Economic Issues & Policy
- Jacqueline Murray Brux
Crime and Drugs
17
Our insatiable demand for illegal drugs fuels the drug trade. Our inability to prevent
weapons from being illegally smuggled across the border to arm these criminals
[drug traffickers] causes the deaths of police officers, soldiers, and civilians.
• Secretary of State Hillary Rodham Clinton, on a visit to Mexico, March 26, 2009
PowerPoint slides prepared by:
Andreea Chiritescu
Eastern Illinois University
© 2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible Web site, in whole or in part.
1
Crime and Drugs
• Crime
• Any action that is forbidden by law and carries
criminal penalties
• Violent crimes: murder, rape, robbery, and
assault
• Offenses against property: arson and theft
• Other crimes: gambling, prostitution,
possession of and trafficking in drugs, and
sales of pornography
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2
Crime and Drugs
• Crime costs:
• Damage to property and to people
• Policies undertaken by government to prevent
and punish criminal activity
• Administering the criminal justice system
• Police, courts, and prisons
• Violent crime rates
• Have fallen since 1990
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3
Table 2-1: Violent crime rates in United States (number of
crimes per 100,000 inhabitants), selected years 1990–2008
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4
Table 2-2: Number of crimes, by type of violent crime
and by property crime, 2007, in thousands
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5
Crime Prevention
• Crime prevention = public good
• Public goods and services
• Characteristics
• Indivisible
• Nonrivalrous
• Nonexcludable
• Subject to the free-rider problem
• Often provided by the government
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6
Crime Prevention
• Indivisible
• Impossible to divide into units sufficiently
small to be sold in private markets
• Nonrivalrous
• Use by one person does not prevent use by
others
• Nonexcludable
• Benefits cannot be kept from persons who
do not pay for the goods’ provision in a
private market
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7
Crime Prevention
• Free-rider problem
• Individuals that do not pay their share for a
good or service nevertheless enjoy its benefits
• Private market
• Is not efficient in providing public goods
• Government
• Usually provides public goods and services
• Finances them with tax revenues
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8
Crime Prevention
• Crime prevention measures
• Police
• Police cars, police-sponsored activities for
young people, support of neighborhood watch
programs, investigation of crimes
• Criminal courts: Bring to trial those who have
been accused of violating criminal law
• The prison system: Incarcerate, punish,
rehabilitate
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9
Crime Prevention
• Cost-benefit analysis
• A study that compares the costs and benefits
of a policy or program
• The activity is justified only if the benefits
are greater than the costs
• If two policies both have greater benefits to
society than their costs
• The one with the larger net benefits should
generally be adopted
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10
Crime Prevention
• Net benefits
• The excess of benefits over costs
• Benefits of crime prevention activities
• Value of property damage that is prevented
• Medical expenses, psychological trauma, loss
of income, and other expenses
• That are not incurred when criminal assaults
are prevented
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11
Crime Prevention
• Costs of anticrime activity
• Costs of equipment
• Squad cars and prison cells
• Salaries and fringe benefits of
• Police, court, and corrections personnel
• Costs of administering the system
• Opportunity cost – production possibilities
frontier
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12
Figure 2-1: Production possibilities curve for crime
prevention
Resources used for crime prevention are not available for other uses. Over time, the
United States has moved from a point such as A to a point such as B on the curve.
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13
Crime Prevention
• Increased costs of our prison system
• Corrections activities
• Higher levels of incarceration, longer prison
sentences
• Supposed to reduce crime:
• Deter would-be offenders from committing
crimes because of the increased likelihood of
a prison sentence
• Physically prevent convicts from committing
new crimes while they are in prison
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14
Table 2-3: Incarceration rates (number of incarcerated
people per 100,000 inhabitants), top 10 countries a
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15
Crime Prevention
• Increased costs of our prison system
• Corrections activities
• Higher levels of incarceration, longer prison
sentences
• Supposed to reduce crime:
• Deter would-be offenders from committing
crimes because of the increased likelihood of
a prison sentence
• Physically prevent convicts from committing
new crimes while they are in prison
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16
Crime Prevention
• Discussion of imprisonment policy
• Decreasing violent crimes against persons
• Conflicting conclusions
• The result of differences in research methods
• Prison overcrowding and the nature of the
prison population
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17
Crime Prevention
• Increase in prison population
• Mandatory minimum sentences
• The 1994 federal crime bill
• Truth in Sentencing provision
• “Three strikes and you’re out” laws
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18
Cost-Benefit Analysis of the Death Penalty
• Death penalty costs
• More expensive than a sentence of life in
prison
• Trials for death penalty
• Tend to take longer
• Typically require more lawyers and more costly
expert witnesses
• Are far more likely to lead to multiple appeals
• Death penalty benefits
• Possible deterrent of capital crimes
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19
White-Collar Crime
• White-collar crime
• Crime by business managers
• And their supporting structure of boards of
directors, accountants, investment bankers,
lawyers
• And other professionals who engage in
dishonest practices for financial gain
• Can include corrupt politicians and lobbyists
• Nonviolent crimes
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20
Should Drugs Be Legalized?
