The summer before last, widespread riots, arson, and looting occurred in many American cities. City police forces, at the direction of mayors and city councils, largely stood by and let it happen. Most of the few people who were arrested during these events were let go immediately by prosecutors who refused to prosecute their crimes. (Now) Vice President Kamala Harris and celebrities lead funding efforts to raise bail for those who were arrested.
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Since that time, many cities have continued to turn a blind eye as individual shoplifters and gangs of smash and grab robbers pillage stores. Many cities have raised the limit under which they won’t aggressively pursue prosecutions to $1000, meaning individuals who steal less might need to just pay a fine if they are caught. This has lead to a lot more shoplifting since the consequences even if you are caught are light. The thinking goes that these stores are all insured, so these crimes really don’t hurt anyone. Most stores will not even try to stop someone and most of these crimes are not pursued, so stores in places like San Francisco are being robbed relentlessly.
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Who pays for theft?
Perhaps you see a Walgreens getting robbed and figure that it doesn’t effect you. A department store gets cleaned out, but you figure that doesn’t matter to you. You picture some rich executives just losing a bit of money. Perhaps you think you are “sticking it to the man.” Maybe you think it is the businesses themselves, the corporations, who are losing the money and figure they can just pay it out of their billions of dollars in profits.
But crime effects everyone to some degree. A store must make a profit to stay in business, so if they are continually getting robbed, or need to pay for tight security to prevent theft, they’ll need to raise their prices to cover the costs. If they need to raise their prices too much for the area and lose too much business, they’ll close their doors and won’t be available for the area anymore.
You’ve probably noticed that prices have been going up. This has been blamed generically on inflation, rising fuel prices, a lack of workers to produce goods, and just COVID in general. Certainly all of these causes have had an effect, but increased theft and damage from vandalism and arson have also caused prices to rise. If you go into a store and buy a pair of pants, you pay for them and walk out with a pair of pants. If a store gets robbed and someone steals a pair of pants, we all pay for it but get nothing.
In general things will cost more in the areas with high crime. If a store is part of a chain, however, it is likely that everyone in the country will pay part of the cost since they’ll spread the cost of lost goods at one store over the prices at many stores to the extent that they can. They can’t do this too much since independent stores and chains that don’t have locations in areas with high crime will be able to undercut their prices and take away customers, but they will spread it out as much as they can. A store having insurance doesn’t insulate you either since then their insurance rates will go up, which will increase the costs a lot of stores have, causing them all to raise prices.
The effect on an area
Probably worse than the price increases seen are the effects that crime has on an area. Security is the critical element a government must provide to enable commerce to exist. Without this, many businesses will simply close up. Many politicians and activists complain about “food deserts,” areas where there is little access to fresh produce and other healthy food options, but areas that have high rates of crime cannot support large grocery stores because they don’t make a high enough margin to cover security costs. Instead, there are just small food markets with highs security that sell high profit packaged foods and fast food restaurants that see relatively little theft due to security measures and the lack of foods that can be shoplifted.
This in turn makes an area undesirable to live in, so those who are able to do so move out. This reduces the taxes an area has to spend, the number of citizens that are involved in volunteerism and the incentive to just keep a home in good repair and attractive, further degrading the neighborhood. Fewer businesses also mean fewer jobs, so the area economy suffers further.
Turning things around starts with providing security
In the late 1970’s and 1980’s, New York City was a haven for crime. The setting was the inspiration for several gritty crime movies and TV shows, but it was a pretty miserable place to live. In this setting, Bernie Getts rose to notoriety when he shot several teens who were trying to rob him on a subway car with sharpened screwdrivers. Such was the state of the area.
But then the mayor and the police department instituted the broken window policy. Rather than ignoring minor crimes like vandalism and shoplifting, they started prosecuting them vigorously. They started arresting people who were jumping the subway turnstiles to avoid paying. They discovered that a lot of the people they caught doing small crimes were the same people doing big crimes. They also found that if people found that they could get away with small crimes, they were more likely to try big crimes.
As a result of this policy, the crime rates in New York City dropped dramatically and the city was largely safe through the late 1990s through 2010’s. Retail thrived and the city regained a lot of the luster it had lost. Unfortunately, under Mayor De Blasio and Governor Cuomo with their tolerant on crime policies, crime has again soared and we will likely see stores close again.
The first step in turning an area around is to get serious about stopping crime, even small ones. There are always people wanting to start a business and serve an existing customer base, but they won’t do this if they don’t feel the area is safe. The people in the area will also pay higher prices until security is established. Crime affects everyone.
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Disclaimer: This blog is not meant to give financial planning or tax advice. It gives general information on investment strategy, picking stocks, and generally managing money to build wealth. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. Tax advice should be sought from a CPA. All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing.