Saturday, May 24, 2014

Shoplifting, Redlining and Kleptocrats

NOTE: These 12 essays are being reproduced from my now defunct blog Random Notes, as I intend to cite them in my upcoming essay on the use of words will emotion-heavy connotations and little in the way of actual denotation (such as "need" versus "want", or "exploit" and "fair").

I realized as I was thinking through the general outline of this article that i have recently started an inordinate number of my posts with personal anecdotes. Not that doing so is that unusual, I have used personal tales as introductions throughout the life of my blog, as far back as the second post. However, it seems in recent months it has become even more common. I suppose some may take it for an affectation, an attempt to make stories approachable by including everyday elements before diving into more technical matters. But nothing could be farther from the truth. In reality, the essays are written the way they are simply because that is how they come into existence. If they begin with a personal tale, it is because they originated as the story relates. It may seem strange for random movie reviews or trips to the grocery store to lead to some of the very technical economic and political essays I post, but that is the truth. and perhaps today's essay will provide a perfect example how a mundane event can lead to not one, but two seemingly unrelated topics.

My tale begins with my mother. She is, like many women I know, fond of shopping. Not as much as she once was, but she still find much more joy in shopping, especially for clothing, than I can understand. There is nothing unusual in that, in my experience men rarely enjoy buying clothes as much as women. But none of that is my topic. Instead my story begins with a pair of khakis and the contents of the pockets in those pants.

As my mother enjoys shopping, but lacks unlimited means, she often shops in thrift stores and similar shops, and, as she can hardly wear enough clothing to justify her recreational shopping, she often tries to find items for friends and family. One such discovery was a pair of khakis she gave to me recently, and which I finally decided to wear today. Like any number of thrift store clothing, they still had the manufacturer's labels and tags on them, which always struck me as a bit odd, but about which I had never thought much. But, this time, there was something else which caught my attention. In the pockets of those pants I found a number of price tags and other store hang tags, all from other items.

The conclusion from this seemed pretty obvious. The pants in question, along with a number of others, had likely been shoplifted by someone, and then sold at a steep discount to whoever supplies the thrift store in question. It would explain not only the number of price tags I found hidden in the pockets, but also all those brand new clothes, tags still attached, which mysteriously filled the racks of thrift stores.

Normally, I would have been inclined to return anything stolen I chanced upon, but in this case that seemed nearly impossible. The collection of tags spanned a number of stores, and besides store names did not provide a location. Which meant returning my pants would have taken a tremendous effort, and likely still would have come to naught. And so, though I was certain I was probably in possession of stolen goods, I simply accepted that sometimes stolen goods make their way into the flow of commerce, and trying to set the situation right may be impossible, or close to it.

These thoughts led me to two others, one a rather old one, and one much more current. First, they reminded me of a long forgotten article I had planned to write about "red lining" by those offering loans, as well as many absurd theories about supposedly discriminatory practices by retailers and others. The second was a much more recent article I had started but left unfinished about the relative advantages and disadvantages between kleptocratic government and even the best intentioned of interventionist states. Neither one had ever come close to being finished, but, now that the two related to something fresh in my thoughts, it seemed a good time to revisit the topics, as well as some related matters (such as the impact of government theft in general), and complete  those posts.

One thing the realization about the ties between shop lifting and thrift stores showed me was how prevalent petty theft is in our society, and how much theft takes place. Not that is should come as a surprise, businesses always, especially in urban settings, make allowances for loss of inventory due to theft. What is more interesting than the amount of theft is the easy way we accept such activities. Businesses make allowances, police treat it as more of a nuisance than a crime, whole businesses -- from thrift stores to flea markets -- rely in par tor in whole upon it, and ordinary citizens turn a blind eye, or actively take advantage of the discounts found from New York City electronics shops to corner vendors with inventory that "fell off a truck". There are even locations in Baltimore where one can daily find a number of vans and panel trucks hawking an ever changing variety of items. Theft, at least small scale theft, is actually, in the aggregate, quite big business, but also a crime we have a tendency to ignore, or at least overlook, at least so long as it does not get "out of hand". (More on that in a moment.)

For the consumer, the motive in ignoring petty theft is obvious. A consumer can obtain goods at a significant discount1, though there are the usual risk in dealing with a nontraditional vendor, that the goods may not be stolen, but rather defective or counterfeit, or that the box may even contain nothing at all. But often the price makes such risks acceptable, or the ability to inspect the goods makes the risks manageable, and, even if not, most consumers are willing to take such risks. Nor is there much of an ethical motivation to avoid such sales, at least not in a practical, collective sense2. The pool of consumers is large enough that even if half stopped shopping out of ethical objections, there would no be enough effect to stop the thieves from stealing. Nor does it truly touch the consumer in a significant way. Shoplifting generally does not drive stores out of business, nor does it directly touch most consumers3, and the price increases brought about by petty theft, to which consumers have already adjusted, may more than offset the benefits of being able to buy cheap goods now and then, but the cheap stolen goods are visible, the shop lifting premium is not, and so, as usual, consumers focus on the seen, not the unseen4.

