still, Hershberger walked out of the Sauk County Courthouse beaming and was greeted by a congregation of family and supporters who cheered when he stepped outside. It’s been a long three years, he said.

“I’m excited to get home on the farm and be a farmer again,” Hershberger, 41, told Wisconsin Reporter on the steps in front of the courthouse. “There’s a lot of farmers hurting out there. They need something like this.”

The state accused Hershberger of not having a license from Department of Agriculture, Trade and Consumer Protection to operate a retail food establishment, a dairy plant or to operate as a dairy producer. It also said Hershberger violated a holding order when he broke DATCP-placed seals on the food in his pantry after a raid.

But Hershberger and his many supporters saw the agency’s actions as government abuse and an assault on the right to consume the food of one’s choosing – in this case, raw milk – a phrase that the judge in the case ordered off limits during the trial.

“This is one of the most abusive, most incomprehensible uses of government power I’ve ever seen,” said Hershberger’s attorney Glenn Reynolds. He said the case was a “pathetic use” of state resources and the prosecution of it was “words put together without substance.”

Reynold’s blasted the “schizophrenic” ag and trade agency and the “abusive” state in his nearly 40-minute closing arguments.

The issue, according to the defense, was not compliance; it was an assault on the freedom to choose and freedom of association. Reynolds dismissed the state’s attempt to tag Hershberger a criminal as “Orwellian newspeak.”

“You saw the video of the Hershberger’s two boys watching with shocked faces as Cathy Anderson (of DATCP) steps back from bulk tank, and boom, throws in blue dye and ruins 2,000 pounds of milk,” Reynolds said.

Hershberger testified that DATCP led him to the milk room, to what he thought was an inspection of his cows. Instead they dumped blue dye in the raw milk in his bulk tank to make sure it wouldn’t be consumed.

Reynolds asked the jury to “vote your conscience and send Mr. Hershberger back to his family an innocent man.”

The jury, for the most part agreed with Reynolds, although the guilty verdict for breaking the DATCP seals carries a jail sentence. Still, Reynolds said the verdict was a “great victory” for Hershberger and for other farmers.

The state tried to convince the jury that Hershberger might be a nice guy, but he broke the law.

“Did he have a retail food establishment license? No….Did he operate as a retail food establishment, dairy producer, or a dairy plant? Yes, on all three,” said Eric Defort, assistant attorney general.

“There was a price list. And there was a cash register. There was a credit card machine. There was a sticker on the door that said we take Visa, Mastercard, Discover,” he said. “This is a place that you go and purchase things at. That’s why it comes as no surprise that even Mr. Hershberger has referred to it as a farm store, because you buy things at a store.”

DeFort argued the token $35 annual fee charged to milk club members and the lease agreements they signed were just a ruse and didn’t constitute ownership in the farm, which would otherwise exempt Hershberger from needing a retail food license. He said for just $265 a year, Hershberger could have purchased a retail food establishment license from DATCP.

He didn’t mention that in doing so, Hershberger could not provide raw milk to members. Nobody really mentioned raw milk. No one was allowed to talk about raw milk or the health benefits sworn by its consumers.

“I didn’t know what to say that it wouldn’t get shut down,” said Hershberger. He said his time on the stand was frustrating as the state repeatedly objected to the defense’s questions or the answers he gave.

Both Vernon and Erma Hershberger took the stand on Friday. Hershberger’s wife, 10 kids and dozens of his food club members crowded the small courtroom’s benches.

Vernon was emotional recalling the years-old conflict with the ag department.

DATCP sent a cease and desist order in 2007 after Hershberger let his dairy license lapse.

The agency made its first visit to the farm in August 2009 and another one in June 2010. DATCP sealed off his freezers and the food on the shelves, ordering the Hershbergers not to remove it. A week later, DATCP officials came back to check on the seals and Hershberger denied an inspection.

Hershberger testified that after seeing what DATCP did to his milk, he violated the hold order “to protect the food and feed the families and children.”

This article originally appeared at Watchdog.org.

For some 200 years, people have chased a large rolling cheese down a steep hill each year in Gloucestershire, England. And for the past 25 years, Diana Smith, 86, has made the cheese wheel they chase. But Smith says she won't make the cheese this year, after getting threatened by police. Three officers showed up at her home and warned her the event was dangerous and she would be held liable for any injuries suffered by those taking part in the chase.

In 2011, the Food and Drug Agency released proposed guidelines for the regulation of mobile medical apps—health programs for devices like the iPad and iPhone. At the time, there were about 200 million such apps in use, but the FDA said its rules would only pertain to a small segment of the market: apps that, say, controlled blood pressure cuffs or insulin pumps, or that were intended to be used to make clinical decision.

