Money on the Side: Common, and Unprosecuted

If it's a crime, why aren't more people going to jail? Michele Norris talks with University of Chicago Law professor Richard Epstein about some of the legal questions raised by the United States' underground economy.

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MICHELE NORRIS, host:

Whether it's the office betting pool or people working off the books, the underground economy is not going away. Richard Epstein is a professor of law at the University of Chicago. He's on a fellowship right now at Stanford University and he joins us to discuss some of the legal questions raised by the underground economy. Welcome to the program, professor.

Mr. RICHARD EPSTEIN (University of Chicago): It's very nice to be here.

NORRIS: Now, we just heard from a gentleman, Gary Gibbs, talk about his office betting pool, and to his mind betting at work is small time, like jaywalking or perhaps driving slightly above the speed limit. Is he right to think about it that way?

Mr. EPSTEIN: Well, either he's right about it or everybody in the United States is going to be in jail. I think that every system has to have a set of rules in which things are not legal in the sense that they're not going to be regarded at praiseworthy by the state, but they're certainly not going to be something that's going to be punished.

And so gambling has always had this kind of uneasy tone about it, but when it's done small, when there's no organized crime, when there's no muscle, when it's all done amongst friends, if anybody wants to divert criminal resources into that as opposed to the really serious things, he would be deeply misguided.

So what happens is, public officials will not support it. Public officials will ignore it.

NORRIS: Now, we also hear in Jim Zarroli's report from a woman named Sharelle. She runs a babysitting business out of her home. Can Sharelle expect to hear from the government, perhaps pay a fine, get arrested?

Mr. EPSTEIN: I doubt it very much. What happens is if you try to tax this business or subject it to regulations and to Social Security payments and everything else, the whole thing will dry up. Simply stated, the gains from these transactions are very small on both sides, and the taxes and the regulations exceed the amount of the gains.

There's nobody in government who wants people to miss their regular jobs because they can't get babysitting of one kind or another.

NORRIS: It sounds like the government essentially looks the other way, but when it comes to working off the books, is there a scale in terms of violations? Are there high crimes or perhaps less significant misdemeanors?

Mr. EPSTEIN: Oh sure. I have no question about that. To give the example that you gave, if somebody goes into the back room and there's a tailor shop with 20 people there doing $25,000 worth of business a month, you could be sure that if the government found out about it, that that would be the subject of some serious criminal prosecution.

There is a built-in sort of upper bound as to how far and how rich and how powerful this kind of economy can be.

NORRIS: If the prosecution is not worth the effort to local, state or federal governments, it seems counter-intuitive. I mean why have laws on the books if you're not enforcing them?

Mr. EPSTEIN: Well, what happens is you want to have the laws on the books not because you want to get the babysitter but because you need to have them in order to get the organized commercial situations.

There's also something else, Michele, about this, which is that many of the people who work in the underground economy are the most vulnerable portions of the population to begin with, and so if you really want to start mounting an attack to create class war and resentments, what you really have to do is to tell these folks either they have to work in the overground economy, or whatever we wish to call it, in the legal economy, at which point they won't be able to make a living, or they're going to have to do without work whatsoever.

And the truth is, we don't want to put people on welfare. We would rather have them work in the underground economy, and this thing has been like this for 20, 30, 50, 100 years, and when you see an equilibrium which lasts for that long, it's not very likely that it's going to turn one way or another any time soon.

NORRIS: Professor Epstein, good to talk to you. That was professor Richard Epstein. He teaches law at the University of Chicago, and he joined us from Stanford University. Thanks so much.

Mr. EPSTEIN: It was my pleasure.

ROBERT SIEGEL, host:

And tomorrow on the program, we'll hear about an underground economy that wasn't very far underground at all. The spectacularly public failure of Prohibition in New York City.

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