Economy Down, Crime Up

I have often made the case that increasingly difficult economic times will spur an increase in crime, especially opportunistic acts by desperate but otherwise law-abiding individuals. Yet while that might seem self evident, there is some debate about it.

Some criminologists have argued, for example, that the link is weak. Among other things, they cite the fact that crime rates rose during the early years of the Great Depression but then fell. Others give equal weight to factors such as the "broken window" theory (for more about that, see Malcolm Gladwell's 1996 New Yorker article, "The Tipping Point").

While those arguments have merit, it's hard to dismiss the connection between incentives (e.g., like the need to feed your family) and human behavior (just think about all the bad loans that the financial community made because of the fees  and bonuses involved and the sense that they couldn't lose because the risk was supposedly shifted elsewhere).

In fact, as I noted in Chapter 11 of Financial Armageddon, "sociologist Steven Box outlined a strong link between illegal activity and unemployment, poverty, and heightened competition in his 1977 book, Recession, Crime, and Punishment. Based on studies undertaken in the United States and elsewhere, Box concluded that a 'deterioration in material circumstances does lead to more crime.'"

Bearing in mind that coincidence does not equal causation, the following report by Christine Dugas of USA Today, "More Consumers, Workers Shoplift as Economy Slows," doesn't seem at all surprising.

One morning last month, the manager of a Stop & Shop in Methuen, Mass., noticed a man, along with his young daughter, leave the store without paying for several bags of shrimp. When police arrived, they found something else on him, too: 20 cans of baby formula.

Call it a sign of the times. Steadily and alarmingly, shoplifting seems to be rising at many retail chains, and experts are pointing at a prime cause: the sputtering economy.

"Wages aren't keeping up with inflation, especially the price of food and energy," says Diane Swonk, chief economist at Mesirow Financial. "It just leaves less money for everything else, and that breeds a lot of temptation."

Retail and law enforcement experts agree that they've seen an increase in store theft during the current slowdown — and not only from customers.

"It's clear that both employee theft and shoplifting are up," says Richard Hollinger, professor of criminology at the University of Florida who compiles the annual National Retail Security Survey. "The most recent rise is being driven by the economy. A lot of people are on the financial edge."

When 116 retailers were surveyed recently about shoplifting, 74% said they believed that shoplifting incidents last year had risen from 2006, according to the National Retail Federation.

And when a smaller group of retailers were asked about shoplifting so far this year, nearly all said it has continued to rise, says Joe LaRocca, vice president of loss prevention at the National Retail Federation. They also said they felt the economy had been a contributing factor.

All told, retail theft is estimated to cost about $40.5 billion a year. And the rest of us, already squeezed by higher gas and food prices, end up paying for it: Stores pass on much of their losses to customers in the form of higher prices.

"Retailers can't afford to just eat that loss," Hollinger says. "Their margins aren't large enough. So this hits right on the bottom line, and they're trying to plug up all of these leaks, because the economy is so tight."

Among the reasons the sluggish economy is thought to be contributing to rising shoplifting by customers and store employees:

•Rising prices and growing debt. "Unfortunately, it's to be expected that when the economy moves into a slowdown, and families have difficulties meeting week-to-week and month-to-month bills, shoplifting is going to go up," says Bruce Hutchinson, professor of economics at the University of Tennessee at Chattanooga.

Most police departments don't collect data on the profiles of shoplifting suspects. But some who deal directly with the problem say they've detected a shift.

"In general, the shoplifter of the past was mostly trying to fuel a drug habit," says Sgt. Alfred Pratt of the Shrewsbury, Mass., Police Department. "But we've seen a change as the economy has declined. More common, everyday items are being stolen, such as groceries."

The district attorney's office in Knoxville, Tenn., says it's seen a similar change. "We get a lot of shoplifters, and I see the trend upward," says Samyah Jubran, a Knox County assistant district attorney general.

Now, she says, there's more food theft, and it tends to come from repeat offenders, many of whom seem to be struggling with financial issues.

•Fewer store clerks. Squeezed by the tightening economy, stores are looking to trim costs. One easy way is to reduce the number of sales clerks on the floor. With fewer employees greeting people at the door and watching shoppers walk the aisles, it's easier for shoplifters to grab and stash merchandise.

In April, when about two dozen retailers were asked about store theft so far this year, LaRocca says, most said they thought that reduced sales and staff cutbacks had been a contributing factor to the rise in theft rates, involving both consumers and employees.

If stores "don't have a lot of people on duty in the store, particularly in these big-box stores," Hollinger notes, "it leaves what are called dead zones. That's where shoppers can stuff things up their shirts or in their pocketbooks, take off the tags and do all sorts of things."

With fewer employees promoting merchandise, some retailers have felt the need to unlock and display high-price products, such as jewelry and watches, outside their usual glass cases. That might help spark more sales. But it's also likely to lead to more theft, says Mike Keenan, director of loss prevention at Mervyns department stores.

