14 December 2011
Yesterday in What color is your market? I introduced the idea, in addition to familiar ideas of black markets and gray markets, of red markets and pink markets — that is to say, sectors of the economy that exist only in virtue of state subsidies, direct (red markets) or indirect (pink markets). A completely nationalized economy is a red market; crony capitalism at its furthest reach is a pink market.
One of the greatest difficulties of producing a coherent economic theory is a function of what gets left out of conventional econometrics, and what gets left out is the black market and the gray market. Now that I have formulated the ideas of red markets and pink markets, I would also point out that, while statistics on these markets could be had with a bit of research, they are not the kind of things that governments put prominently on exhibition when publishing their economic statistics to the world.
It is nearly impossible to get accurate black market and gray market statistics because people are not about to be truthful about their illegal and quasi-legal financial dealings, and, similarly, nation-states and institutions are not going to be forthcoming about their red markets and pink markets.
Nation-states have a vested interest in misrepresenting their red markets, because a population that was well informed about how the public money is being spent to support certain industries and certain jobs would likely create a backlash. No one wants to know that their tax dollars are being spent to prop up a decrepit industry, unless they themselves are employed in that industry.
And while nation-states have a greater degree of plausible deniability when it comes to their pink markets, there is perhaps an even stronger incentive not to divulge the details of the pink market, as compared to the red market. When a government goes so far as to nationalize an industry, the case must be made explicitly that this is a good thing. In the case of pink markets, to case need not ever be made, if all can be done quietly, on the side, and no journalists take an interest in it.
We can intuitively represent the overall structure of an economy by representing each of the five markets I have been discussing — black, gray, white, pink, and red — each by its eponymous color, showing the relative preponderance of a particular market in a particular economy by the relative preponderance of the associated color. If we could get good statistics, we could be quantitatively precise about this, but the above sketch is simply to present the idea and for this I claim no quantitative precision.
. . . . .
. . . . .
. . . . .