The economy and shoplifting: an update

Slate's Jack Shafer deconstructs the New York Times' shoplifting story that I linked to last week. Shafer shows that there is a lot less to the Times' numbers than it first appears.

Several of the Times' examples are anecdotal. Shafer goes on to describe supporting anecdotes from other newspaper stories as well as some contradictory anecdotes.

Abstinence pledges worse than ineffective

The Washington Post reports this morning

Teenagers who pledge to remain virgins until marriage are just as likely to have premarital sex as those who do not promise abstinence and are significantly less likely to use condoms and other forms of birth control when they do, according to a study released today.

The findings indicate that pledges are not only ineffective at stopping premarital sex but counter-productive in discouraging teens from taking reasonable precautions.

One explanation for the findings may be that pledges convince teens that they don't need to take precautions. After all, you don't need condoms or other forms of birth control if you're not going to have sex in the first place. However, in the instances when sex does happen, the teens are unprepared. As the study indicates, the "instances" seem to be as frequent for the pledged teens as for the unpledged teens.

Another explanation is that pledges put up barriers between teens and responsible adults who might help arrange for contraception. It is difficult enough for a teen to start the "I need protection" conversation with a parent; imagine how much harder it is when the teen has pledged chastity.

Yet another explanation may be that parents become less vigilant regarding their children's behavior once a pledge has been made.

Pledges and abstinence programs generally are based on the unrealistic notion that we shouldn't send "mixed messages" to teens. However, the mixed message seems unavoidable. We should discourage teenagers from engaging in sex, but if they do, we want them to take precautions against pregnancy and disease.

The good news seems to be that teens as a group are getting the mixed message despite the actions of some adults. Teen birth rates and pregnancy rates are at relatively low levels. More comprehensive programs that recognize the inherent mixed message may help to reduce these rates more.

In-kind bonuses to investment bankers

Investment bankers at Credit Suisse may be feeling a lot like Clark Griswold after finding out that most of their year-end bonuses are being paid out in the form of "junk bonds, mortgage-back securities and corporate loans" instead of cash.

Clark, whose Crunch enhancer non-nutritive cereal varnish actually added value to his company, deserved better and eventually got it.

The bankers, who created these crummy securities and pawned them off on their customers, are getting far better than they deserve.

"Rational" crime

In its simplest form, the rational model of decision-making assumes that people compare the net benefits and costs of alternative choices and choose the alternative with the highest net benefit. The model can be extended to consider long-term consequences, different ways of discounting the future, and other considerations. However, the model, especially when applied to this-or-that types of choices, essentially comes down to a cost-benefit calculation.

Economists use the rational framework, without much controversey, to examine consumer (demand) and producer (supply) behavior in markets. Economists, most famously Gary Becker, have also used this model to examine other aspects of people's behavior including criminal activity.

Conservatives implicitly rely on the rational model when they argue that more police and tougher sentences deter criminal behavior. The argument is simple. These actions increase the likelihood of getting caught and the penalties associated with crime and thereby raise the cost of crime. For someone who is on the margin between committing and not committing a crime, the increase in costs will be enough to tip the scales against engaging in crime. Enforcement and penalities are examples of direct costs of crime. In the rational model, when these costs go up, criminal behavior goes down.

Conservatives, however, seem to have more trouble grasping another implication of the model, involving indirect or opportunity costs. When deciding between two alternatives, a person is less likely to choose one alternative if the value of the other alternative increases. Applied to criminal decisions, this means that people are less likely to engage in crime if the value of legitimate actions increases.

In his 1968 Journal of Political Economy article on "Crime and Punishment: An Economic Approach," Becker wrote (p. 177),

There is a function relating the number of offenses by any person to his probability of conviction, to his punishment if convicted, and to other variables, such as the income available to him in legal and other illegal activities, the frequency of nuisance arrests, and his willingness to commit an illegal act...

...a rise in the income available in legal activities or an increase in law-abidingness due, say, to "education" would reduce the incentive to enter illegal activities and thus would reduce the number of offenses.

The rational model predicts a link between economic and criminal activity. When the economy sours and legitimate money-making opportunities dry up, criminal activity is likely to increase.

A New York Times article this morning on shoplifting supports this analysis. It reports that,

As the economy has weakened, shoplifting has increased, and retail security experts say the problem has grown worse this holiday season. Shoplifters are taking everything from compact discs and baby formula to gift cards and designer clothing.

Police departments across the country say that shoplifting arrests are 10 percent to 20 percent higher this year than last.

The article identifies several other contributing factors, all of which fit within the rational framework.

Much of the increase has come from first-time offenders... But the ease with which stolen goods can be sold on the Internet has meant a bigger role for organized crime rings, which also engage in receipt fraud, fake price tagging and gift card schemes, the police and security experts say. And as temptation has grown for potential thieves, so too has stores’ vulnerability.

'More people are desperate economically, retailers are operating with leaner staffs and police forces are cutting back or being told to deprioritize shoplifting calls,' said Paul Jones, the vice president of asset protection for the Retail Industry Leaders Association.

Acknowledging that bad economic conditions contribute to crime is neither a capitulation to lawlessness nor an argument against pursuing other policies. Instead, it provides us with a better understanding of one of the factors--there are many others--behind people's behavior.

A rational analysis suggests that people, business owners, and law enforcement will need to be more vigilant during the tough economic months ahead.

An unfortunate sign of the times

The New York Times reports that the U.S. Postal Service is suspending its Operation Santa programs in New York and other cities. The programs, which have operated in different cities for more than 100 years, allowed post office customers to provide gifts to children who had written letters to Santa Claus.

According to the Times, "A Postal Service official in Washington, after an initial, limited acknowledgment of a 'privacy breach,' said that at one of the programs, not New York’s, a man whom a letter carrier recognized as a registered sex offender had 'adopted' a letter."

The problem with the program was that the Santas had the children's addresses and could provide gifts to children directly, sometimes in person.

The USPS is hoping to resume the program once it implements procedures to anonymize the children's letters. Under these arrangements, the post offices would act as clearing houses. They would replace the names and addresses in the letters with codes, and Santas would then only have the codes. Gifts would be brought to the post office, where workers would take care of subsequently unscrambling the codes and getting the gifts to the right children.

Sadly, even this wouldn't stop all possible abuses unless the USPS inspected the packages being sent to the children, as predators could still include their own contact information, or worse things, in the packages.

The USPS is absolutely right to take steps to protect the privacy and safety of children. It's terrible, though, that the bad actions of a few people could put such a worthwhile project at risk.

Nike Missile

The U.S. decommissioned its Nike Missiles in the 1960s, but it seems that two slipped into Iraqi hands.

I want it now duddy...

If Veruca Salt were touring Roddie Blagojevich's corruption factory, she might have asked for more than a golden goose.

Loans for infrastructure stimulus

In his Sunday New York Times column, Thomas Friedman called for the government to direct its stimulus "investments" towards projects with significant social, economic, and technological pay-offs, that is to make genuine investments. Some of the areas he would target include batteries for cars and "green" energy infrastructure. He also recommends adding a carbon tax to redirect consumer demand towards these greener alternatives.

One thing that isn't discussed is how the investments should be structured. The government should consider using loans rather than outright grants to make many of these.

Loans would take advantage of the government's good credit and ability to borrow at low rates. They explicitly address the "credit crunch" aspects of the current downturn. And the low rates end up effectively subsidizing the investment projects.

Loans also acknowedge that one way or the other, the funds that are going toward the stimulus will need to be paid back. If the money is really going toward economically worthwhile investments, the direct returns on those investments should be the source of repayment.

As William Nordhaus has long argued, fiscal deficits, including deficits directed toward "induced innovation," should be viewed in terms of their investment components. Why not go one step further and structure the spending the way that businesses and private parties would structure their investments?

Why you're standing on the bus

The American Public Transportation Association reported that public transit ridership in the third quarter of 2008 across the country jumped more than 6.5 percent over the same figure from a year earlier. Locally, bus ridership in and around Greensboro also appears to be up.

The increase in ridership occurred at time when gas prices were peaking (July); the increase also occurred during a period of growing unemployment. Not surprisingly, personal driving miles and gas consumption are down. Car sales are slumpting, too.

With gas prices now down substantially, it remains to be seen whether transit ridership levels will be sustained. There are reasons, however, to believe it will. A big hurdle to ridership is figuring out bus and train schedules and the methods for payment; once people have "invested" in obtaining this information, subsequent ridership becomes much easier. Even if they eventually go back to their cars, people with ridership experience are more likely to turn to occassional transit use when personal arrangements break down or when there are special events.

The new President and Congress are considering public infrastructure spending as part of their economic stimulus plans. Investments in transit infrastructure, including improvements in train tracks, should be included. Locally, bus routes need to be streamlined; regional services need to be better integrated, and bus service to the airport needs to be improved.

Unemployment figures

It's hard to sugarcoat numbers like these, somewhere between half to two-thirds of a million jobs lost on net in the month of November. The half a million figure comes from the Department of Labor's establishment data (information directly from firms), while the two-thirds figure comes from its monthly interviews of households.

To get even more academic for a moment and to borrow from George Will, those figures actually understate the number of jobs lost. In good times and bad, jobs are created and destroyed. Net job changes reflect the difference in the two flows, with new jobs offsetting some of the old jobs that were lost. A partial indication of the amount of dislocation is the more than 2 million people who have newly filed for unemployment claims in the past month. A better, though slightly dated, picture comes from the September job flows figures, which indicated that more than 4 million job separations occurred that month, along with about the same number of hires and 3.3 million job openings.

While distressing in themselves, we should brace ourselves for much worse job numbers in the coming months. From all indications, economic output is still contracting, with the pace of that contraction possibly accelerating. During that contraction, unemployment will get worse, and the job problems may not end there. Over the last two recessions, unemployment has been a lagging indicator. In the 1990-1 recession, unemployment didn't peak until June 1992 when it hit 7.8 percent, and in the 2001 recession, it didn't peak until June 2003 when it reached 6.3 percent. It's hard to say how much longer the economy will contract, but it's reasonable to assume that unemployment will continue to trend up through at least the coming year.

At 6.7 percent, the unemployment rate has now passed the peak from the last recession and on a path that would take it past the peak from the 1990-1 recession, perhaps as soon as next summer. Historically, (see the figures for the last 60 years from the BLS below), peak unemployment rates near 7 1/2 percent have happened before. However, as the country's experience in the late 1970s and early 1980s shows, post-war recessions can also produce much worse unemployment. For example, with the exception of just a few months, unemployment was at or above 7 1/2 percent from May 1980 until August 1984, peaking at nearly 11 percent at the end of 1982.
In some ways, we have been lucky to have had such little unemployment over the past 15 years; before the late 1990s, you have to go back to the 1960s to find a prolonged period of unemployment below 5 percent.

There is scant comfort that you can take out of the current job trends other than the perspective that the country has experienced some very bad economic times before and pulled through them. It will surely do so again.

A little too dismal

Latvian authorities don't seem to understand why economics is called the dismal science. They've arrested a university economics lecturer who questioned the stability of the Latvian financial system.