System D is for Free

Joel Bowman, reporting from Buenos Aires, Argentina…

It’s all happening today, Fellow Reckoner. Gold, stocks, oil…all have rallied to important highs. That’s what the papers say anyway, so it must be true.

Gold has “reclaimed the rally,” reported one outfit. The Midas Metal was trading for around $1,634 an ounce last we checked, up $24 in as many hours.

The S&P 500 is likewise north of where it began the session. The index rose 1% to a 5-month high on what Wall Street determined were solid earnings. We didn’t bother looking at the actual reports. Stocks go up because more people buy them than sell them. Those people may be right, or they may be wrong. The future will reveal this information in its own sweet time, of course…but news reports are necessarily wedded to the past and, as such, don’t tell us anything about the future. We’ll have to wait and see how things shake out. Today, they’re up.

Oil near $103 per barrel is important too. We would expect escalating tensions between the U.S. and Iran to express themselves in similarly escalating prices. But it isn’t only geopolitical fissures driving the price of the world’s preferred energy. Basic supply and demand fundamentals led Steve Belmont, Senior Market Strategist for the RMB Group, to declare that, “Crude oil may not only be the best commodity play for 2012, it could prove to be the best commodity play of the next three to four years.” Mr. Belmont offered some pretty compelling reasons for his call in yesterday’s issue of your Daily Reckoning (which you can read here).

So there you have it. Everything up…up…and away! That’s what’s going on in the known world. It’s right there in the papers. But what about the unknown world…perhaps better described as the under-known world? We eluded to this mysterious marketplace yesterday.

Actually, it’s not really so mysterious. Not for half of the world’s working population who today find themselves in its employ, anyway. We’re referring to that delicious bastion of creativity and unbridled innovation sometimes known as “System D.” Robert Neuwirth, author of the book Stealth of Nations: The Global Rise of the Informal Economy, coined the term to describe the world’s collection of off-book street markets. It’s a kind of “global street market,” or, if you prefer, one of the only truly free markets left on the planet.

“System D is a slang phrase pirated from French-speaking Africa and the Caribbean,” explained Mr. Neuwirth in an article for Foreign Policy magazine. “The French have a word that they often use to describe particularly effective and motivated people. They call them débrouillards. To say a man is a débrouillard is to tell people how resourceful and ingenious he is. The former French colonies have sculpted this word to their own social and economic reality. They say that inventive, self-starting, entrepreneurial merchants who are doing business on their own, without registering or being regulated by the bureaucracy and, for the most part, without paying taxes, are part of ‘l’economie de la débrouillardise.’”

Mr. Neuwirth, who wisely abbreviated the phrase to “System D,” estimates the size of the off-book global economy to be roughly $10 trillion anually, although he stresses that this calculation is “very rough and almost certainly on the low side.”

It is important to note here that Mr. Neuwirth does not include activities such as gun running, drug or human trafficking or “things like that” in this calculation. Bascially, System D refers to the “ingenuity economy, the economy of improvisation and self-reliance, the do-it-yourself, or DIY, economy.”

All in, this admittedly conservative estimate figures the total System D economy at about two-thirds the size of the world’s largest economy, the U.S., with an output roughly 40% higher than that of China. Now accounting for roughly half of all jobs in the world, System D’s share of the global workforce is expected to increase to two in every three jobs by 2020. It’s growing. Fast.

Is this really surprising, Fellow Reckoner? The various nation states of the world, in the final throes of a deadly debt spiral and facing imminent paper currency crises as a result, are erecting all manner of regulatory hurdles in order to protect certain, mollycoddled industries from the evolutionary forces of market capitalism. This, we wager, will not end well for them.

We touched on this in yesterday’s issue. In all likelihood, the U.S., Europe and Japan will never make good on their debt obligations. These three economies count for roughly half the world’s “official” GDP (spurious measure that it is). The U.S., we mentioned, just past the 100% debt-to-GDP threshold. Peripheral states lining Europe are there already. Japan’s debt-to-GDP levels sit at more than double that of the U.S. Good luck with that.

The decay of the nation state has been a while in the making, like a slow, gangrenous rot attacking the vital organs of a once productive economic model. Fellow Reckoners are well-versed in our “march of the zombies” theme. Bill Bonner writes frequently in these pages about their relentless infestation…in health care, insurance, education, financial services and, the mother of all zombies, the murderous military industrial complex.

Thankfully, these are pillars of a dying economic model. They are the life-sucking parasites, the favored class and the politically connected, yes. But they have cause to be fearful, too. They are part of a dying experiment. We doubt the malevolved cupcake Nazis in the TSA security line know it…but we have a hunch the higher ups are starting to get a little nervous. Surely they can smell the blood on the guillotine by now, just as their ancestors once did. Their days of looting with impunity are coming to a close.

The growth of System D is something entirely consistent with a global trend this editor expects to accelerate in the coming years – that of increased geopolitical and economic decentralization prompted by a continued weakening of the overly-indebted, outmoded nation state model. In other words, as the edifice of the nation state continues to crumble under massive debt loads and the political impotence to do anything meaningful about it, more and more people will look to the unregulated System D markets of the world for both employment and, increasingly, investment opportunities.

We’re interested in stories of freedom, Fellow Reckoner, and System D is full of them. Untaxed, unregulated, unlicensed individuals trading freely with one and other and with little or no regard for those that would tell them, “No!” Stay tuned