Covid-19 Lockdowns Brings Rise in Black Market

Media reports that some California businesses have gone underground during the pandemic lockdown should surprise no one. When politicians ban activities, both those accepted by society and those considered less honorable, they drive them into black markets. The desires and needs of our nature aren’t easy to legislate.

Humans are compelled by their makeup to gather, to buy, to sell, and to trade with each other. And to survive. When government officials order us to stay at home, to avoid others, to stop doing what we’ve been freely doing all of our lives, to walk away from livelihoods, those orders grow old quickly. People will find a way around the restrictions. In California, arguably the most locked-down state in the country, for many, there simply were no alternatives.

“Ever since California went into lockdown to mitigate against the spread of COVID-19 last March, many of the state’s ‘non-essential’ businesses have taken their chances operating underground to try to stay above water,” Fox News reported last week.

Business operators and employees meet customers in back alleys, turn off lights, draw curtains, and make house calls when that is the best option available, hoping to come and go unseen by nosy neighbors.

Choosing to violate government orders, in some cases at the risk of incurring hefty fines, might not have been easy. But it was the only pragmatic option for some. Even as far back as June, when the California lockdown was still fresh relative to the seemingly endless confinement we’ve felt we’ve been in, 75% of workers in the nail salon industry “expressed doubt that they will be able to afford food and other necessities in the next month.” Don’t think that the manucurists’ plight is unique to their business. They’re merely an example of the millions who have faced ruin in the last 10 months.

Generally speaking, “countries with high levels of taxation, government corruption, and regulatory barriers tend to have the largest underground economies,” says Investopedia. Replace “countries” with “states,” and the rule still holds. So even before the pandemic lockdowns arrived, we knew California had a large underground economy due to the state’s high taxes and regulatory hurdles. By one estimate, that of a UCLA Labor Center report, hidden commerce produces from $60 billion to $140 billion economic activity in a typical year. What we don’t know yet is how much the underground economy expanded in 2020. The growth is likely to have been enormous.

As February nears, an optimistic view says the worst is over, because Gov. Gavin Newsom lifted his stay-at-home orders across the state on Monday. A cynical view (and who among us can resist being cynical from time to time?) says the reopening won’t be reversed this time because the new president is from Newsom’s party and the reason for choking the economy and spreading fear left the White House on Jan. 20. A realistic view says be prepared for anything, since the governor has changed his mind before and sent the state back to pandemic jail, but is also facing the possibility of a recall election this fall, in part due to his lockdown policies. Maybe California’s prospects just depend on what the “science” says on any given day.

Kerry Jackson is a fellow with the Center for California Reform at the Pacific Research Institute.


Nothing contained in this blog is to be construed as necessarily reflecting the views of the Pacific Research Institute or as an attempt to thwart or aid the passage of any legislation.

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