The questions posed by underground markets
have no easy answer, but they must be asked.
Underground markets result from a combination of enforcement standards that are too low and too many operating rules for a given level of commercial activity.
In Communist Hungary, underground markets flourished and were an important source of goods and services that could not have been obtained otherwise.
The demand function externalities consisted of offshore markets having too high standards and/or too few rules for a given level of commerce and underground markets having too low standards and/or too many rules for a given level of commerce.
Underground markets are not typical of markets in general because they are relatively uncomplicated.
The long-term policy prescription to improve the functioning of underground markets is clear-cut: build the range of market-supporting institutions that underpin the successful economies of Western Europe and North America.
Underground markets allow billions of the world's poorest people to get by.
In its current form, which works to interdict transfers of such materials between and among countries, PSI appears better suited to shutting down Khan-like nuclear underground markets than to stopping terrorists or sophisticated criminal organizations from smuggling nuclear weapons or weapons-usable fissile materials.
Bush warned about an underground market that has grave consequences for global security: "In recent years, another path of [nuclear] proliferation has become clear, as well.
Bush rightly underscored the two major risks of the nuclear underground market.
The underground market in people, termed human trafficking, functions by the benign rules of supply and demand--which makes this market particularly grotesque because the commodity is human life and the exchange results in modern-day slavery.
Each victim is manipulated through the threat of violence or its use; each is a displaced person, in foreign circumstances that increase his or her dependence on the slaveholder; each represents a profitable input in an underground market but is also considered, paradoxically, a highly expendable input; and each is, practically, surviving in a reality that evades the intervention of law.