From the point of view of businesses, and of the police, the reasoning is not much more complicated, but requires a bit more thought to understand.

Basically, businessmen have three choices in handling theft. They can apply passive protections, such as locked display cases, rf tags, cable locks on expensive items such as leather jackets or computers, and other measures which make theft more difficult without requiring much-- or any --human intervention, and which, as a consequence, are likely to prevent theft, but without increasing the chances of catching thieves. As an alternative, they can undertake active measures, such as security cameras, guards or simply regularly bothering police and politicians to crack down on petty thieves, or those who sell their goods. Whatever the choice of means, it will involve much more human effort, and will increase the likelihood of catching thieves, but, in the short term at least, is not likely to discourage theft5. Finally, they can opt for the third choice, doing nothing, accepting theft as a cost of doing business, and just write it off. Or, in reality, they can mix some part of each approach, perhaps using some passive measures, and maybe posting a guard to watch the very expensive items6, but otherwise simply writing off the remaining losses.

It should come as no surprise that many businesses adopt the third approach, in whole r in part, much more often than the other two. Passive measures, though relatively effective, cost money, and many times cost more than the losses they prevent. And active measures, as was mentioned above, tend to catch thieves rather than stop thefts, and so they impose costs while often having little effect on short term losses. Granted, in the long term they may bring down losses, but the costs they impose up front, and the fact that the eventual pay off is more hypothetical than certain, tends to make them unattractive to most. And thus, stores are inclined to accept a certain amount of theft, perhaps reduced through the use of the most cost effective passive measures, rather than doing all they can to stop crime7.

What is interesting about this is that it easily explains something about which civil rights activists often complain, the supposed "economic discrimination" of many chains, which refuse to open stores in poor, or black, neighborhoods8. According to this theory, such chains could easily make profits in such areas, they just hate poor people, or black people, and so don't open stores there. (Oddly enough, when Asians, or worse yet Jews9, open stores in just such neighborhoods, they are called parasites and belittled, and sometimes attacked, for making those profits.) However, that makes little sense, as such companies have an interest, first and foremost, in making a profit. So, if there really is demand, why don't they open stores in such neighborhoods?

Well, there are two parts to that answer. The first is of no interest to us, though it should be obvious. Many such neighborhoods simply cannot support these higher end chains. If there is not enough traffic to pay rent and salaries, cover depreciation, the carrying cost of stock and all the other expenses, while also providing a fair return, then there is no reason to open a store. On the other hand, the second answer is probably even more significant, and right on topic in this post. And that is the uncomfortable, but true, fact that poorer urban neighborhoods (regardless of race -- with some exceptions10) have absurdly high crime rates. Partly this is just a fact of life among the poor, those who have little often resort to theft11. But it also has a lot to do with politics, as those who represent such districts often try to pander by taking a soft on crime approach, which increases crime and ironically makes such neighborhoods even less pleasant places in which to live. As a consequence, the amount of crime tends to be many times worse than middle class neighborhoods in the same cities12.

As we discussed, crime is a cost, and if crime is too common, it is a heavy cost. Companies can take steps to mitigate it, but in the end, those too are costs, and, at some point, it does not pay to add additional crime prevention, at which point, if the combined costs of security and crime are still too great, it makes sense to either close the store, or never open it. It has nothing to do with race or class, it is not an unwillingness to take the money of a given group, it is simple common sense. One can open stores in many places, if one has high costs (and often lower profits), then why open there when one can open somewhere more friendly?

The same applies, in a different but related way, to the arguments about "relining" that played a role in our current economic mess. The whole "subprime" fiasco was, in part, started because banks were accused of "redlining", refusing to lend to black people, or poor people, or some group which deserved protection. Banks, sensibly, argued that they could only lend to those who could pay back the loans, and anyone with a history of default, or with too little income, or whose house was worth too little, was a bad risk. But politicians care about votes, not the profits of citizens, and so they forced through measures to make banks lend to people who defaulted or earned too little or had worthless houses. And, as a consequence, we ended up with banks defaulting, or bundled loans falling to cents on the dollar (if we are lucky), because bad credit risks tend to default, and repossessing worthless homes provides no remedy for those defaults. Much like those stores that avoid crime ridden neighborhoods, banks wisely avoided bad risks for the simple reason that they were in business to wisely invest their depositors' money. And when forced to do otherwise, their depositors suffered13. (Yet politicians somehow managed to blame the banks for their own idiocy.)

