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Tuesday, July 3, 2007

The Five Levels of the Economy

I read an interesting article. It said that the economy had five distinct levels: red, pink, white, grey, and black. The red market is the market of legal overt violence, value destruction, and wealth confiscation. The pink market is the market of government-endorsed monopolies and oligopolies of useful services. The white market is legal productive activity. The grey market is activity that would otherwise be legal, conducted off the books. The black market is forbidden activity.

The red market is the market of legal overt violence, value destruction, and wealth confiscation. Wealth can be destroyed directly though violence, or indirectly through waste. Wealth can be confiscated via taxation, regulation, inflation/deflation, the Compound Interest Paradox, and other financial tricks. The red market includes government, judges, lawyers, police, accountants, tax collectors, education, the financial industry, the military industry, and the pharmaceutical industry. Most of these industries are incredibly profitable, and its practitioners are very well paid. The hallmark of a red market participant is someone who does not create wealth, and leeches or destroys the wealth of others.

The pink market is the market of government-endorsed monopolies and oligopolies. Pink market products are useful but expensive. These industries are subject to extensive regulation and have their market position backed up by government force. The pink market includes transportation, energy, telecommunications, television, radio, entertainment, and doctors. These industries actually provide useful services. However, their monopoly/oligopoly position makes them very inefficient. Prices are far higher than they would be in a free market.

Extensive regulation moves industries from the white market to the pink market. The defects in the financial system, taxation system, and government regulations favor large corporations over small ones. Large corporations have an advantage over small businesses because the cost of regulation compliance is typically fixed. Large corporations have an advantage due to government-subsidized artificially low interest rates.

The white market is the market of value creation. This is where most of the productive wealth of society is created. The red market could not exist if it didn't leech off the white market. The white market includes engineering, manufacturing, construction, agriculture, and food service. A lot of white market activities are leaving the USA, especially manufacturing and engineering. Construction, agriculture, and food service cannot be effectively outsourced. Government subsidies and regulations make construction and agriculture almost in the pink market. The workers in this area make a decent living, but not as great as the red and pink market practitioners.

I'm actually kind of disturbed. When I tried to make a list of white market jobs, the list was surprisingly small.

The grey market is activity that would be otherwise legal, but conducted off the books. For example, you hire someone to mow your lawn, pay them in cash, and they don't report it as income. Another example is hiring illegal immigrants. Most grey market activity is unskilled, low-paid labor. By avoiding taxation, the effective income of grey market laborers is raised. For example, some poor people can work in the grey market and collect welfare at the same time. Grey market activity tries to avoid detection by the government. Since these activities are otherwise legal, they don't draw much attention. Someone mowing your lawn is not, by itself, suspicious.

The black market is activity that is illegal. This includes drugs, prostitution, and illegal gambling. Any non-government-sanctioned violence is also black market, such as a gangster-directed assassination. Like the grey market, the black market benefits from avoiding taxation and regulation. However, they're the direct targets of a lot of the red market. Perversely, the red market likes having a sizable black market, because fighting the black market lets the red market increase its size and influence. The red market tells the white market "We need more resources, so we can crush the black market." The laws that prevent money-laundering by black market participants are also used against people attempting to work in the grey market. The black market frequently survives by bribing red market workers into ignoring it. All the red market accomplishes is that it raises prices in the black market. That's greater profit for the black market workers who pay bribes or avoid detection.

The primary distinction between working in the grey market and the black market is the risk level. Grey market activity is much less risky than black market activity. If you grow and sell marijuana, red market enforcers will view possession of marijuana as evidence that you committed a crime. If you hire someone to mow your lawn and pay them off the books, red market enforcers will only find out if the person you hire complains. The person you hire won't complain because he is also benefiting from tax avoidance. In a grey market transaction, both the buyer and seller benefit from avoiding taxes and regulations; prices are lower and wages are higher. It isn't too hard to convince someone that mowing your lawn and paying them off the books is acceptable. It's harder to convince people that growing your own marijuana is no big deal. If you get busted for grey market work, your maximum penalty is probably a fine; the fine may even be smaller than your actual profits. You probably can settle for back taxes owed. If you get busted for black market work, you probably will spend time in jail.