Two years later, those rules still aren’t finalized. But the agency has begun questioning one medical app maker. Via Bloomberg News:

An iPhone application that lets users check levels of blood, protein and other substances in their urine is the first target of U.S. regulators seeking boundaries in a burgeoning industry for medical diagnosis on-the-go.

Biosense Technologies Private Ltd.’s uChek system isn’t cleared by the Food and Drug Administration and the agency said it wants to know why not, in a first-of-its-kind letter to a maker of a mobile-device application. The app relies on users, such as diabetics checking their glucose, to dip test strips in urine and use the smartphone’s camera to allow the system to processes and generate automated results.

One of the big worries with this sort of target was that it could stifle innovation. App makers are going to be less inclined to build medical apps if they’re also going to have to deal with a lot of burdensome FDA compliance issues. And uChek, the app in question, seems like it has the potential to be a fairly innovative and useful tool for a lot of people. Basically, the app lets users perform a urinalysis at home. Mashable explained how the app works, and the problems it solves, after Biosense’s founder introduced the tech at a TED talk last February:

There are a couple of problems with those commercially available [urinalysis] test strips: They're hard for you to examine on your own, and they consist of 10 confusingly colored pads that intentionally change color a couple of times after you dip them in urine.

What's more, to get a proper read on them, doctors and hospitals have to buy one of six expensive urine-analysis machines — all of which are incompatible with anything but their own brand of urine strips.

Uchek reads the color of those strips the way other apps read barcodes or QR codes. The app asks you to take a couple of shots of the strips at intervals of a few minutes. It then delivers the chemical composition of your pee, what that means, and how it is changing over time.

So, it’s an app that provides valuable health status information, without leaving home, and without an expensive medical professional or expensive medical equipment. This seems like the sort of beneficial, efficient health care innovation that we would generally want to encourage. But adding a new layer of FDA regulation is likely to have the opposite effect. 

Earlier today, I posted, via Mediaite, a Daily Show segment with Wayne Allyn Root, the one-time Libertarian Party office-seeker, best-selling author, and gambling/investment guru (his website is here). During the bit, Root complains against IRS profiling of anti-government taxpayers and groups but speaks in favor of profiling of certain racial, ethnic, and religious groups. It's a classic Daily Show set-up, in which the interviewer ends up looking pretty bad, though in a humorous way. I can't imagine any subject wouldn't know that's going to happen going in.

You can read that post and watch the video here.

I just received the following email from Root, which I'm happy to publish in its entirety:

I'm really surprised at you Nick.

I do over 1000 interviews annually.

 The reason most hosts have me back again and again is I give great interview...and their audience loves me.

Only once in the past year has media literally committed fraud...The Daily Show.

That was a TWO HOUR interview in a broiling hot room...with bright lights hitting me in the face...

with Daily Show doing same questions over and over again...asking me to re-start my answers...or to answer slightly different...

Obviously so they could take 1 answer completely out of context...and use smiles and nods from different questions completely out of context...

That's by any definition fraud.

I wasn't there to discuss profiling. I was there only to discuss the IRS scandal. After two hours in that hot room they suddenly brought up profiling by police...

And you NEVER saw my answers, now did you?

Because I gave very fine answers...they didn't want you to hear that.

Nor did you hear me converse with the 3 guests of Muslim, African American, or Hispanic origin they brought on the show, did you?

We agreed on 90% of our discussion.

They committed FRAUD by only using the sentence or two they wanted to.

Then they left out the most important part...where they asked the Muslim woman how to resolve these difficult issues...

And she said..."I like what Wayne Root says. I think we should elect him and give him a chance to solve these problems."

After 30 minutes of discourse...a Muslim female agreed with most of what I believe and boldly supported me on camera...

And it was never shown.

Would you call that fraud? Staging? Media hypocrisy? Whatever words you'd choose...it's wrong.

My interview was a very good interview...until it turned out they only had me there to interogate me for 2 hours and use 30 seconds to stage the responses they wanted (ewith multiple takes)...and edit all of it out of context.

And you fell for it? You've obviously never had that done to you.

If you had, you'd be sick and angry.

Feel free to print my response.

I do 1000 to 1200 interviews per year...and you decide to only skewer me with ONE...and that one is a staged set-up. You wonder why the public sees the media more negatively than even politicians.

And here's a follow-up email from Root:

You might also mention the worst part of this "journalism"...where in the interview did I state I support profiling? I didn't. I stated loudly on multiple occasions in the interview that I do not support profiling based on race, religion, or any other genetic criteria. I do support Israel's system at airports...which has resulted in no successful terrorist attack EVER on an El Al airplane. America should be looking at that system and adopt the best and most realistic parts.