And that conflict between sensible self interest and well intentioned foolishness leads directly into my last theft related topic. Many times, I have heard our government called "kleptocratic", with the critics alleging our leaders are in it simply to enrich themselves. If only! Sadly, this is far from the truth. Much as it might shock some, I think our politicians, far from greedy thieves, are actually doing what they think best14.And that is the problem. I have long contended that a government with predictable laws, even when those laws are horribly unjust, is preferable to even the most well meaning arbitrary rule.

And the case of kleptocrats proves this. Think of it this way. A thieving ruler wants money. He will take part of your wealth.  But, for the most part, he doesn't want to drive you out of business, he just wants to milk you for a big part of your wealth. So, you can probably predict what he will take, within certain limits. And, should he try to take too much, odds are good you can stave off immediate takings with promises of future gifts. It is a bad situation, but a largely predictable one. The kleptocrat is basically a new form of expense. Granted some may be so greedy that business is impossible, but at least you can know that in advance.

On the other hand, arbitrary rule leaves one uncertain about what will happen, what the costs might be, even what will be legal and what won't. Perhaps an example from another essay on which I am working will help:
Let us look at two laws trying to deal with one of those populist issues that envious crowds sometimes favor, "windfall profits". Let us suppose a state enacts a law arguing one cannot make a profit of more than X%, and lays out how profits are calculated in great detail. This is a bad law, but it is predictable. I can decide if the law makes it worthwhile to remain in business, or to go into a new business, I can decide if it will cause future problems, I can even tell if, because of inflation, the cap on profits may result in losses in real terms. Now, let us suppose a law is passed saying one cannot charge excessive prices to receive windfall profits, but does not define any of those terms. In that case, I have no way to plan, no idea of what might or might not end up getting me in trouble. Not only do I not know what might be disallowed, I cannot realistically decide whether it is safe to do business at all. If I have political connections, or know those in the industry who tend not to fall afoul of the law, I might think I am safe, but in truth, I can still end up in trouble very easily.
This may not be the best example, but it does show quite well how even a bad law is better than an arbitrary one. Admittedly, thieves are a bit less predictable than bad laws, but they still are more predictable in their greed than the well meaning are in their caring. And thus, of the two, I contend kleptocrats are better than do gooders.

Clearly, I would not want either, and would prefer a government of fixed laws which limited itself to protecting individual rights. But if I must choose between bad government, I will take the thief over the bleeding heart every time.


1. An interesting parallel can be found in the support many seafaring towns of the 16th through 19th centuries had with local pirates, who brought them cheap goods they could not otherwise afford. The local populace tended to be forgiving of such theft, provided the pirates charged reasonable rates, gave a cut of the profits to those in power, and raided only foreign shipping. In a similar way, most of those involved in selling the proceeds of petty theft are tolerated so long as they do not use violence, do not take too much and do not become too obvious. Even the police tend tot urn a blind eye in many cases, as the cost of prosecuting such thieves is much greater than the benefit, especially in urban areas where manpower is already insufficient to deal with much more serious crimes.

2. Obviously individual ethics have quite a lot to say about such things. What I am suggesting here is the practical arguments such as I made in "A Rational Approach to Punishment" and elsewhere. For example, the argument that allowing everyone to steal with impunity is a losing proposition, as it is far more likely that the many thieves trying to steal from me will take more than I can steal as a single individual. But petty theft from retail outlets and shipping companies does not appear to present many similar analogies, at least if one does not think through things at great length. So it is very easy for individuals to come to the pragmatic conclusion that reaping the benefits of buying stolen goods is without consequences severe enough to discourage doing so.

3. Clearly, consumers are touched by petty crime, in the form of premiums paid for retail goods to offset loss due to theft. But consumers do not recognize this cost, and cannot tell its magnitude, so, to their eyes, the cost of shoplifting is carried entirely by the seller. Of course, some consumers are also retailers, and so recognize the costs of petty theft, but they are a clear minority.

4. As I said in "The Problem of the Small Picture" and "War Stimulates the Economy? Let's Nuke San Francisco!", this famous Bastiat aphorism, though far too often quoted by libertarian types, does help explain a lot of our economic behavior. For instance, a million dollars in private hands would probably do more work, and bring more benefit than in the hands of the Department of Public Works, but DPW can point to the bridge built, the jobs created, the materials bought, all that economic activity, while critics cannot show the jobs not created, the even greater wealth lost. And this is the same, the cheap stolen goods are easy to see, the premium paid on every purchase due to petty theft is not.

5. Arresting criminals may discourage crime in the long run, but in the short term, because it takes time for criminals to hear about enhanced enforcement, it does not discourage crime. Even those arrested are sometime snot discouraged, as our lengthy wait for trials, even for misdemeanors, allows the perpetrators to return tot he streets for a considerable time. In addition, unless their thefts are of sufficient worth to become felonies (or the surrounding circumstances -- such as breaking and entering -- make them so), likely those arrested will not be kept away from society for long, if at all. All of which means that arrest for petty theft may, eventually, discourage theft, but as the punishments are small and the wait for trial long, it is likely to have much less effect than increasing arrests for felonies.

