Black Is Beautiful

MK Venu of the Financial Express has written about Hernando de Soto’s recent comments on the “shadow economy” and has drawn the erroneous conclusion that what needs to be done in India is to tax the “black economy” and bring it “out of the shadows.”

Methinks this eminent economic journalist has completely misunderstood what de Soto said, so let me quote the master himself, from his interview to Mint that I referred to in an earlier post.

Q: Since your visit to India in 2007, the world has undergone a dramatic reality check on market economics. Do you still believe in the power of the markets?

A: I asked my friend Chris Cox, over in 2009, who was chairman of the Securities and Exchange Commission, how much there was, of these derivatives. And he brought out a reply in an article saying his estimate is that there were $600 trillion (Rs27,840 trillion today) of them. Now to get an idea what this means, the whole production of the United States—the GDP (gross domestic product)—is $13 trillion. The whole production of the world altogether is $55 trillion. So $600 trillion is nearly equivalent to 12 times the production of the world. That’s a lot of money..., but it’s not written.

But now, we are going to find that truth will be established. I figure, the next two-three years, as all of a sudden everybody starts beginning to understand that the recession we’re facing, is basically an epistemological crisis. It’s the lack of knowledge of how much paper there is representing wealth that could be either very deflationary or very inflationary... So I maintain my faith in markets that are ruled by law. When markets are not ruled by law, they become shadow economies. And what is surprising since the time you and I last met, is that I would have expected a developing country to produce the biggest shadow economy. It is the West that has produced the largest shadow economy.

In other words, there is a vast difference between the shadow economies of poor countries like India and rich countries like the USA. In India, we have Property Without Titles. In the USSA, they have “property titles without property.”

The existence of the Third World "shadow economies" based on Property Without Titles is caused by governments acts of omission: they are not performing their duties. On the other hand, the existence of First World "shadow economies" based on Property Titles Without Property is caused by government acts of commission: the governments are engaged in fraud, in league with their "banksters."

The solution does not lie in taxing the Indian "black economy," as Venu prescribes.

I have earlier called for a tax revolt.

The solution lies in India unilaterally adopting the gold standard, the subject of my recent column, where I also discuss the critical problem of “property titles without property.”

Further, all Property should be titled in India. And as for the fraudsters, they should be punished - and the best and easiest way to accomplish this is by repudiating all government debt. I will write more on this in a future post.

In India, the black economy is the beautiful economy. It is how all honest people survive the depredations of the Total Chacha State, create assets, set up enterprises, employ people, satisfy customers – all outside the official property title system.

Black is beautiful.