The Economics of Crime

One of, if the not the biggest thing holding back revitalization in American cities is crime.

The facts speak for themselves – cities with high crime rates generally have poor growth rates. Cities that have somehow improved their crime rate do much better.

City Comparison

New York and Washington, DC are great examples of cities that have aggressively attacked their crime issues and have unleashed unprecedented economic growth. Washington used to be the most dangerous city in America and New York was supposed to be leading the country into chaos.

Looking just at New Jersey, two cities, New Brunswick and Newark are overcoming their crime issues and generating positive population growth. Meanwhile, Asbury Park, Trenton and Camden continue to scare their populations away.

Lot’s of people have lots of things to say about crime. The police say they do all they can and blame the courts for a revolving door justice system or the public for not cooperating. Children’s advocates blame lack of after-school programs. Civil rights leaders blame racism. Parents blame everybody and Bill Cosby blames parents.

A different way to look at this is by understanding the economics of crime. In the end, we are all driven by an innate internal calculus that either rationally (due to good information and clear thinking) or irrationally (due to false information and deluded thinking) lead us to do what we do. This is the basis of economic thinking and has a lot more to do with survival of the species than just dollars and cents. For a really wonderful explanation of how the economic mind works I strongly recommend readers of this blog to also read the book Freakonomics by Steven Levitt and Stephen Buner.

Freakonomics famously recounts the story of gang drug crime in Chicago in an essay called “Why do drug dealers still live with their moms”. It explores the motivations behind becoming involved in the drug trade. The analysis compares the likelihood of becoming a wealthy drug lord to the likelihood of becoming an A-List Hollywood star. It also points out that the average street pushers makes less than minimum wage. Meanwhile the risk of death at any level in the gang is higher than any other job in the world, including the military, test pilot or policeman.

What drives these young men is a well oiled system of misinformation and delusional thinking likely driven by not only gang peers but also by the media.

The low level gang member, lacking his own copy of Freakonomics, has made an irrational decision to risk his life to join the drug trade.

Let’s turn this into an example:

John has a vague notion that if he works hard at drugs he’ll almost surely, let’s say with a 75% confidence level become a millionaire drug lord. He knows there are risks, but John thinks he’s pretty tough so his risk of getting shot is no more than 1% and even if he’s arrested, let’s say a 50% chance, the likelihood of doing hard time is no more than 10%. John hasn’t written down these percentages but if you pressed him, this is what he’d come up with.

John’s not completely wrong. He’s about right with his arrest statistics because he has many data points (most of his friends have been arrested and none have done hard time). However, he’s way off on the life expectancy estimate and not even close on the odds of becoming a drug lord.

However, given the probabilities, as John sees them, the risk is worth the reward. This is especially true if he doesn’t have any credible alternatives. That is, he’s not done well in school and doesn’t understand the straight job market anyhow. John doesn’t know that a mid-level corporate manager will make much more in a lifetime than a drug lord especially since that life-time will likely be three times as long.

So what can be done to change the economic equation for John?

Look for a ReinventTrenton blogs where we explore John’s economic model in Trenton. We’ll cover the following exciting topics

Increasing the cost and risk

  • The economics of police prevention
  • How economic development prevents crime
  • How cranky old white guys can save the day

Reducing the profit

  • Suing your local drug dealer
  • Take the bling, then take her ring

A credible alternative to crime

  • Do mentoring programs work
  • Are schools the answer
  • Jobs won’t help

More clearly communicating the above

  • Public humiliation as a weapon
  • The Most Wanted earnings list
  • Homeboys: where are they now
  • Dan’s list
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4 Responses to “The Economics of Crime”

  • Hey Dan,
    Great article. Break the paradigm that the potential gang member has on the lifestyle he’ll lead. In my humble opinion there should be a presentation given to middle school trenton students (by high school the target audience has either made up their mind about their path or has dropped out already unfortunately…) showing the life earning potential of a college grad versus a gang member. We need to break the perception of the life they think they are going to lead.

    And also I must say great work on the Blog!

  • Michael Smith:

    The single most devastating act affecting the Black Community in the city of Trenton was/is Mayor Palmer desgnating Trenton a sanctuary city.
    Undocumented workers mainly occupy jobs on the lower economic scale of the economy.Undocumented do not do jobs no one else would do,they do jobs ordinarily held by teenagers, high school graduates,those re-entering the work force etc….
    In essence Mayor Palmer sacrificed his traditionalconstinuncy in the name of politcal correctness and the democratic party.I doubt if it was purposeful.The policy of “sanctuary city” emerged out of ignorance of basic economics.

  • John:

    Don , I am impressed you read Freakonomics. What I fear you missed is the whole point of all the examples in the book point to one simple fact “Change a persons motivation and you will change the person” Now you my change the person for better or for worse but you will change the person or on a larger scale the people.

  • First off, it’s “Dan” not “Don”.

    John, I’m sure you can appreciate that there are two audiences for the salient messages in Freakonomics. One, that appreciates the examples of economic thought (i.e. we’re the product of our motivations) and the second that might need specific insight from some of the examples.

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