As I read more and more about the extent of money-laundering going on throughout the world, I wonder how it affects economies in general. How does the “dismal science” view this new factor in economics? Has it ever happened before?
The issue
Dark money from corrupt oligarchs and international criminal activity is a cancer spreading throughout the world’s economies. Dark money is being generated through
- criminal profits in drug and human trafficking
- government appropriation, such as the privatization of state assets in post-soviet Russia
- bribery and corruption
- extravagant mark-ups for items such as pharmaceuticals
- kickbacks from contracts
- stock market, currency and cryptocurrency manipulation
- hacking and cyber theft
Criminals need safe havens for their ill-gotten gains; dark money needs to be laundered in order to be usable. As we see unfolding with Trump, money can be washed through
- real estate purchases
- bribery and influence buying
- casinos and gambling
- political contributions
- contributions to charities and nonprofits
- conversion to cryptocurrencies
Impacts
One potential impact for the average person is the run-up in real estate prices. The current real estate boom may in part be driven by foreign cash, some of which is likely to be illegal. Housing bubbles make housing increasingly unaffordable for average workers.
So my question is, how does dark money/money laundering on a vast scale impact traditional economic theories? What happens as the cancer continues to grow and metastasize? Are there any solutions?
I look forward to your thoughts.