Fewer break-ins? Turns out thieves are economists, too

This column originally appeared in The Globe and Mail on July 31, 2013.

Last week’s Economist magazine carried a headline reading, “The Curious Case of the Fall in Crime.” It seems that all around the industrialized world – including in Canada – all kinds of criminal activity is on the decline. Contrary to the belief that evil thugs lurk around every corner, we are actually safer than we have been in decades.

In today’s underground economy, identity theft makes better economic sense than stealing a flat-screen television. (Rafal Gerszak For The Globe and Mail)

The magazine’s editorial offers only guesses as to why crime rates are falling. Aging demographics may play a role, along with better theft-prevention technologies. Stiffer punishment and “get tough on crime” policies might make for good political posturing, but they seem to have little impact: Crime rates are falling in countries where sentencing has become tougher as well as where it has been loosened.

The Economist failed to mention the most obvious reason for the change – economic incentives. Thieves are simply doing what most of us do every day. They are responding to market signals.

This is particularly true of property crimes such as residential break-and-enter, car theft and armed robbery. The possible payoff for stealing from a home is dwindling. What is there worth taking? Electronics are increasingly less valuable – a computer or a television in the 1980s would have been worth thousands of dollars on the street; now they would fetch a few hundred bucks. Why buy a stolen iPod dock out of the back of some guy’s truck when you can get a new one for less than $100?

Car theft is down dramatically, too. According to Statistics Canada, car theft in Ontario plunged to 141 per 100,000 people last year, down from 443 in 1998. Better technology, car alarm systems and anti-theft devices have deterred most would-be thieves. And lower-priced cars without car alarms probably are not worth stealing anyway. The bad guys aren’t less bad, they’re just good economists.

Muggings and purse-snatchings are increasingly less common as well. But let’s not over-think the reasons why fewer thieves are snatching purses. It has nothing to do with the culprit’s age or job situation. Whether there was a father present in the thief’s childhood, or whether he or she played violent video games is irrelevant. The reason is that there’s just not much of value inside purses or wallets anymore. Cash has been largely replaced by debit and credit cards, and as long as the PIN is secure, the thief makes away with nothing more than plastic cards and chewing gum. Cellphones are more costly, but stolen ones are difficult to wipe and resell.

Criminals, like all of us, respond to market signals. If the potential payoff for any activity is too low, we weigh the risks and decide it isn’t worth it. For non-criminals, the question isn’t “Should I steal this car?” but something along the lines of “Should I put in new bathroom tile before I list my house?” People are quite good at reading and responding to market signals.

Still, we shouldn’t think that poor economic incentives are making crime go away. Crime is simply morphing. Traditional crime statistics tend to focus on activities such as robbery, property theft and murder. Fewer long-term trend statistics are available for crimes that are doubtless increasing, such as identity theft and cyber-crime. Not only are they potentially more lucrative, they are global in scope and much more difficult to track.

Thieves are also getting smarter, using technology for evil deeds. Internet scams abound, and bank-card skimming and credit-card fraud is a serious problem. Banks have had to fight back with their own technology and it has been costly.

Economic incentives play a huge role motivating us in almost everything we do. Certain actions are no doubt spurred by altruism and generosity, such as helping our neighbour shovel snow or donating to charity (although we still want the tax receipt). Weighing the financial incentives against the potential risks is the basis of our economy. Criminals may not know they’re doing it, but they’re just responding to market signals – and doing a good job of it.

Todd Hirsch is the Calgary-based chief economist of ATB Financial, and author of The Boiling Frog Dilemma: Saving Canada from Economic Decline.