The financial impact of crime

Scott Erickson Contributor
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One of the less obvious effects that crime has on society is the tremendous financial burden it places on both individuals and government. Efforts to more accurately quantify the specific financial costs associated to crime have produced a variety of results; however, one common theme resonates. Both the tangible and intangible costs of crime are placing a severe encumbrance on society and misappropriating significant resources that could otherwise be directed toward more productive endeavors.

The politics of crime tend to focus on the costs directly associated to the criminal justice system, e.g. the police, courts, and corrections system. While these costs are significant and often comprise a large portion of any given jurisdiction’s budget, the money allocated toward the criminal justice system should be viewed relative to the costs associated to the perpetuation of crime itself. Several studies have argued that the intangible costs emanating from crime far outweigh the formal costs linked to controlling it.

Intangible costs associated to crime are often difficult to quantify; however it is not difficult to imagine the long term effect that psychological trauma or a reduced quality of life have on victims of crime. Upwards of 5 million Americans are estimated to receive mental health therapy directly related to their victimization. This represents a significant financial cost in both real terms as well as in estimates of reduced individual productivity. The trauma associated to criminal victimization often leads to troubled personal and professional relationships and can limit the anticipated earnings an individual might expect to produce throughout their lifetime. Recognizing the reduction in lost opportunity costs significantly increases the financial impact that crime places upon society.

Seeking to more accurately account for these hidden cost estimates, economist David Anderson provided a disquieting account of the financial impact of crime in his 1999 study The Aggregate Burden of Crime. Anderson estimated the cost of crime within the United States to be upwards of $1.7 trillion annually. His estimates far exceeded those of previous studies; however a closer examination of his methodology provides a useful insight into his conclusions.

Anderson’s study included a comprehensive analysis of previously overlooked variables such as the aforementioned reduction in opportunity costs emanating from both the commission of crime as well as the victimization of crime. Often unrecognized are the potential earnings forecasts attributable to those serving time for criminal activity. Anderson estimated that each incarcerated inmate represented an annual productivity loss of over $23,000. Calculating lost opportunity costs coupled with the time and effort that individuals expend on securing their assets from crime, Anderson placed the annual loss from these variables alone at over $130 billion.

Anderson further estimated the costs of asset transfers associated to crime at well over a half-trillion dollars annually. Insurance fraud, theft, and other forms of graft represent a massive reallocation of resources and affect millions of Americans annually, according to the Federal Trade Commission. Vigorously pursuing and curbing the proliferation of identity theft alone can reap tremendous financial savings and allow for a more productive infusion of capital into the economy.

In addition to breaking down the financial effect of crime in terms of lost opportunity costs and asset transfers, Anderson’s study further categorized the costs related to crime-induced production, i.e. costs associated to activities solely related to the criminal justice system and its related components, and the value of risks to life and health. Providing a valuation to the risks to life and health emanating from criminal activity is certainly subjective; however it does not require great imagination to understand the impact that amended behaviors borne out of fear and resulting from criminal victimization has on thousands of individuals.

Irrespective of the variance found within the cost estimates of crime, its financial impact is clearly substantial. Unfortunately, these estimates are rarely considered when discussions of costs related to the criminal justice system are measured. As recently as 2006, the Bureau of Justice Statistics assessed the direct expenditures attributable to the three primary constituent elements of the criminal justice system (police, courts, corrections) to be over $200 billion. While diffuse and spread over the many respective jurisdictions providing criminal justice services, this nonetheless marks a significant expense burdening the American taxpayer. However, simply subtracting this expense from the total cost of crime calculated by Anderson leaves nearly $1.5 trillion dollars lost annually resulting from criminal activity. To put this into perspective, crime and its ancillary repercussions costs the United States nearly triple what amounted to its 2009 fiscal year Department of Defense budget.

Within this understanding it is possible to more accurately calculate the cost-benefit ratio relative to expenditures directed toward public safety considerations. Incapacitation as a criminological theory has both proponents and detractors; however common sense dictates that as our population increases so too does our need to provide the requisite criminal justice infrastructure necessary to handle the level of crime in society. The cost of building and maintaining correctional facilities may be substantial; however failure to address these logistical needs clearly represents an even greater financial burden. Additionally, several options geared toward the reduction of costs associated to the maintenance of correctional facilities exist, notably the adoption of privatization measures within the corrections system. Annual savings of between 10-15 percent have been estimated from the privatization of maintaining new correctional facilities.

The costs of crime are significant and far reaching. The long term effect of a singular act of traumatic crime can resonate years after its commission and the costs borne to victims and to society in general are often only outweighed by its psychological impact. When future declamations concerning the costs of public safety undoubtedly arise, public policy makers should take note of the financial impact that results from its insufficient attention. Prudence and restraint should mark the guiding principles of any individual designated to appropriate public funds; however decisions should be made in full light of the breadth of their impact on current and future financial considerations.

Scott G. Erickson has worked in the field of law enforcement for the past decade and holds both his B.S. and M.S. in Criminal Justice Studies. He resides in the San Francisco Bay Area.