• Substance Abuse and Mental Health Services
Administration of the U.S. Department of
Health and Human Services
• Regularly conducts a national survey on drug
abuse
• 46% of population - admits to using some
illicit drug during their lifetime
• Marijuana or hashish
• Prescription drugs
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21
Table 2-4: Share of respondents acknowledging drug use in
their lifetime, persons age 12 or older, by type of drug, 2004
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22
Should Drugs Be Legalized?
• Background on the legal status of drugs, U.S.
•
•
•
•
1914, opiates illegal
1937, marijuana illegal
1920 – 1933, alcohol prohibited
Currently: alcohol and tobacco are legal but
cannot be sold legally to minors
• Many European countries
• Much more relaxed drug laws and policy
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23
The War on Drugs: U.S. Antidrug Policy
• Decrease the supply of drugs
• Efforts to prevent drugs from entering U.S.
• Increased severity of punishment for selling
drugs
• Involve the U.S. military
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24
The War on Drugs: U.S. Antidrug Policy
• Decrease the demand for drugs
• Drug awareness & education programs for
youth
• Increased penalties for possession of illegal
drugs
• Prisons - drug treatment programs for
offenders
• Zero tolerance of drug use
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25
The War on Drugs: U.S. Antidrug Policy
• Argument against drugs legalization
• Adverse personal health consequences of
drugs
• Expected increase in drug-related social
problems if drugs were to be legalized
• Successes of the war on drugs
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26
The War on Drugs: U.S. Antidrug Policy
• Argument in favor of drug legalization
• Efforts to restrict the supply of drugs
• Have largely failed
• Link between illegal drugs and crime
• Drugs may contribute to corruption
• Drug law enforcement may be discriminatory
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27
The War on Drugs: U.S. Antidrug Policy
• Argument in favor of drug legalization
• Drug enforcement
• May violate our constitutional rights
• Financial & opportunity costs of drug
enforcement
• Health consequences of our drug policies
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28
The War on Drugs: U.S. Antidrug Policy
• Many benefits of the legalization of drugs
•
•
•
•
•
Tax dollars for the government
Drugs would be safer
Organized crime might exit the drug industry
Less criminal activity
Resources saved: education & treatment
programs
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29
Economics of Prohibition or Legalization
• Effect of legalization on demand for drugs
• Increase in demand
• Higher price
• Higher quantity
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30
Figure 2-2: Effect of legalization of drugs on the demand
for drugs
Legalization would increase demand from D to D’, which would increase price to P’ and
quantity to Q’
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31
Economics of Prohibition or Legalization
• Effect of legalization on supply for drugs
• Increase in supply
• Lower price
• Higher quantity
• How much the use of the drugs would increase
depends on elasticity of demand
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32
Figure 2-3: Effects of the legalization of drugs on the
supply of drugs
Legalization of drugs would increase supply from S to S0. The effect of the new equilibrium
quantity (drug use) and the new price depends on the elasticity of demand.
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33
Economics of Prohibition or Legalization
• Inelastic demand
• Demand in which buyers are relatively
unresponsive to changes in price
• Highly addictive drugs (cocaine)
• Elastic demand
• Demand in which buyers are relatively
responsive to changes in price
• Less physically addictive drugs (marijuana)
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34
Economics of Prohibition or Legalization
• Regulation through economic policies
• Government’s expenditures on drug-related
programs
• Demand-side treatment & education programs
• A system of excise taxes levied on legal drugs
• Decrease the supply of the drug
• Regulated and kept out of the hands of minors
• Drivers under the influence of any drug could
be arrested
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35
Figure 2-4: How an excise tax can decrease the use of a
legalized drug
The excise tax causes a backward shift in the supply of the drug, resulting in a higher price
and lower quantity (usage).