By working in the white market, I'm supporting the red market. Anytime I create something, the red market steals a large percentage through taxation or inflation. The red market enables the pink market to steal part of what I produce via higher prices; their government-endorsed monopolies and oligopolies give them pricing power. What right does the red market have to steal most of what I produce? For example, even if I object to the Iraq war, the very act of working supports the government and its war.

The red market survives because it's convinced the white market that it's on its side, even though it's really the enemy.

A lot of skilled workers choose the red market over the white market. They know that the real power and influence lie with value destruction, not value creation, even though that's never explicitly stated. There are many more opportunities for a smart person to make a fortune in the financial industry or as a lawyer, rather than doing white market work. A lot of red market workers delude themselves into thinking they're performing a useful service. The white market is thus cheated out of a lot of talented workers.

The cost of the red market is not just the wealth its steals. The red market also steals talented workers, who are tricked into performing wealth destruction instead of value creation. The red market says "The smart people are working for us. That's why we're important."

It might be a good idea for value creators to leave the white market for the grey market. Currently, the only grey market labor opportunities are for unskilled labor. If enough workers left the white market for the grey market, it would be possible to make a decent living working in the grey market. However, the red market will resist the creation of a sizable grey market, because that would be wealth they could not easily destroy or leech. An established grey market would have an advantage, because its activities could be concealed as white-market work.

The easiest way to make the transition to grey market work is to do a few hours a week. If everybody who's interested performs a few hours of grey market work per week, eventually there'll be a critical mass. People would be able to work full-time in the grey market. Some people would have simultaneous white-market and grey-market businesses, facilitating operations. For example, your white market business could show a small profit while your grey market business is incredibly profitable. An alternate monetary system needs to be developed, because there are too many government spying capabilities built into the official financial system. Until the red market collapses, grey market workers will still need to acquire dollars to pay certain taxes and for other purchases.

The primary difficulty is that would-be grey market workers have no convenient way to find people to trade with. People might be willing to risk performing grey market work, if it was done in private and they knew their trading parter wouldn't rat them out to the red market. The cost of taxation, inflation, and regulation is so high that there's a tremendous incentive for grey market labor.


TZ said...

Great analysis.
Is this analogy of colours your own making or is this a recognized way of distinguishing economic practices?

FSK said...

I read it somewhere. I forget the source. I think it was on one of the agorist websites.

I did add the color "pink" myself. The other levels: red, white, grey, and black were cited on the other source.

No, this is not considered "standard" economics. According to orthodox economic theory, all of the red market's activities are beneficial. I'm classifying red market activity as pure theft and waste.

By my accounting, most government activities are pure waste and theft. Lawyers, accountants, and bankers provide no useful services. Someone starting a business needs their services only due to structural defects in the economic system.

Also, some people work in multiple categories. A policeman conducting an IRS raid is performing red market work. A policeman helping someone change a flat tire is performing white market work.

thomasblair said...

I read it somewhere. I forget the source. I think it was on one of the agorist websites.

I know of its use by Samuel Konkin in his New Libertarian Manifesto, specifically in his discussions on counter-economics.

Noni Mausa said...

"The pink market is the market of government-endorsed monopolies and oligopolies. Pink market products are useful but expensive. These industries are subject to extensive regulation and have their market position backed up by government force..."

You lost me at "useful but expensive."

I live in a province which has a good representation of pink market services, two of which are the electrical/natural gas power company, and the automobile insurance company.

The power company provides the least expensive and most reliable power in North America. The car insurance company is similarly efficient and economical. Both have been in operation for many decades.

No, we are proof that government utilities can be the best solution for essential services. I would be happy to forward statistics and links on request.

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