America’s prison population has been in the news recently, having reached a record high in absolute numbers, partly due to population growth, of course, but still representing about 1 percent of the adult population. Economic statistics are affected by imprisonment. The person in prison stops paying taxes and generating GDP. The companies that built prisons and the people who work in prisons are accounted for as adding to GDP (story). If we assume that for every two people in prison, there is one person involved in prison construction or management, and that prisoners and guards would both make average salaries if working in some other industry, the effect on the economy is 1% down from the prisoners not working and 1/2% up from the prison industry working.
Does it make sense to say that our GDP is reduced by only 1/2%? Suppose that 66.6% of us were in prison and 33.3% of us were building and running prisons. An economist would say that our economy was reduced either by 33.3% or 66.6%. In fact, however, no food would be grown, no products manufactured, and no private houses constructed. People wouldn’t be able to buy import anything from other countries because the 33.3% of the population that was working would have to pay 100% of its salary in tax just so that it could pay itself.
Putting immigrants in prison is probably the worst imaginable thing to be doing economically. It is tough to find good national statistics, but http://www.nytimes.com/2007/05/30/business/30leonside.html seems to indicate that about 7 percent of the U.S. population are noncitizens and that the percentage among prisoners is similar (it is about 17 percent in California state prisons). Suppose that 1 million immigrants come over the border tomorrow, commit crimes, are apprehended, and are put in prison. The economists would record a massive spike in GDP. We paid police officers to find these folks, we paid construction workers to build new prisons, we paid guards to watch them, we paid managers to supervise the guards, we paid farmers to divert grain from our biofuels program to feed these folks. So the numbers look great temporarily, but the effect on the welfare of American citizens and our competitiveness for new business investment would be devastating. [Just as the tornado that hit Atlanta yesterday will increase GDP as windows are replaced and buildings repaired, though the people of Atlanta are certainly not better off and we could have spent that money building factories instead.]
At the very least, running an expensive prison system seems to put us at a competitive disadvantage to countries that can manage to achieve similar levels of public security without such a large or expensive prison system. Our taxes will be higher compared to those other countries and that will discourage business investment.
If we want to dig ourselves out of this recession, we may have to stop committing crimes against each other!
I think what we really need to do is stop putting people in prison for things which shouldn’t be crimes. What percentage of that prison population is there for non-violent drug offenses?
It looks to me like you just described the Broken Window Fallacy, as outlined by Henry Hazlitt in his book _Economics in One Lesson_:
“A young hoodlum, say, heaves a brick through the window of a baker’s shop. The shopkeeper runs out furious, but the boy is gone. A crowd gathers, and begins to stare with quiet satisfaction at the gaping hole in the window and the shattered glass over the bread and pies. After a while the crowd feels the need for philosophic reflection. And several of its members are almost certain to remind each other or the baker that, after all, the misfortune has its bright side. It will make business for some glazier. As they begin to think of this they elaborate upon it. How much does a new plate glass window cost? Two hundred and fifty dollars? That will be quite a sun. After all, if windows were never broken, what would happen to the glass business? Then, of course, the thing is endless. The glazier will have $250 more to spend with other merchants, and these in turn will have $250 more to spend with still other merchants, and so ad infinitum. The smashed window will go on providing money and employment in ever-widening circles. The logical conclusion from all this would be, if the crowd drew it, that the little hoodlum who threw the brick, far from being a public menace, was a public benefactor.
”
Now let us take another look. The crowd is at least right in its first conclusion. This little act of vandalism will in the first instance mean more business for some glazier. The glazier will be no more unhappy to learn of the incident than an undertaker to learn of a death. But the shopkeeper will be out $250 that he was planning to spend for a new suit. Because he has had to replace the window, he will have to go without the suit (or some equivalent need or luxury). Instead of having a window and $250 he now has merely a window. Or, as he was planning to buy the suit that very afternoon, instead of having both a window and a suit he must be content with the window and no suit. If we think of him as part of the community, the community has lost a new suit that might otherwise have come into being, and is just that much poorer.
“The glazier’s gain of business, in short, is merely the tailor’s loss of business. No new “employment” has been added. The people in the crowd were thinking only of two parties to the transaction, the baker and the glazier. They had forgotten the potential third party involved, the tailor. They forgot him precisely because he will not now enter the scene. They will see the new window in the next day or two. They will never see the extra suit, precisely because it will never be made. They see only what is immediately visible to the eye.”
Quoted from:
http://freedomkeys.com/window.htm
A couple of points:
Although your calculation is a good reality check, the proper economic comparison is the GDP with vs GDP without the current incarceration rate. It may be expensive to imprison people, but crime also has costs.That said, the prison expense alone should make us reconsider the war on drugs.
Secondly you have to be vary wary of Immigration crime statistics because native born children of immigrants are counted against the US rate. The sad fact is the crime rate of Immigrant’s native born children is much higher than that of the immigrants. The NYT article references a 2005 government study, the 2006 version study has a breakdown by race/origin on page 9 table 14.
http://www.ojp.usdoj.gov/bjs/pub/pdf/pjim06.pdf
Per 100K residents, the crime rates for
White(non-hispanic)/Black/Hispanic&Latino
736 / 4,789 / 1,862
Third alternative for the broken window fallacy is that the baker gets a new suit, both glazier and tailor will earn their $250. The crowd will pay for the broken window because the baker increases his prices. Bad neighborhood, you know, it’s expensive to run business in here.
A fourth alternative to the broken window fallacy: the baker was just about to buy a $250 piece of capital equipment (a nice new mixer) that would’ve increased his productivity and allowed him to lower prices. Now, he cannot. Basically the same $250 may have been spent, but now it was spend in a much less efficiently allocated. And thus in the prison example, it’s not the direct effect on the GDP, but the propagating effects of capital allocated very inefficienctly, and it’s hard to imagine something with lower ROI than keeping a person incarcerated for doing nothing more than smoking pot. This stupidity of this is astounding, the kind that only governments and committees are capable of.
The problem with drugs is that they will cause you to screw up your life, right? Fine. Even if we take that as given, our solution is to do more to ruin the person’s life than drugs could ever have done on their own? Even if you take the hard line that a drug user will affect others, it’s hard to imagine how much more of an effect they could have than to become complete leeches on society.
I recommend George Bernard Shaw’s socialist tract “The Crime of Imprisonment” (http://links.jstor.org/sici?sici=0885-2731(194611%2F12)37%3A4%3C324%3ATCOI%3E2.0.CO%3B2-8) and Justice Holmes’ great “The Path of the Law,” the latter at 10 Harv. L. Rev 457 (1897) (http://www.constitution.org/lrev/owh/path_law.htm). In his essay/address, Holmes asked a basic cost-benefit question, “What have we better than a blind guess to show that the criminal law in its present form does more good than harm?” And he asked, further, “whether fine and imprisonment do not fall more heavily on a criminal’s…children than on himself.” No one has adequately answered his questions in the 111 years since he asked them. Why? Because we don’t think rationally when it comes to crime and punishment. My biases are set forth in my 2004 campaign essay: Crime & Punishment at http://www.burtonhanson.com/id51.htm .