Israel's system is NOT based on race, but rather knowledge of terrorist's "tells." Israel has stated on many occasions that they do not profile Muslim men, as an example, because if they did a Norwegian blonde woman would be used. They look at everyone and try to analyze everything from blinking eyes to tapping feet to sweating...that might indicate a person is overly nervous. As an example they stopped my daughter on her way back from a visit to Israel last year and pulled her out of the line and asked her many questions. She is white, Jewish and American. But if she is to fly safely that is the price to pay. That is not "profiling" nor is it in any way wrong.

I stated that at least a dozen times in the interview...and told the Muslim woman sitting opposite me that I do not support her being stopped "for being Muslim" nor do I accept African Americans being stopped for DWB (Driving While Black). They should only be stopped if the police notices they are exhibiting strange actions- and that goes for me or anyone else. The color of their skin should not enter into it.

So explain to me why none of that appeared in the interview? Because those answers did notr fit the agenda of The Daily Show.

How about the when the interviewer asked the 3 guests for their opinion of me...and all 3 said something nice. The director said, "Cut. C'mon guys. This is supposed to be funny. Please say something funny or negative about Wayne. Like 'rich white guy" or "Fox News guy."

And then they turned the camera back on...and each guest said something negative about me.

And I protested. They must have realized they could not use that...because I witnessed it being staged, so they never used that.

Now do you understand the fraud and corruption of the media?

They don't report the news...they try to MAKE it, no matter who they hurt.

And when it was over...everyone from producer to reporter said what a good sport I was and I'm the only conservative willing to come on the show.

Well now we know why.

I never turn down media. I say YES to all of the invitations. I walk into the lion's den again and again. That takes great courage and chutzpah. Well I won't be saying yes to Daily Show ever again. They burned this bridge.

Here's an interview Matt Welch did with Wayne Allyn Root for Reason TV at the 2009 Freedom Fest (note: Root left the LP in 2012).

A sadly morality-free tale from the June issue of Wired called "Drugstore Cowboy" about how the federal government helped get someone demonstrably out to cheat and harm other people out of jail quicker by supporting him on a complicated multi-month program trying to entrap some helpful people at Google into doing what Google does--selling ads and helping its customers.

Alas for Google, this help ended up cosing the company half a billion bucks paid over to the federal government because the customer they were helping was apparently helping Americans buy drugs and medicines from overseas that the government has decided we can't buy unless a member of a protected guild (a "licensed physician") waves his magic pen over a piece of paper on our behalf.

It's a sordid and terrible tale, told well enough, but without the moral dudgeon--against the Feds and for Google--that it deserves. In fact, the reporter Jake Pearson even seems to think we should be upset about Google over this.

We shouldn't be. The federal government's behavior over this was gross, and that it cost Google that insane amount of money is a crime. That the whole procedure involved helping out a guy with a career of trying to defraud people at the expense of a company that has done an enormous amount at no cost to all of us to make our lives better makes it even more disgusting.

Followup on the "raw milk" prosecution against Wisconsin farmer Vernon Hershberger I blogged about last week from the Daily Isthmus:

every time the words "raw milk" are about to come up during the proceedings, the jury is ushered out of the room. It happened Monday morning and again Tuesday afternoon.

It would be funny if conviction for Hershberger didn't mean jail time -- for a father of ten children....

The state is arguing that Hershberger violated the law by selling milk (raw) while he was not licensed. But here's the problem: licensing requires that milk producers sell to a licensed processing plant. If you don't sell to a plant, you aren't licensed. At issue is not the fact that Hershberger failed to obtain a license, but that he cannot get a license, period, to sell milk because he was no longer shipping to a plant. Instead, he was attempting to sell raw milk directly to buyers or buying club "members" who had purchased shares in cows. But no one is allowed to say that.

Judge Reynolds ruled in the prosecution's favor before the trial started that there will be no discussion of whether Hershberger had criminal intent in not obtaining a license, no discussion of the safety of raw milk and no discussion even of why his farm was raided in 2010.......

A telling moment during Tuesday's testimony was when Teresa Butterworth, witness for the prosecution and employee of DATCP's Bureau of Food Safety & Inspection whose responsibility it is to license and maintain dairy farm records, could not tell the defense what dairy plants do. Lead defense attorney Glenn Reynolds (no relation to the judge): "What do dairy plants do?" Butterworth: "I don’t know." Later she stated: "I just process the paperwork."

By circumscribing so narrowly the rules of engagement before the trial even began -- despite the defense attorneys' best efforts -- the state is counting on the jury to also just process the paperwork.

The Madison Capital Times reports on the mass public support for Hershberger.