Recovery is stronger than you think - it's just underground

Personal spending is up a healthy 3.2 percent for the first three months of the year, and yet hiring, along with the overall economy, continues to lag. Makes no sense, right? Perhaps one explanation centers on the underground economy - that millions of people, many of them in California, are working off the books in everything from Web design to construction to movie production. Economist Edgar Geige says that if the government were able to collect taxes on all that income, the deficit would barely be felt. That's always been kind of a pipe dream. The more interesting aspect of today's informal or underground economy is how it's significantly changing workforce patterns, and perhaps in the process distorting traditional growth measurements. A survey of California contractors found that two thirds said they had no direct employees. That means no workers comp taxes or payroll taxes. From New Yorker columnist James Surowiecki:

Sudhir Venkatesh, a sociologist at Columbia and the author of a study of the underground economy, thinks that many workers, particularly younger ones, have become comfortable with casual work arrangements. "We have seen the rise of a new generation of people who are much more used to doing things in a freelance way," he said. "That makes them more amenable to unregulated work. And they seem less concerned about security, which they equate with rigidity." The growing importance of services in the economy is also crucial. Tutors, nannies, yoga teachers, housecleaners, and the like are often paid in cash, which is hard for the I.R.S. to track. In a 2006 study, the economist Catherine Haskins found that between eighty and ninety-seven per cent of nannies were paid under the table.