Homicidal Homeless Unemployed Housewives: Why Crime No Longer Correlates With Economic Decline

With demographics playing an ever more important role in economic outlooks and debate, one of the topics that (luckily) has not had need of much mention, is the role of crime in society, and especially in a society gripped by the worst recession in 70 years. The logical expectation would be that crime would have surged in a replica of what happened to New York (and the broader country) in the mid-70s. Oddly enough, and perhaps a main reason why this is not discussed as much, is because this particular recession has not seen the traditional pick up in the crime rate (doubly curious, considering that unlike Wall Street, police departments, and their staffing levels, are usually among the first to get the funding axe). As BNY's Nicholas Colas points out: "Given the severity of the recession, you might be rightfully inclined to think there’s been a least a slight uptick in crime, but surprisingly enough, you’d be wrong. With national crime statistics from the FBI now available through 2009 – which includes the worst of the recession so far – we point out that not only has crime not gotten worse, but it’s actually continued improve quite nicely (in most states, at least). Moreover, those surprisingly positive trends are part of an overall structural decrease in crime that began in the early 1990s.The structural decline in crime that began in the early 1990s explains why the crime spike during the aftermath of the dot-com bubble and 9/11 was less pronounced than previous  recessions, but it’s quite surprising that even given the severity of the financial crisis, crime rates expanded on previous declines. Yes,  there are many theories (outlined below) that partially explain this, but the results are as puzzling as they are welcome. Not even theft and burglary, which have historically increased during recessions (see Charts 2 and 3) showed the slightest uptick." Yet with those behind bars not counted in the unemployment rate equation, is a violent (pardon the pun) surge in crime precisely what the administration is hoping for?...

According to Colas, here are the key reasons for the secular decline in the crime rate:

  • Aging Population – According to many experts on the topic, the prime “crime-committing” years in a person’s life are between the ages of 18 and 22. With the average age of the population on the rise, there are fewer 18-22 years olds as a percentage of the population to contribute to the crime rate.
  • Three Strikes Laws – Enacted by various states through the 1970s, 80s and 90s, these laws mandate that felony offenders who commit a 3rd offense receive lengthy prison terms regardless of the nature of that third offense. Since the recidivism rate is generally thought of as high among these criminals, the laws have resulted in fewer violent offenders in the general population.
  • Legalization of Abortion in 1973 – This controversial theory (read the original Freakonomics book for a full description) proposes that the resulting drop in unwanted, unborn children (who were more likely to grow up in adverse conditions and therefore more likely to be associated with and exposed to crime) coincided with a sharp decline in crime in the early 1990s because that was the time when those children would have reached their peak crime-committing years. There is a summary here of the paper here: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=174508. We aren’t endorsing or refuting the findings – just reporting the theory, for what that’s worth.
  • Dramatic uptake of social programs during the current recession – There are well over 41 million Americans receiving food stamps as of June 2010. That is up by over 15 million people from just two years ago and represents an all time record for participation in this  program. The benefits are about $130/month per person and many commentators have noted that the social stigma of the program has disappeared in the current difficult economic environment. To the degree that crimes like shoplifting are economically motivated, the greater use of the food stamp program could well be contributing to overall lower rates of crime.

BNY provide some additional data on crime reduction:

  • A sharply declining murder rate was clearly behind the overall drop in violent crime – on average, there were 8.8% fewer murders across all states from 2008 to 2009.
  • At the state level, only 7 states saw an increase in violent crime and property crime from 2008 to 2009 (Charts 4 and 5). Interestingly enough, Hawaii was the only state to show a rise in both violent and property crime.
  • West Virginia led the pack in terms of violent crime – its rate jumped 7 percentage points in 1 year, helped along by a 25 percentage point increase in murders. North Dakota, notably, saw its murder rate shoot up 98%, which contributed to its 5.8% increase in overall violent crimes. Rounding out the top 3, Arkansas experienced a 2.6% rise in violent crime.
  • As for property crime, Oklahoma (+3.4%), Hawaii (+2.6%) and New Hampshire (+1.8%) saw the biggest yearly increases in 2009. Burglary was a notable problem in New Hampshire (up 13.5%), Alaska (+9.6%) and Mississippi (12.5%), while motor vehicle theft rose in only 2 states – Alaska (+2.1%) and Wyoming (+4.4%).
  • Arizona, Montana, North Carolina and Georgia win the award for most improved – all 4 states appear in the top 10 for decreases in both violent crime and property crime (Charts 6 and 7). South Dakota overwhelmingly outpaced its peers in violent crime improvement, with a drop of 32.8%, as murder, forcible rape, robbery and aggravated assault were all down roughly 20 to 40 percentage points. Montana (-15.9%) and Arizona (-15.2%) rounded out the top 3.
  • Arizona (-13.0%), Nevada (-11.1%) and Oregon (-10.2%) saw the biggest declines in property crime last year. Seven of the top 10 experienced declines in car theft in excess of 20%, while the average across all states was a whopping 16.4% drop.

Lastly, Colas provides the following confirmation that crime is basically no longer tied to economic conditions, by comparing individual state unemployment rates in 2009 to where those states rank in violent crime rate improvement, property crime rate improvement, and shoplifting. As preface for the following chart, Colas notes:

  • Of the 13 states in the first quartile (i.e. the 25% with the worst unemployment rates), none rank in the first quartile of property crime rate improvement (i.e. the 7 states with increasing property crime rates and those at the bottom of the list in terms of improvement) and only 2 rank in the first quartile of violent crime rate improvement.
  • Additionally, only about 30% of the 25% of states with the highest unemployment rates appeared in the worst quartile for shoplifting. Apparently adverse economic conditions are not driving people to incremental petty theft.
  • At the other end of the spectrum, of the 25% of states with the lowest unemployment rates, only 1 (Montana) of the 12 ranked in the best (lowest) quartile for property crime improvement, while 4 appeared in the best quartile for violent crime improvement. Only 3 ranked in the quartile for fewest shopliftings.

Colas' conclusion:

Just as poor economic conditions don’t translate to equally poor crime conditions, stronger local economies are no guarantee of reduced trends in criminal activity. As we mentioned previously, the cost of crime to the economy is no small matter, but at least we’re safe in assuming the current downturn is likely not adding to those costs. And in a market where good news is hard to come by, we’ll take it.

Of course, this could be merely a preliminary bout of optimism: while we have not seen any definitive scientific literature on the matter, it could be the case that America is merely enjoying the ongoing delayed benefits of the longest period of fake cheap-credit prosperity. At some point the inflection point into crime may well be passed, and then the administration will have many more headaches on its plate than merely figuring out how to spin the latest negative employment report for general consumption.

One last observation: as a reminder there are currently 2.3 million Americans behind bars and paid for by taxpayers (oddly enough, the fact that the middle class that has to pay for the hard core criminals on Main Street and Wall Street is arguably worthy of its own post). Yet as a Pew research study notes, these are 2.3 million people who are not accounted for in the unemployment rate calculation (and at some point one would venture to guess these millions of criminals will re-enter the labor force, causing the unemployment rate to surge).

The economic crisis turned all eyes toward the nation’s unemployment rate, which recently crested above 10 percent—the highest level in a quarter century. Employment figures tell us much about the financial health of the nation, and are critical for understanding who is  moving ahead and who is falling behind. However, conventional methods of assessing employment exclude the men and women behind bars, resulting in an incomplete picture. Now, with more than 2.3 million adults incarcerated, the effect of this omission has become too substantial to ignore.

In other words, the unadjusted unemployment rate is likely about 11% when factoring all those who may at some point be released from jail.

Alternatively, for those inclined to look at the world in an Orwellian way, at some point wanton incarceration may just be the ticket to drop US unemployment to zero, although, granted, with 14 million Americans behind bars. Perhaps a spike in the crime rate is precisely what this administration needs...



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