Job turnover, whether of sales associates or store managers, is a leading predictor of employee theft, Hollinger says. In 2006, retailers estimated that employee theft had caused 47% of their company losses, according to his most recent National Retail Security Survey. Hollinger's survey found that employees accounted for nearly half the total cost of retail theft.

Many employees who are caught are dismissed but not prosecuted.

"After dismissal, most are also required to provide civil recovery and pay restitution," Hollinger says. "Just because retailers don't always prosecute does not mean that they do not know where their merchandise and money is going."

•Rise in organized retail crime. The economic slowdown has led many shoppers to seek deeply discounted products through the Internet, says Paul Jones of the Retail Industry Leaders Association. Exploiting the opportunity, criminal teams are zeroing in on retail products and selling them cheaply, authorities say.

"It's become more lucrative for them," Jones says.

Gangs of professional thieves account for $15 billion to $30 billion in retail losses every year, the FBI and the retail federation estimated in 2005.

This year, 85% of retailers said they thought they'd been victims of criminal enterprises in the past 12 months, according to a survey the retail federation released this month.

The Internet has made it much easier for thieves to sell more stolen items, because "they used to have to sell at a garage sale or flea market or through a fence, and those were generally local," Keenan says. Now, he notes, it's easier to use the Internet to unload products across the country and the world.

Many people are willing to grab those deals, even if they suspect they might be buying stolen goods.

"Consumers are looking for a big bang for their buck," says Swonk, the economist at Mesirow Financial. "If it's stolen goods, they're going to get it at a better price than at the retailer. It's creating another market."

Questionable medicine

Yet, doing so could carry health risks in some cases.

"We've found that many people buy infant formula through different online auction sites," Jones says. "But they don't know if that merchandise is properly stored, if it has the correct date on it or if it is even the right merchandise."

Last week, after a two-year investigation with the FBI and IRS, the San Jose, Calif., Police Department busted a shoplifting ring whose thieves had stolen merchandise from grocery stores and discount retailers. Products that included Pepcid AC, Claritin and Tylenol were sold on the Internet and at flea markets, police said.

Last year, the FBI joined with the retail industry, which it relies on for shoplifting data, to pool information and help combat organized retail theft.

Only in recent years, though, have a majority of retailers been willing to discuss merchandise theft. "In 1991, when we started this process," Hollinger says, referring to his National Retail Security Survey, "it was like root canal."

But shoplifting and employee theft have imposed such financial burdens on retailers that more of them are seeking answers.

"It's the single largest category of property crime in America, bar none," Hollinger says. "Bank robberies, car theft — nothing comes close to this."

As long as the economy remains weak, many experts think the trend will persist.

"When the economy is down, shoplifting and other crime go up," says Mark Zandi, chief economist of Moody's Economy.com. "People are losing jobs or moving from a full-time to a part-time job. But they still have the mortgage to pay and the credit cards to pay."

Comments

[Truesincerity]

Can we get a list of "idiots" i mean "experts" who said the Bear Stearns debacle, marked the bottom for the market. How can they keep their jobs, with such horrible insight. Here we are again back under 12k, approaching those lows again. God help those who listened to these over paid experts.

[Colin]

We are not currently doing any analysis at SpotCrime.com on the increase in crime as a result of the economy. However, you can get a scope of the amount of thefts in the city where we have good police data - Baltimore, Dallas, Washington DC, LA, Oakland, Philadelphia and Raleigh.

[roger]

Does criminal activity increase during bad economic times?
Does killing and hate increase during war time?nay.....its just coincidence!

[the_economist]

I dont know if crime goes up in bad times, but last week in Orlando a 53 year old woman was caught robbing a bank. I had never heard of this before. She must have been a realtor:-)

[the_economist]

I talked to the captain of our county sheriffs department. He said they are gearing up for more crime as a result of the economy.

[tw]

I think the argument is missing the mark altogether. The incentive is not the need to feed a family, it is the very public examples of theft by politicians, celebrities and corporates that receive very little punishment. In addition the attitude towards punishment is increasingly lax.

If illegal aliens can come to the country and get away with it, whats a little shoplifting? If a politician can steal, take money from a special interest and enjoy the benefits of the publiic dime, well what about something to feed the family.

Crime is a product or risk reward, and when one looks at the US and the attitude in particular to the issue of "illegal" aliens, then one has to conclude that crime must be ok. Why? Because the cost of crime to the criminal is negligable compared to the rewards kept and the fame gained. That is unfortunate for the average American struggling with a host of real world economic and moral challenges.

[Joe]

Could it be that the economic slow down provides an excuse, since many people seem to be blaming the economy for the rise. It seems to me that it may be a self-fulfilling prophecy. When the economy slows down, we expect a rise in theft-related crime, so we talk about it. The thieves see all the attention given to this subject, and then they have an excuse. I'm sure there are some real cases where this rise in theft is actually need-driven, but in my experience, theft is almost always greed-driven.