CAFFERTY: The old saying is money talks, unless, of course, you keep
it quiet. And keeping it quiet is what America's black market economy
is all about. It is driven by desire and need for things such as
drugs, pornography, and workers that are too low cost to be legal. By
one estimate, traffic in those areas alone constitute about 10 percent
of GDP, the overall economy in the America.

Journalist Eric Schlosser looks at the some of the busiest sectors of the
underground empire in his new book. It's called, "Reefer Madness: Sex,
Drugs,
and Cheap Labor in the American Market." He is also the author of the
best-selling, "Fast Food Nation." We are delighted to have Eric with us
today on
IN The MONEY. Welcome.

ERIC SCHLOSSER, AUTHOR: Thanks for having me.

CAFFERTY: How big a problem is this if, in fact, it is a problem, and
I assume it is, and why should Andy or myself or you care?

SCHLOSSER: I think it's a big problem. The United States is a modern
industrialized nation, and the sort of economic activity we are seeing
is much more common in third world and developing nations. Those are
the places we find a big, booming black market. Most economists agree
the black market in the United States has been growing over the last
20 years. I think it's a very bad thing.

SERWER: Eric, let me -- first of all congratulations on the title of
that book. That's a good one. That's got to be flying off the shelves.

CAFFERTY: Absolutely.

SERWER: But I'm interested, you said the economy, the black market
economy, has been growing. I mean, is that really the case? I mean,
didn't we have a big black market economy in the 19th century or the
early part of this century, number one? And if, in fact, it is
growing, as you say, why is that?

SCHLOSSER: Well, economists agree that it's growing, and they disagree
over why. There have been other periods where we had a booming black
market, prohibition. The illegal sale of alcohol was about 5 percent
of GDP.

After World War II -- during World War II, when there was rationing of
gasoline and meat, people were trading in ration books, a very big
black market. It then declined.

Now, economists on the right believe that as tax rates get high,
people try to evade taxes, don't report economic activity. That's why
they think the underground has been growing the last 20 years. On the
left, they argue that when wages are stagnant, when ordinary people
aren't doing well, they turn to all kinds of black market activities
to supplement their income.

The third cause would be the rise in illegal immigration. In the book,
I talk about the growing roll of illegal immigrants in our economy,
and that's black market labor. I think it is a very disturbing thing.

TULLY: Why isn't the solution -- and this is what libertarians have
been arguing for years -- just legalize drugs? Go beyond marijuana.
Milton Friedman was arguing way back in the 1950s, and just, let
freedom ring, open it up and tax the receipts and decriminalize it
that way because the criminals love that it's illegal because it keeps
the margins really high.

Every time you take drugs off the market, the price goes back up
again. So, more come on the market. That's why this whole war on drugs
has been so futile over the years. Plus these guys are in favor of
free immigration, also. What's wrong with that solution?

SCHLOSSER: Well, you make some interesting points. I write about
marijuana. Marijuana is a weed. It grows wild. It has very little
value. But with the laws against marijuana that we have, a lot of it
is worth more per ounce than gold. It's also true that a lot of
conservative Republicans are big opponents for the war on drugs for
the reasons that you mentioned.

Personally, I am not so sure about legalizing drugs. Right now in this
country, we have life sentences for marijuana, and if you went
tomorrow to being able to market it on TV just like Budweiser, that's
such a wild swing.

But I think decriminalizing marijuana is a very rational step. Canada
is about to do it. They have done it in Italy, Spain, Portugal, the
Netherlands, Ohio, and those places haven't collapsed. So, I think we
need to move toward a common sense solution to a lot of these issues.

CAFFERTY: Address the hypocrisy, if you will. Talking about limiting
immigration, tightening the borders, holding down the number of
foreigners who can come here -- when, in fact, huge parts of this
economy are absolutely dependent on migrant workers who come into this
country illegally and work for 10 cents on what the American worker's
dollar pays.

SCHLOSSER: There's enormous hypocrisy and migrant workers have been
in, for example, California agriculture, for 100 years. The disturbing
trend in the last 20 years is to have illegal immigrants meat packing,
in construction, in hotels and restaurants, and really filtering into
the main treatment economy.

And there's enormous hypocrisy in the way that illegal immigrants are
being demonized and scapegoated, and yet at the same time, very
powerful interests and very powerful industries are recruiting them
and profiting from them.

SERWER: Eric, you ticked off some of the reasons why you think these
things -- why the black market has gone up, but one reason why maybe
is people don't agree with the laws. I mean, that's what prohibition
was all about. So getting back to marijuana and reefer, you talk about
wanting to decriminalize it, I mean, isn't that sort of a namby-pamby
half step? I mean, why not make it legal?

SCHLOSSER: You know, it's a first step. I don't think that -- again, I
don't think you can go overnight. Right now you can get the death
penalty under federal law for a first-time nonviolent marijuana
offense. And I know of many people who are serving life sentences for
marijuana. If next week you made it legal, could it be marketed like
tobacco has been marketed? Could it be sold like alcohol?

So eventually, philosophically, that libertarian view is very
attractive to me, but when you look at what other countries are doing
- -- what they are doing is they are moving away from a criminal justice
approach to drug abuse and moving into a much more public health
model, and that's why not punishing users with prison is a good first
step.

TULLY: And isn't the reason why our prisons have filled up so much
because of the huge epidemic of drug charges?

SCHLOSSER: Well, you know, my next book is on prisons. And what I
found is that about 70-80 percent of the inmates are substance
abusers. They are not all there for a drug charge, but if they are
there for armed robbery, it's because they were going to buy drugs.

What happens in prison is they are brutalized. They receive no drug
treatment. They are back on the streets. On average, you know,
two-thirds of them are back in prison. So, we have a very expensive
and irrational system right now.

CAFFERTY: We are going to have to leave it there. The book, as Andy pointed
out,
great title, "Reefer Madness: Sex, Drugs and Cheap Labor in the American
Market." Eric Schlosser, the author. Thank you very much for being here.

SCHLOSSER: Thanks for having me.

CAFFERTY: He also writes for "Atlantic Monthly," which is not a half bad
publication.