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Economics of Crime

Tags Calculation and KnowledgePhilosophy and Methodology

07/18/2000Christopher Westley

Much has been written recently about the Central Park wilding incident at the Puerto Rican Day parade in New York, as well as the accusations of police misconduct in Philadelphia, but, as far as I can tell, no one has discussed the economic dimensions.

Yes, economics. There is a fairly well-established subclass in neoclassical economics called the Economics of Crime. It was legitimized for the mainstream by Gary Becker of the University of Chicago, based on some path-breaking articles published in the 1960s.

Becker merely mathematized cost and benefit analyses as they relate to the decision to commit crimes, and in the process, he set a standard for legitimizing any nontraditional subject into neoclassical economic analysis. This standard involves applying benefit-maximizing or cost-minimizing language into differential calculus, thus opening the door for hundreds of research papers employing statistical tests based on this model.

While much of the subsequent research in the Economics of Crime is interesting, it states in most cases the obvious: that smarmy individuals are more likely to commit smarmy deeds when the benefits derived from committing those deeds exceed to potential costs. In true Chicago School-fashion, the implication is that all that is necessary to combat crime is for public authorities to allocate more funding toward increasing the costs.

Yet if fighting crime were that simple, poorer nations would be crime-ridden states while rich nations would be Shangri-Las. U.S. crime statistics tell a different story, and this result suggests a major shortcoming in the Chicago School’s economics. It ignores outcomes associated with monopoly police protection and the perverse incentives that are created in the individuals hired to provide it.

In Central Park, a full day of lax police protection communicated to a group of punks that they might as well push the envelope and declare a moral holiday. For a 45-minute period last Sunday, a Hobbesian state of nature was seen in Central Park.

Incidents such as this were used by Hobbes and other champions of big government as an argument for a Leviathan state. Without a strong government, the argument goes, man’s baser instincts prevail. Chaos rules. The poor are not just poor, but solitary, nasty, brutish, and short as well. Such a situation requires government to impose order and its approved versions of morality on to the masses or else they will never approach a noble state. Without this imposed order, the masses are likely to drag all of civilization down to their lecherous level. (This is something to consider the next time your local representative of the political class calls for an expansion of government intrusion in your life to deal with the social problem du jour--it might suggest how he considers your moral development.)

If this is true, then God save us from Central Park morality, or lack thereof. It reduces all of our freedoms, whether in the way we choose to spend our days or in increased taxation and bureaus created to protect us from such "morality." This is why politicians and other representatives of government embrace such breakdowns in the social order. It provides a rationale, however faulty, for their continued existence. Such crises are under heavy demand in our post-Cold war age when much of the size and scope of government needs to be eliminated.

Ludwig von Mises, in one of his shorter classics, Bureaucracy, writes that outcomes such as that which occurred in Central Park should be expected in any publicly-administered good. Absent prices, these goods--including police protection--are allocated based on other considerations.

Mises writes that the ordering of capital and labor in organizations that are not subject to the profit motive are subject to political and institutional conditions that have much less magnitude in the private sector.

In New York, these conditions included a public police force that was being heavily scrutinized for high-profile mistakes involving the deaths of individuals from politically protected minority groups. As a result, the police must have been told, at least implicitly, to avoid any incidents with party-going Puerto Ricans at any cost. The allegations of abuse in other cities reinforces these restrictions.

But even in the absence of such restrictions, there is no way for even the most competent police administrator to know where protection is most needed at any given time when there is no direct method for consumers to communicate their demand. In fact, there is even less of an incentive for such a bureaucrat to find and fulfill those needs when police protection is by and large monopolized.

Such an individual would have an incentive to under-produce police protection on occasions, while overproducing brutality when he can get away with it, given the institutional framework in which he operates. He is not in a position to maximize personal and corporate profits, but he does have some control over and indeed can maximize the power and prestige that accompanies a large budget. Such occasions can produce crises that prod voters and politicians to support expansions in police budgets.

Perhaps the most obvious institutional problem that promotes Central Park morality is the legal barriers to private protection. Rank and file New Yorkers cannot carry guns, those who attempt legitimate acts at defense are frequently (and derogatorily) shunned as vigilantes, and serious attempts to provide private protection are associated with organized crime, although these attempts also threaten NYPD’s monopoly power.

With such power, consumers of police protection, as well as any publicly-produced good, can expect outcomes that would be unacceptable in private markets. This is a fact that has long been explained by the Austrian School and that is attacked with vehemence by the political class. If the public knew the truth, or at least some sound economics, it would demand huge reforms. And years later, they would celebrate their success in secure surroundings of places like Central Park.


Contact Christopher Westley

Christopher Westley a professor of economics in the Lutgert College Business at Florida Gulf Coast University and an associated scholar at the Mises Institute.

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