Economics of Crime and Punishment

While the root cause of crime is a topic of perpetual debate, the increase in criminal activity in a polity is usually associated with a downturn in the economy. This correlation is not accurate at times. Even if it is, the causal relation is spurious. 

According to Pew Research, post-1990s, there has been a decline in violent and property crime rates in the United States, even during the 2006 financial crash and recession. 

In the book Freakonomics: A Rogue Economist Explores the Hidden Side of Everything, the authors analyze the decline in crime rates in the 1990s as a result of the Roe v Wade judgment of 1973. Interestingly, it was the formation of abortion laws – that led to a drop in the birth of people who would become the then future criminals.

However, during the agitated 1960s, the United States faced high crime rates and drug abuse. There is even a prominent regional variation in crime, theft, and burglary rates, making it infeasible to reach a consensus on the root cause of the occurrence of crimes.

As a response to such a case, the policymakers suggest strengthening the law and policing. Countries like the United States and Britain have used the force of better policing and legal system to combat high crime rates. 

Building sizable police forces may reduce crime, but an increasing crime rate may also have resulted in authorities to increase the number of police officers as a response to it. This inconsistency is known as the simultaneity problem as it is unclear that which of the two outcomes influenced the other. 

The dynamics of crime in society extends further from the correlations of policing and punishments. Moreover, the understanding of crime, confined to the social and cultural fabric, restrains a quintessential aspect of criminal behavior, that of preferences. 

For the longest time, economists have used preferences to define human nature in market transactions. Nonetheless, it was Gary Becker who introduced these preferences in analyzing the rise and fall of criminal activity. Gary S. Becker received the Nobel Prize in Economic Sciences in 1992 for incorporating non-market human behavior into the domain of microeconomic approach. 

Such aspects of criminal behavior previously were studied by sociologists, demographist, and criminologists. It sourced a normative framework to evaluate criminal laws, as a crime did not depend on psychological factors alone, but one’s preferences. 

Rational choice theories, thus, suggest that high unemployment will lead to a greater likelihood of committing a criminal offense to gain meager sums of money in their self-interest. In effect, the crime cycle has an inverse correlation to the business or economic cycle. 

On the contrary, another school of thought believes that recessions reduce unlawful activities as when people are employed, they tend to stay at home and thus not commit any crime. Such a scenario can be possible only if the legal and policing systems are strict enough to make the costs of robbery or theft greater than returns from it. The occurrence of crime follows an inverse relation with the extremity of punishment. Yet, this argument fails when crimes go unreported to the local police. 

The social costs to a criminal are the sum of the direct costs of victimization – legal fines and fees – and the indirect costs of efforts to commit a crime. The benefits are obtaining some valuable good or, at best, hard money, along with a sense of satisfaction.

Let’s paint a picture – A young man, in his mid-20s, unemployed, with no savings, and unable to make ends meet. He leaves his home, which is a one-room space in a slum, early in the morning in search of a job and is back late at night with no hope in his eyes. Imagine these challenging circumstances that a large share of the youth in developing countries face, leading them to take-up criminal activities. Add to this – medical emergencies in the family, education loan installments, or other financial commitments. Such situations initiate an urge to steal a small amount to pay back debts, creating a habitual preference as an easy way out to financial problems. The potential benefits seem exceedingly greater than potential costs. 

Economists argue that criminals are criminals owing to these preferences and not psychological factors. However, it is the socio-economic conditions – mass unemployment and abject poverty – that lead to such psychological tendencies – stealing and theft – further shaping their choice to commit a crime. These economic choices do not necessarily impede the plausibility that human character might influence criminal involvement. 

Criminal activity is, thus, a combination of human character, psychological tendencies, socio-economic conditions, and individual preferences. These micro-level singular choices add up to aggregate outcomes of criminal activity across the state, shaping a feedback loop to policymakers and interested groups. 

It gives rise to the idea of increasing judicial capacity to control increasing crime rates. But, a rising trend in criminal activities dilutes the process of justice as it increases the pressure on legal as well as policing systems. The lagging judicial systems lead to an added rise in crimes. 

It would require increased political intervention, leading to increased legal system budgets, passing laws and amendments on stricter sentencing. If political administration is strong enough, it could ban private ownership of weaponry or dis-incentivize its purchase. Moreover, the private sector could act more responsibly by hiring more guards, building safer areas by installing technologically advanced equipment – spy cameras, recognition systems to enter a space, and much more. 

These measures not only would reduce crime per se but also contribute to economic growth and development. The creation of jobs could alone be a significant contributing factor in the decline of crime rates, as people occupied with work will be financially and, in part, psychologically satisfied.

Using an economics approach of preferences – individual and aggregate – and cost-benefit analysis to analyze crime is quite similar to using economic theories to conceptualize education and health outcomes and influence policymaking.