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36
Economics of Prohibition or Legalization
• Excise tax
• Tax applied to the purchase of a specific good
or service
• Decrease in supply
• Higher price
• Lower quantity
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37
Legalization of Other Victimless Crimes
• Other so-called victimless crimes
• Pornography and prostitution
• Considered crimes because of public censure
and disapproval
• No victim
• Purchase of pornography or the services of a
prostitute – consensual transaction
• Child pornography
• A child, by definition, cannot give mature and
free consent
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38
Legalization of Other Victimless Crimes
• Most women in prostitution
• Have been sexually abused as children
• Economic hardship and racism
• Psychological and physical harm
• Vice squad for victimless crimes
• No “victim” to file a complaint
• Corruption of police working the vice squad is
thought to be higher than of police working
details such as robbery
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39
Diversity and Crime
• 1990 – FBI reports statistics on hate crimes
• Crimes of prejudice based on race, religion,
sexual orientation, and ethnicity
• 1994
• Crimes of prejudice based on disability
• Hate crime
• Motivated, in whole or in part, by the
offender’s bias against people in terms of
these categories
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40
Figure 2-5: Share of each factor involved in hate crimes,
2007
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41
Diversity and Crime
• More women are now being incarcerated
• Many are not serious offenders (drug)
• They and their children suffer from the long
incarcerations
• Many women prisoners have histories of
physical and sexual abuse, high rates of HIV
infection, and substance abuse
• Sentencing Project - estimates that 125,000
children suffer from their mother’s
incarceration and the loss of family ties
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42
Diversity and Crime
• Racial dimension to incarceration
• Two-thirds of the people in prison are of racial
and ethnic minorities
• War on drugs
• Racism
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43
Diversity and Crime
• Women - victims of domestic violence
• Widespread phenomenon in both the
developed and less-developed worlds
• Rates of partner violence
• From 15% in Yokohama, Japan
• To 71% in rural Ethiopia
• U.S.: 25% of interviewed women said that
they had been physically or sexually assaulted
by a spouse, partner, or date
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44
Other Global Dimensions of Crime
• Impact of crime on the global business
environment
• Business crime: theft, robbery, vandalism,
arson
• Corruption rate, white-collar crime
• Firms that make informal payments to public
officials in order to “get things done”
• Serious problems in opening markets in
Eastern Europe & developing countries of the
world
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45
Table 2-5: Business crime ratesa & corruption ratesb, selected reporting
Eastern European & Developing countriesc, from highest to lowest crime rates
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46
Conservative versus Liberal
Economic conservatives
Economic liberals
• Less government
involvement in economic
realms
• Support the legalization of
drugs and other victimless
crimes
• Excise taxes
• Note: Social conservatives
would not support such
legalization
• Greater government
intervention in the
marketplace
• Favor the criminalization
and prohibition of drug use
and other so-called
victimless crimes
• Note: social liberals are
more likely to support
legalization of drugs
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47
Elasticity
• Elasticity of demand
• Responsiveness of consumers
(buying decisions)
• To changes in the price of the product
• Elastic demand
• Buyers - responsive to changes in price
• Inelastic demand
• Buyers - unresponsive to changes in price
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48
Elasticity
• Elasticity coefficient
• If demand is elastic
• Elasticity coefficient > 1 (absolute value)
• Any percentage change in price causes a larger
percentage change in quantity demanded
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49
Elasticity
• If demand is inelastic
• Elasticity coefficient < 1 (absolute value)
• Any percentage change in price causes a
smaller percentage change in quantity
demanded
• Perfectly inelastic demand
• No response to a change in price
• Demand – vertical line
• Elasticity coefficient = zero
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50
Elasticity
• Perfectly elastic demand
• The price doesn’t vary but the quantity
demanded varies infinitely
• Demand – horizontal line
• Elasticity coefficient = infinity
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51
Figure 2-6: The extremes of elasticity
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52
Elasticity
• Demand curves
• The flatter (closer to horizontal) curve will be
more elastic
• The steeper (closer to vertical) curve will be
more inelastic
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53
Figure 2-7: Two demand curves of varying elasticity
D1 is less elastic than demand curve D2 at prices near their $4 intersection
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54
Elasticity
• Excise tax – supply decrease
• Less physically addicting drug
• Elastic demand
• Decrease in quantity
• Smaller increase in price
• Greater burden of the tax falls upon the
supplier
• Lower profits
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55
Elasticity
• Excise tax – supply decrease
• More physically addicting drug
• Inelastic demand
• Very little decrease in quantity
• Bigger increase in price - by almost the full
amount of the tax
• Greater burden of the tax falls upon the
consumer
• Higher price of the drug
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56
Figure 2-8: Two demand curves of varying elasticity with
the imposition of an excise tax
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57