How big is the underground economy in Detroit?

[lilpup]

Considering all business transacted in Detroit, legal and illegal, what percentage do you think is underground i.e. illegal activities, cash under the table at otherwise legal businesses, unreported day work, etc.?

[DetroitDad]

Unfortunately, a lot. You even have business to business folks and employers who take people for a ride [[cough, cough).

Wow!

I'm told you also have some underground shenanigans going on as fronts, but I know little about those.

[Retroit]

I doubt there is any illegal activity in Detroit.

[[)

[Homer]

Lets see, besides my carpenter, electrician, plumber, roofer, mmm I couldn't say.

[lilpup]

It's just that I keep hearing about lack of entrepreneurship and such yet it seems to me the city likely has quite a bit, and a fair amount of it pays better than some expect. I sometimes wonder what it would be like if all that ability could surface and become 'legit.'

[Gannon]

This could be the free market forces at work...these entrepreneurial endeavors probably would not work under all the excessive regulation, mandatory insurances, and taxation that has grown to choke off the chances of success.


Playing in the gray/black arena seems the only way to gain enough capital to start anything...then the smart folks plan to make it into some above-board operation as soon as possible. Far as I can tell, every business person in this city has some other operation they'd rather not have in governmental radar range!


Same thing with the multi-national corporations, btw, they have their gray/black economy to evade taxation and all that other stuff, just at a whole greater level than what we see!


It is all the same game now that capitalism is no longer running in protected mode...without the heavy skewing allowed by the previous economic imbalances we are simply now seeing more of it. Government and corporate capitalism grew too fat through a hundred years of cheap oil...and thus our country suffers a similar, nearly ubiquitous obesity!

[gazhekwe]

This isn't a new thing. People have been doing odd jobs for cash money for generations.

[unclefrank]

I keep thinking about the old guy who traps Racoons and Possums and sells them on the street to people who still do real "down home" Southern cooking. The story was in the Detroit News as I recall.

[DetroitDad]

This isn't a new thing. People have been doing odd jobs for cash money for generations.

While until recently, what choice did they have? Even now it is not easy to get started in the capitalist game. In Detroit there were very few popular flea markets and bazaars, few cheap places to rent with good traffic, streamlined business regulations that don't excessively fine you for making minor mistakes, and even a ban on street vending across the metro. Then you have the fact that thanks to unions [[I know, they existed because of predatory businesses that took advantage of employees, but that isn't the point), you can't just get experience by working with professionals for most jobs, but you must pay for college training to get the knowledge. If you can't pay for college, you really had a hard time entering the game.

On top of all this, what you did have was essentially free college or on the job experience by a high number of youths who went to prison, or knew someone who spent time in prison, for illegitimate business. Entrepreneurs will take advantage of the opportunities around them no matter what, so you have to provide a environment that takes that into account, otherwise you get the mess we have now. Cronyism and self serving unions really killed Detroit and caused the spike in illegal business.

PS: Just so everyone knows what exactly I am talking about with the union issue, I copy and pasted this from another forum post;

Peter Schiff is always brilliant but this article should be required reading for the whole nation-IMHO

---

Employment: Minimum Wage, Maximum Stupidity 6 comments
by: Peter Schiff July 12, 2009 | about: DIA / QQQQ / SPY
Peter Schiff

In a free market, demand is always a function of price: the higher the price, the lower the demand. What may surprise most politicians is that these rules apply equally to both prices and wages. When employers evaluate their labor and capital needs, cost is a primary factor. When the cost of hiring low-skilled workers moves higher, jobs are lost. Despite this, minimum wage hikes, like the one set to take effect later this month, are always seen as an act of governmental benevolence. Nothing could be further from the truth.

....

Before bringing on another worker, an employer must be convinced that the added productivity will exceed the added cost [[this includes not just wages, but all payroll taxes and other benefits.) So if an unskilled worker is capable of delivering only $6 per hour of increased productivity, such an individual is legally unemployable with a minimum wage of $7.25 per hour.

Low-skilled workers must compete for employers' dollars with both skilled workers and capital. For example, if a skilled worker can do a job for $14 per hour that two unskilled workers can do for $6.50 per hour each, then it makes economic sense for the employer to go with the unskilled labor. Increase the minimum wage to $7.25 per hour and the unskilled workers are priced out of their jobs. This dynamic is precisely why labor unions are such big supporters of minimum wage laws. Even though none of their members earn the minimum wage, the law helps protect their members from having to compete with lower-skilled workers.