6. Guards can be either active or passive, depending upon their use. A plain clothes store detective, or a camera operator concealed from the public is an active measure, intended to catch and arrest bad guys. A guard posted to stand about in uniform, because he is there more to dissuade thieves than to catch them, is much more of a passive than active measure even though it involves a human agent.

7. This is a good example of what I argued in "Absolute Values". Stores would, ideally, love for all shoplifting to end. But if they treated fighting crime as an absolute good, they would end up going bankrupt. Preventing every possible crime is an outrageously expensive proposition, not only in terms of money, but also in terms of business lost due to the "customer unfriendly" environment excessive security imposes. (Buzz-in doors, cages, armed guards, everything locked up, and so on.) Thus, one cannot treat securing one's property as an absolute good, but instead must balance the cost of the loss against the cost of preventing it. And that was the whole point of that essay which so many failed to understand. (See "A Point I Thought Clear" and "Why Republicans Lose, We Eat Our Own".)

8. It is interesting that liberal activists claim chains are bigoted in not opening stores in some areas, yet when certain chains (eg Wal-Mart) try to open, those same government oppose them, on the grounds they drive away mom-and-pop stores. (See "Saving Us From Lower Prices", "The Little Guy Can't Compete"  and "The Consumption Curve" for my thoughts on that.) I read a particularly amusing tongue-in-cheek comment about these Wal-Mart bans on the site Teleport City, where the author wrote "this is New York City. We don’t have a Wal-Mart here, because they are an evil corporation that destroys the small-town, mom-and-pop quaintness that is so important to a city like New York, where there are no evil corporations.".

9. Sorry, perhaps the recent round of comments on my article "Strange Timing" has made me a bit touchy about the amount of antisemitism around me. Mostly it comes from the left, or from nutty extreme libertarian types, but now and then I run into a paleocon or social con who tells me you must be Christian to be a conservative, or who trots out some old saw about Jewish conspiracies. Still, thankfully this sort of intolerance seems, oddly enough, to have settled mostly on the left, especially among the many racial separatist groups such as the Nation of Islam, as well as the hardcore anit-Israel wing of the left (where "Anti-Zionism" is supposedly not antisemitic, but it sure gets hard to tell the two apart at times, even when hiding behind the "neocon" code word), and with the rest coming from "neither right nor left" loons such as Church of the Creator, or the Ron Paul campaign. (That last was a joke! Well... sort of. He does have some troubling ties to groups like Stormfront, but I do not believe he is, himself, a bigoted nutter, just far too many of the Paulbots are.)

10. For the most part crime and poverty are correlated strongly for every race. The few exceptions tend to be a few select groups of immigrants, whose poverty is the result of moving, not of any lack of skills or determination. 

11. The poor sometimes commit crime because they are poor, but more often they are poor because of personality traits that tend to also favor crime -- irresponsibility, lack of motivation, inability to accept consequences and so on. Thus, it works both ways, their poverty encourages crime, but they are already predisposed to criminality due to the traits which keep them poor. This is not true of all poor individuals, but of enough to create a much higher rate of crime.

12. In Baltimore it was worried that when the subway opened and carried traffic directly from the poor downtown neighborhoods out to the relatively affluent Owings Mill mall, there would be a huge increase in crime. Politicians dismissed it as racist and ignorant, but, when the subway was built, crime shot up several fold, driving out many stores. The same thing often happens in cities when richer neighborhoods borer on poorer, but that usually results in such border districts becoming depopulated, as the prices remain too high for the poor, and the neighborhood's reputation fails to attract the middle class. (Bolton Hill in Baltimore is a good example, suffering through a cycle of redevelopment and collapse every few years, as crime declines due to empty houses, they are redeveloped, crime rises and people move out once more.) Thus, in most cities, wealthier districts are usually set apart from poorer by commercial districts or strips of such depopulated houses.

13. See "Those Greedy Bankers", "Perverting Self Interest" and "Slieght of Hand".

14. See "The Nature of Evil", "Life Without Villains", "Enemies Into Villains", "Rethinking My Earlier Position", "The Right People, The Wrong People and "Just Plain Folks"", "With Good Intentions", "Paved With Good Intentions",  "Recipe For Disaster", "The Endless Cycle of Intervention",  "The Cycle of Compassion", "Grow or Die, The Inevitable Expansion of Everything", "Three Versions of Evil and the Confusion They Cause" and "Tyranny Without Tyrants".

Originally posted in Random Notes on2012/04/22.

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