Violent Crime Means Recession Time

[akrowne]

Please excuse the flip title, for this is a serious matter. I refer to the recent rise in crime and its violent subcategory. If you haven't heard about this or been unfortunate enough to experience some of it first hand (like the unfortunate souls who have had their cars broken into at my apartment complex in the past few months), here's a story covering the basics in it.

A more thoughtful take on the matter appeared in last week's Barron's, apparently little-noticed amongst the blizzard of attention whipped up by the by the inane cover story on "platform companies" (the links are excellent rebuttals, to be sure). But in the same issue, Jim McTague wrote in "Will Violent Crime Mug the Economy":

The FBI report for 2006's first half indicates the annual crime rate will be higher for the second consecutive year. Violent crime from January through June was up 3.7%, versus the first-half 2005 level. Robberies, a component of the category, rose 9.7%. Violent crime climbed 2.3% for all of 2005, with robberies up 3.9%.

Based on FBI reports going back to 1972 and the business cycle chart compiled by the National Bureau of Economic Research, it looks as if violent crime trends upward at the beginning of a contraction and generally stays up through the initial phases of a recovery. The same pattern emerges when you overlay historical statistics for robbery alone from the Bureau of Justice Statistics. Holdups increased noticeably in 1973, 1980, 1981, 1990, and 2001, years in which recessions began. Though we haven't offered this observation to the economics profession for rigorous review, it makes intuitive sense that, when times get tough, the toughs get tougher. If the robbery stat is higher when the FBI issues a full-year report in the late summer or early fall, take some profits.

I have suspected this ever since I saw the first stats about crime heading back up, earlier this year and last. In specific, I expected a continued and disproportionate increase in economic crimes, which is showing in the robbery stats. The reasoning is simple: we're really in or closer to a recession than is being popularly acknowledged, so the situation on the streets is already beginning to resemble a recession.

By looking at various metrics, not all of them "street", I've come to the conclusion that recessions typically start as much as a year earlier than publicly acknowledged, and end 1-2 years later. While most people take the NBER's recession dating as gospel, it is an essentially academic question as to precisely when something as complex as a recession begins and ends. Taking the boundaries as a specific, nearly-arbitrary set of months, and then running higher-level economic analysis on that, is very much a Ministry of Truth practice. Certainly, basing this categorization purely on data as dubious as the government statistics on GDP and employment is a recipe for near-complete separation from reality.

And so it is this time. You cannot fool the economic situation of millions of people. Pushed hard enough in hard times, the bottom rung will do what it perceives it has to do to survive.

This commentary is also available at autoDogmatic.