Saturday, September 18, 2010

Old age robs criminals' skill

Boston Herald article "Old age robs criminals' skill" (September 18th, 2010) offers a rarity for opinion editorials: an intellectually stimulating article and relatively original idea. The article's interesting question is: why does crime rise in some recessions, and fall in others? The article's proposed answer is recessions with high inflation drive crime because criminals see individuals as holding large amounts of cash now in anticipation for needing it in the future (implicitly, an economic "cash-in-advance" model). Recessions with low inflation will simply find individuals with less in their pockets, and therefore less to steal.
But in previous recessions, in the 1970s and ’80s, the crime rates went up. The difference perhaps was that those recessions were in times of high inflation, giving robbers an incentive to take your money while it still held its value.

Being broke, people don’t go out late and thus are less likely to be mugged. And if folks do travel, the thieves know they’re probably not carrying much of value.

If newspaper writers are going to undertake causal analysis or conjecture, it's enjoyable when they use good structure or thoughtful analysis. If the reflexive premises of the New York Times are that firms are evil and people are very dumb and easily tricked, this article argues that even criminals respond to incentives, and puts forth their testable conjecture--the pinnacle of a non-empirical opinion editorial.

As Corrections sees it, the testable prediction the Herald's conjecture offers is as follows: real goods, such as automobiles or jewelry, are relatively robust to inflation. Cash is not. If burglary and robbery are substitutes for one another, but inflation causes robbery to become relatively less valuable than burglary, then a difference-in-difference will bring out the causal link between inflation and crime.

That is to say when inflation changes from low to high, we should expect the difference between the change in robbery and the change in burglary to be negative. Below, we first graphically display the data: inflation rate, robbery and burglary rates over time (click to enlarge), from 1960-2003.

A graphical and first-approximation is to plot percent change in inflation on the x-axis and the difference between percent changes in robbery and burglary on the y-axis. As we can see from the positive slope, if anything an increase in inflation appears to lead to a relative increase in robberies, not burglaries, as the Herald's theory might predict (click to enlarge).
Of course, this is only a first-pass approach. Consumers, recognizing that inflation will cause more robberies, could reinforce their homes and cause less total robberies (due to security) that has a larger effect than inflation causing more robberies. However, the empirical evidence behind the Herald's theory appears weak--rather than burgling more inflation-robust assets when inflation increases, individuals are robbing more inflation-insecure assets when inflation increases.

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