Are prisons a “good deal?” Possibly

Things are still kinda slow lately but PredictIt is still giving Trump a 43% chance of being impeached by the end of 2019 and a 77% chance by the end of his first term, which, imho, are absurdly high probabilities. The impeachment inquiry, as I predicted over a month ago, is going to stall and crash. The case for the democrats hinges on proving that Trump engaged in ‘quid pro quo’ but this is far from conclusive as this depends on how one interprets the audio, and even if he did, not necessarily impeachable. Unfortunately, as it came to my attention last week, PredictIt limits bets to just $850 per contract per user. So this means that at most you can make about $620 (including fees and other costs) if Trump is not impeached by the end of 2019 by buying the ‘no’ contract, now trading at 57 cents, which I think is a slam-dunk bet. I have always assumed that given all of the media hype surrounding PredictIt, similar to sports betting, that gamblers and traders are wagering tens of thousands of dollars or more for these contracts, but a $850 limit is laughable.

But back to the main subject of this article, prison costs, a common argument by the left is that housing inmates is a waste of money. An often cited stat is that it costs $75k/year to house an inmate (this is for California; nationwide, the amount is much less, around $30-40k), which is an argument that is supposed to sway conservative and libertarian types as a waste of taxpayer money and justification for rehabilitation programs or more lenient sentencing guidelines. Surely that money could be better spent, the argument goes. But I think the left underestimates the social and economic cost of crime. The $30-40k/year, when one runs the numbers, is a comparable bargain after factoring in such costs and explains why high incarceration rates in the US, despite outcries from the left and also some libertarian types, is effective policy.

Consider shoplifting. I use this as an example because it is considered to be a comparably harmless crime relative to other types of crime, such as drug trafficking or assault. However, it inflicts a great economic cost. According to a study, “inventory loss due to shoplifting, employee or supplier fraud and errors cost U.S. retailers an estimated $44 billion in 2014:”

Shoplifting accounted for the largest portion of the loss at 38 percent, followed by employee theft at 34.5 percent, administrative and paperwork theft at 16.5 percent, vendor fraud or error at 6.8 percent and unknown loss at 6.1 percent.a candy bar or a pair of jeans, said Bob Moraca, the NRF’s vice president of loss prevention.

Employee theft can also be lumped in with shoplifting as just ‘retail theft’. The end result is the same: stores lose money. Employee theft, because it is internal, gets less attention in the press than shoplifting but evidently a major problem and very expensive.

So how much merchandise does a shoplifter or bad employee steal? Quite a lot, even if it is not a daily occurrence, because it adds up over the weeks and months that the thief is not caught and continues to steal. It does not just have to be professional crime rings but lone shoplifters also impose a great cost, because there are so many of them and they repeatedly steal small amounts over and over that it adds up to a lot of money, and this problem is compounded by the fact that retail has very small margins.

Shaver heads, razor blades, baby food, and electric toothbrushes are some of the most commonly stolen items because they are expensive, have high resale value, nonperishable, and easy to conceal. A package of electric toothbrush replacement heads can cost around $20. ‘Gillette Fusion Manual Men’s Razor Blade Refills’ can cost $35. If someone steals just three of these a day, that alone, over a year, adds up to the annual cost of incarceration. But professionals have been known to seal thousands of dollars of merchandise a day to resell, spread out over dozens of stores in a metropolitan area as to reduce the likelihood of being caught. This can add up to $1 million of more in a year, which is about 30x the annual cost of incarceration. Given that retail stores have around 3% margins, it requires about a million dollars in annual sales to cover the loss of a single shoplifter who steals $100 worth of merchandise a day.

However, even if retail theft is very expensive, the loss of potential tax revenue is obviously much less, which complicates the calculation. An infographic shows that a $100 shoe sold at Footlocker only produces $3 in income tax, so if such a shoe was stolen, it would be a much bigger loss to the retailer than to local and federal governments. It is in the best interests of retailers to have strict policing but possibly less so for taxpayers. But consider that the $40 billion/year stolen by shoplifters and employees is in spite of current policing and sentencing guidelines. Although experts may argue that prison is a weak deterrent, it is one nonetheless. It would be reasonable to assume that with much less policing and sentencing that the amount stolen would increase. The amount of crime prevented by prisons and police acting as a deterrent can be in the hundreds of billions, even trillions, of dollars, so that must be factored into the equation.