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Cyril Morong

Dr. Becker:

Does inequality play any role in this? In the 1990s, if I recall correctly, the crime rate fell in the USA while the Gini coefficient rose. How much crime, if any, does rising inequality cause?

Ted Sternberg

The observations about crime and development in poor countries are interesting, but I wonder how much of US GDP couldn't be considered transaction expenses of avoiding crime. How much did the middle class's abandonment of Newark, Detroit, St Louis and so many other cities cost? How much do we continue to spend on gasoline, cars, houses in "good" school districts, and roads, that we wouldn't need to spend if more of the inner cities were livable?

Alberto Carrasquilla

If the harm to development stems from the extra cost which high crime-rates force economic actors into incurring, then we can observe these extra costs. One candidate is the real interest rate: It should be higher in high-crime countries. Households and companies are forced into paying more for the ability to transfer resources intertemporally because future income/profits are more uncertain. In a normal country, risks are market related, whereas in a crime-ridden country one must add the probability that someone will steal them from you. If you compare the real (ex-post) interest rate in Colombia, a high crime country with at least three irregular armies operating for decades, with that in Costa Rica, a peaceful country with low crime and no army at all, you arrive at a startling conclusion: the two exhibit broadly equal real interest rates over the last few decades. This is puzzling and I would love to learn more.


Dear Prof. Becker: I enjoy your blog very much. How do you define what is a crime? There is also the opportunity cost to consider. What the percentage of crime cost to the GDP for each country? I am wondering if special interest lobbying for certain subsidy is a crime.


As has been said, "Idle hands and minds are the Devil's workshop.", such that there is a pretty close correlation between crime and unemployment. When it becomes ingrained as corruption into the culture, the real problems begin. As Judge Posner comments, "It's the chicken or egg problem". In this glorious new globalized economy it's come time to put away our moral qualms and embrace corruption and crime as just another cost of doing business.


"There are several reasons why poorer countries and those that are growing slower would have more crime, but do higher rates of crime also contribute to poverty and weaker growth? I believe the answer is yes."

Well, duh.


Presumably where crime is widespread it lowers the incentives for legitimate work, because the proceeds of working can't be fully enjoyed and also because being a criminal may be more lucrative than getting a job. So wouldn't high crime rates damage the economy by removing a large pool of potential labour from the market?


thanks and have a nice day.


Dr. Becker,
Look for example at the early history of the USA and UK and you will find out that corruption and crime were at levels not dissimilar to developing countries nowadays. And yet the USA and UK have become rich countries, which contradicts your conclusion. Of course low crime and corruption rates must be good for economic development but they are neither necessary nor sufficient conditions.


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I think you are wrong about the data. The data I have suggests that crime is higher in developed countries. A useful example is that US ranks the first country in terms people in jail per year for many years.


You need not look abroad to see this taking form. Look to Detroit, a city rife with economic problems. In turn, as you accurately point out, there is a high rate of high school dropouts, street crimes, thefts, murders, and drugs. As a result the city is stuck in a terrible economic and developmental rut that is only being worsened by a young, unemployed, and uneducated male class.


"I think you are wrong about the data. The data I have suggests that crime is higher in developed countries. A useful example is that US ranks the first country in terms people in jail per year for many years."

This isn't a particularly useful statistic. If the US stopped arresting and jailing people, it would go down in the rankings, even though crime would be vastly higher. The number or persons jailed is a function of both the incidence of crime and the effectiveness of law enforcement. If you arrest no one, there's no one in jail. It doesn't follow that there is no crime. Imagine two countries with identical crime rates, but one jails 100% of offenders and the other arrests 50%. The former would rank higher in the stat you reference but it would not have more crime and would probably be the better country to live in.
I'm not saying that developed countries have, in fact, less crime. Just that the number or percentage of inmates is not a statistic that can help us determine this.


I believe that it is the predictability of return that influences economic development. If there is a fear that any individual wealth will be snatched away without warning there is less chance that individual initiative will be expended, thus lowering the country's GDP. High taxes are predictable, even systematic bribery can be predictable. Europe began its travel to world economic supremacy when the wealthy imposed limits on the unpredictable actions of monarchs. Eventually this predictability was extended to all levels of society. Discrimination is a failure to provide this predictability of individual effort to certain classes and is the reason why discrimination has an economic effect.


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