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The Underground Economy

June 26th, 2009 by shawn · 5 Comments

Loompanics (oh how I miss that company!) published a book about making money in the underground economy. I loved that book. I have a rebellious streak, and combined with my hatred of bureaucracies, a book about making tax-free money is pure entertainment to me. And that’s what this post is about: the making of money (without paying taxes) in what is called the underground economy. This is not a guide or a how-to or a step-by-step list, but rather a primer to start you thinking. I am offering zero advice and not advocating or recommending any sort of behavior here.

What IS the Underground Economy?

Basically, an underground economy is one that exists alongside the mainstream economy, but doesn’t participate in things such as registering licenses, paying taxes, or submitting to other aspects of the official “mainstream” economy/tax system. This “shadow” economy is more streamlined and more profitable to the participants while less profitable to the government. Am I advocating this shadow economy? Dear heavens, no – I would never do such a thing. I’m only commenting on what has undoubtedly become more commonplace in these hard economic times.

The simple fact of the matter is that while people have less money, they will look for other means to gain income, and those methods of income-generation will often be unconventional and will be done “on the side”. These methods will include barter and trade in addition to cash-payment income.

Is the Underground Economy “Criminal”?

Underground money-making methods will often include things that are totally outside of the law. During the past few months, there has been a notable increase in home marijuana-growing (with intent to sell the crop) as well as prostitution among previously-unlikely candidates (such as housewives or older women). Just do a search and you’ll find a lot of instances of these. In one article, I read that the “authorities” have found about a five-fold increase in home-grow operations (of pot). It’s a good indicator of what people are willing to risk in order to maintain their income in hard times (in my opinion) – but the risk is outweighed by the legal costs involved if/when one gets caught doing something illegal!

If you want to hear some actual interviews of people making money “underground”, there is a great series done by the radio show “Marketplace” a while back. You can listen to the series here. Even though it’s a bid dated, most of it will be informative and applicable.

Can People “Legally” Work in the Shadows of the Underground?

There are methods of making money within the underground economy that won’t get you arrested, and could be just as profitable. They are still “shady” due to the fact that participants in the underground economy are trying to avoid taxes – but that’s a matter I won’t discuss here nor advocate. Let’s just say, the whole point is to keep as much as possible to yourself when you’re doing things this way.

Some methods of generating income would be selling things at local farmer’s markets and craft shows (for cash obviously). These could be crops but also items that are homemade – soap, jellies, gift baskets, or other products. At a weekend market in my city I’ve seen people selling everything from homemade wine, to candles, to produce, to snacks including hotdogs and drinks. Are all these sellers dutifully reporting what they’ve earned? I can’t say – but I see that many of them could just pocket the cash and the “state” would be none the wiser.

Are there Quasi-Underground Methods of Making Money?

Some people would rather operate a “legit” business but also make some “underground money”. Some of these other methods of cash income involve “side income” within a legitimate, registered business. Some prime businesses for doing this would include restaurants and bars (classic examples of businesses infused with a great deal of hard-to-track cash transactions) as well as peripheral cash-only businesses such as laundromats, self-serve car washes, and vending machine routes. These all require some sort of initial investment – including a lease. But if one has a business such as these, there’s a lot of wiggle room in what is reported. A lot of room to stay in the underground economy.

But for people with little or no assets to begin with, there are still many options. If all you owned was a car, a bucket, and a vacuum cleaner, what would you do with it (assuming you were forced to make money for yourself)? A mobile car detailing service is the right answer. Again, you would have ample opportunities to be paid in cash with a business like this. Similar services could be offered with dog-grooming, housecleaning, aquarium maintenance/cleaning, pool cleaning, and then of course lawn care.

Can Employees of Others Make Underground Money?

But what if you wanted to just work for someone else? The best sector is bartending, then waiting tables, and then probably working in a delivery capacity. Bartenders are notorious for many tricks (devised to put dollars in their pockets) and it’s almost expected that they will not be above-board with what they report (as far as tips). Not everyone is suited to be a bartender but for those who have the personality and people-skills, it’s an easy way to earn a lot of “underground” cash. If you want to learn some of the tricks of the trade, the authority book on the subject is called How to Burn Down the House: The Infamous Waiter and Bartender’s Scam Bible by Two Bourbon Street Waiters. (Even if you’re not in this industry, the book is very fun to read and education on more than a few levels!)

Where Can I Learn More About the Underground Economy?

There are many lessons that can be learned about how the underground economy works, as well as what opportunities exist within the underground economy. The people from which to learn these lessons are immigrants (Vietnamese and Korean immigrants being the examples I have in mind) and blacks living within the “inner city”, ghettoes, and projects – you can SEE the underground economy by driving through on a typical day (haircuts being given on porches, hand-made signs advertising BBQ for sale, all kinds of literal “cottage industries”).

If you want to really get knowledge of the how, why, who, and some specific ways of participating, you can start with a few books:

Ragnar’s Guide to the Underground Economy

Deep Inside the Underground Economy

Living Well on Practically Nothing

Under the Table and Into Your Pocket

* Disclaimer: the links to these books go through my Amazon Associates account. If you purchase via these links, I receive a small percentage of the sale – which I appreciate very much.

If any of you guys have ideas or links to good resources on making money “underground”, please post them in your comment.

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    Comment by OC Pool Cleaning
    2011-09-05 17:52:09

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    Comment by Movers
    2011-10-07 00:38:41

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    2011-10-15 00:45:42

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    Comment by Dana Point Movers
    2011-10-15 00:55:28

    Great post, thanks. I’m looking for some really good organic non-chemicals to use for our everyday house cleanings. But, I haven’t found anything worth while yet, so if anyone has any suggestions that would be great.

    (Comments wont nest below this level)
    2011-10-25 23:55:15
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