Employers also have the choice of whether to employ people or machines. For example, an employer can hire a receptionist or invest in an automated answering system. The next time you are screaming obscenities into the phone as you try to have a conversation with a computer, you know what to blame for your frustration.

...

As a result, many low-skilled jobs that used to be the first rung on the employment ladder have been priced out of the market. Can you remember the last time an usher showed you to your seat in a dark movie theater? When was the last time someone other than the cashier not only bagged your groceries, but also loaded them into your car? By the way, it won't be long before the cashiers themselves are priced out of the market, replaced by automated scanners, leaving you to bag your purchases with no help whatsoever.

The disappearance of these jobs has broader economic and societal consequences....

So the next time you are pumping your own gas in the rain, do not just think about the teenager who could have been pumping it for you, think about the auto mechanic he could have become – had the minimum wage not denied him a job. Many auto mechanics used to learn their trade while working as pump jockeys. Between fill-ups, checking tire pressure, and washing windows, they would spend a lot of time helping – and learning from – the mechanics.

Because the minimum wage prevents so many young people [[including a disproportionate number of minorities) from getting entry-level jobs, they never develop the skills necessary to command higher paying jobs. As a result, many turn to crime, while others subsist on government aid. Supporters of the minimum wage argue that it is impossible to support a family on the minimum wage. While that is true, it is completely irrelevant, as minimum wage jobs are not designed to support families. In fact, many people earning the minimum wage are themselves supported by their parents.

The way it is supposed to work is that people do not choose to start families until they can earn enough to support them...

The only way to increase wages is to increase worker productivity. If wages could be raised simply by government mandate, we could set the minimum wage at $100 per hour and solve all problems. It should be clear that, at that level, most of the population would lose their jobs, and the remaining labor would be so expensive that prices for goods and services would skyrocket. That's the exact burden the minimum wage places on our poor and low-skilled workers, and ultimately every American consumer.

Since our leaders cannot even grasp this simple economic concept, how can we expect them to deal with the more complicated problems that currently confront us?

Full article at:

http://seekingalpha.com/article/1482...y?source=email

So basically, I'm saying that the above, mixed with a high prison population, on top of politicians who give out jobs and contracts to their friends and penalize their competition, really make it hard for others to even enter the game, which is also partially why it's not always about how hard you work, but who you know.

[Huggybear]

We'd have retail.

It's just that I keep hearing about lack of entrepreneurship and such yet it seems to me the city likely has quite a bit, and a fair amount of it pays better than some expect. I sometimes wonder what it would be like if all that ability could surface and become 'legit.'

[Retroit]

I agree with Gannon, but here is the counter-perspective:



How much do the illegal/unlicensed "businesses" hurt the legitimate ones? If honest businesspeople can't compete with the dishonest ones, what type of businesses will make up the economy of the city and how does this affect the quality of life. If there are no licensed plumbers in your area, what are the honest consumers' options?:

• Get shoddy work done? [possibly, but not necessarily]
• Hire someone from another area?

[sumas]

I'd say its pretty large. My roofer, my mechanic, my handyman all are cash only businesses. I have also subcontracted work out and am pretty sure that income is not reported. Don't forget scrappers and skilled workers who are employed but do side jobs. Drugs sellers are of course doing a brisk business. Barter is also a factor in this underground economy. Short sales of food stamps exists. The lists goes on, even crack heads will provide manual labor for money to get their fix.

[Lorax]

Really a superb thread topic- I recently had work done on my home in Southfield, chimney tuckpointed- basically had all the 58 year old stone facing removed and reset, firebox tuckointed, cleaned, new flue tile, cap, stainless cover, etc. It was only 1000 bucks with a legit company which advertised on Craigslist. Great work, took two days.

As far as underground, the landscapers are usually pretty good, get the grass cut [[1/2) acre for 25 bucks a cut.

I can only say that with wages being driven down by the corporatists to third world levels, lack of a single payer health care system for all, many people are in favor of striking out on their own, which is the logical extention of a broken economy/government. People are resilient and whatever they can do to better their lot in life I'm in favor of.

Anyone willing to open a mom & pop business in these times should be given every opportunity to do so with the least amount of government interference, taxation, etc. Rents need to be logical for retail locations, so landlords instead of sitting on vacant storefronts need to lower the rates, forgive security deposits, etc. The only reason for a vacant storefront anywhere is the price of doing business in a certain area as far as I'm concerned. In Detroit it's the lack of police protection, constant petty crime, taxes, insurance, utility costs, rents, etc.

There isn't a storefront on lower Woodward downtown that should be more than 500/800 bucks a month, regardless of size, due to the cost of doing business in Detroit.

