Why government statistics are off

We know people who estimate that one-third to one-half of the economy of Los Angeles takes place “under the table.” These city people are sophisticated and know how to hide money – it’s called the “cash economy.”

Ever wonder why you have been encouraged to get a credit card, a checking account, a mortgage loan? Among other things, it is so the government can track the money and take “what is due them” when they want. Why do you think check cashers, title loan people and others outside the regular banking system have been persecuted and vilified? Because their clients are outside the banking system. They are called the “unbanked.” Sounds like the “undead,” doesn’t it?

When IFO worked at a bookstore on weekends years ago, in the first year she noticed that the mix of payments was about half and half between cash and checks. Later, the mix was about a third each. She used to look out the bookstore windows that looked out onto the main street and watch in amazement as a steady stream of people walked up to the ATM and got cash.

About a year ago, IFO asked a cashier about the mix of payments they were getting: credit cards, checks or cash. The cashier said, “It’s almost all cash!” She, too, had been accustomed to the one-third mix. We’re not sure, but wonder if our economy isn’t shifting to more cash.

To the extent that government statistics cannot measure the cash economy, statistics will be off on employment, debt, productivity, consumption, etc.  This could explain why the experts are always “surprised” when new economic reports come out.


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