[Gannon]

I argued through the recession of the 80s for my clients to buy the higher retail price on hifi goods instead of them buying from the mail-order houses and camera stores in NYC...where products would OFTEN be priced below what our wholesale cost actually was! [[thanks to the bulk discounts larger operations enjoy, they see another column or two on their price sheets)

It forced me to increase my level of service...leaving the store to install, program, and instruct for my folks' easy use of the gear I recommended. Finally, I left and started my own firm...which went from sales to simply consultation within five years!

Now? With the internet making such price gouging and sales tax evasion commonplace, I really cannot see how any brick-and-mortar operations continue to exist. Indeed, the audio/video universe has seen some powerful failures from both long-established local family operations and national chains.

[devman1983]

Drug dealers operating in the hood are taking in the cash from the burbs as well as the ghetto. The "underground" cash then gets filtered right up into a brand new Cadillac. At least they aren't buying a Toyota or Honda.

Maybe 30% of the economy in Detroit is underground? Isn't that the standard? I think the government sets the taxes for about a 30% underground economy. With higher taxes the underground becomes bigger, and with lower taxes it becomes smaller.

[Stosh]

I argued through the recession of the 80s for my clients to buy the higher retail price on hifi goods instead of them buying from the mail-order houses and camera stores in NYC...where products would OFTEN be priced below what our wholesale cost actually was! [[thanks to the bulk discounts larger operations enjoy, they see another column or two on their price sheets)

It forced me to increase my level of service...leaving the store to install, program, and instruct for my folks' easy use of the gear I recommended. Finally, I left and started my own firm...which went from sales to simply consultation within five years!

Now? With the internet making such price gouging and sales tax evasion commonplace, I really cannot see how any brick-and-mortar operations continue to exist. Indeed, the audio/video universe has seen some powerful failures from both long-established local family operations and national chains.

We are paying the price for that here in the state, with the way Congress allows internet stores to not charge sales tax. Hopefully soon this will be fixed. The retail playing field is heavily tilted to the internet store, maybe changing the tax will help Michigan's bottom line some.

What's obscene is the rate that cities charge their business districts in taxes. That needs to be overhauled if there ever is to be any kind of retail in Michigan. It's been said above that businesses should charge 500-800 a month. I suppose that would be great. I can't for the life of me figure out why building owners keep their leasing rates so high, and keep their buildings empty. Is there a loophole that allows them to write off their losses, as well as taxes? And if it's occupied , it's a different rate?

[michiganmushrooms]

I would say 30% is a pretty low figure. Compared to other cities I have lived in on the east and west coasts there is much more underground economic activity. Drugs alone are probably 30% of the economy, and then you have all the unreported income stuff everyone is talking about, and finally you have theft and resale[[which is huge).

I used to know a couple guys who hung around the corridor who could get you any type of household appliance, tool, a certain CD... all in just a few hours turn around time. This type of thing is common.

[Gannon]

I will never forget stepping into that hubcap shop on Woodward near Boston-Edison fifteen years ago when I lost one...the guy going to all sorts of trouble to insure he 'ordered' the proper one through his midnight auto suppliers.

Fucking hilarious, actually.

I think it ALL is...this is prime example of what happens when government becomes too intrusive and too controlling.






We will mostly do what we are going to do, and every one of us ignores laws that are inconvenient to us!

[Maxine1958]

I argued through the recession of the 80s for my clients to buy the higher retail price on hifi goods instead of them buying from the mail-order houses and camera stores in NYC...where products would OFTEN be priced below what our wholesale cost actually was! [[thanks to the bulk discounts larger operations enjoy, they see another column or two on their price sheets)

It forced me to increase my level of service...leaving the store to install, program, and instruct for my folks' easy use of the gear I recommended. Finally, I left and started my own firm...which went from sales to simply consultation within five years!

Now? With the internet making such price gouging and sales tax evasion commonplace, I really cannot see how any brick-and-mortar operations continue to exist. Indeed, the audio/video universe has seen some powerful failures from both long-established local family operations and national chains.

Gannon, that pricing structure was in place as far back as the 70's. It's what eventually drove my mother to close our business. We could buy things like toothpaste and aspirin cheaper from Kmart than we could from our suppliers. We couldn't afford to compete with those prices and pay our employees and the taxes.

And don't even get me started on all the business 'regulations!'

[detmich]

Apparently not big enough to support the hos.

[lilpup]

Hey, I read a paper the other day that estimated even the hos in Chicago only averaged $25 per hour [[and Chicago's estimated to have 4,400 of 'em).

[Gannon]

Jeez, government just doesn't pay what it used to in the Windy City, now, does it?!