Thomas J. Sargent on macroeconomics and the crisis 2013

Warren Brookbanks’ lecture “Three strikes, five years on” in New Zealand

Warren Brookbanks’ inaugural Greg King Memorial lecture earlier in the week was on “Three strikes, five years on”. Brookbanks is a law lecturer at Auckland Law School who specialises in mental illness.

Blackstone’s ratio and three strikes

The essence of his position was the same as he had when the bill was before Parliament. His reservations were a law designed to give lengthy prison terms to the worst of the worst violent offenders would catch in the net some lower-level offenders.

Brookbanks’ objection is a variation of Blackstone’s ratio. Just as the legal system is premised on let 10 guilty go free rather than one innocent be convicted, to what extent does the criminal justice system weigh the risk of occasionally punishing an offender who is convicted of violent or sexual offences who is not one of the worst of the worst.

Brookebanks’ objections are the classic perfect justice as the enemy of adequate justice. It is doubtful that low-level offenders will be caught up in the three strikes regime simply because anyone who repeatedly commits a serious violent or sexual offence, an offence carrying a sentence of seven years or more, is the worst of the worst. They are repeat violent or sexual offenders designed to be caught by the legislation.

All of the 41 offences included in the three strikes legislation in New Zealand of violent or sexual offences carrying a maximum prison sentence of seven years or more. On the first strike you were warned of the consequences of further offending. On the second strike you receive the same sentence as usual but are not eligible for parole. On the third strike there is a mandatory maximum sentence for the offence concerned. There is also a mandatory life without parole sentence for murder if it is a second strike. Slightly over 90% of all first strike warnings are for assault, robbery or sexual offences.

Three strikes is about the incapacitation of repeat violent offenders

In the Q&A session after the lecture I put my principal objection to his lecture:

  • Brookebanks did not address the main rationale for three strikes legislation both abroad and in New Zealand;
  • The rationale for three strikes was not criminal deterrence, which was the exclusive focus of his lecture;
  • The rationale for three strikes both originally in California and elsewhere is incapacitation of serious violent offenders; and
  • If you lock up serious violent offenders you reduce the crime rate simply threw the fact that these serious violent offenders off the streets.

Obviously the Californian legislation got off to a false start when it threw away the key on pathetic men who stole pizzas and videotapes as their third strikes. That law was drafted through a citizen initiated referenda rather than the more circumspect process of the state legislature. But there is a lesson there. If parliaments do not act on violent crime, the people will vote in people who are less temperate.

The primary purpose of three strikes legislation and other repeat offender legislation is the incapacitation of repeat serious offenders as Justice Rehnquist explained long ago:

The purpose of a recidivist statute such as that involved here is not to simplify the task of prosecutors, judges, or juries. Its primary goals are to deter repeat offenders and, at some point in the life of one who repeatedly commits criminal offenses serious enough to be punished as felonies, to segregate that person from the rest of society for an extended period of time.

This segregation and its duration are based not merely on that person’s most recent offense but also on the propensities he has demonstrated over a period of time during which he has been convicted of and sentenced for other crimes…. Like the line dividing felony theft from petty larceny, the point at which a recidivist will be deemed to have demonstrated the necessary propensities and the amount of time that the recidivist will be isolated from society are matters largely within the discretion of the punishing jurisdiction.

The purpose of repeat offender laws is to put behind bars people have shown a propensity to commit violent serious crimes frequently. By putting them behind bars for a long time, there are fewer crimes by the simple fact that those hardened violent criminals locked up on their third strike are not in the position to offend against the general public.

The rational for recidivist laws is different from say harsh laws against drug trafficking which is a more opportunistic, business motivated crime. If the current drug traffickers are put behind bars for an extended time, there is usually a good supply of other criminals willing to take their place because of the lucrative rewards.

In the case of serious violent offenders, their crimes of violence and depravity are something to do with personality traits that dispose them towards harming others because they like doing so. The hope behind three strikes laws is that these dangerous people are in limited supply because of the genetic and psychopathic origins of their offending.

There are not that many other petty criminals willing to step into their shoes to commit the same violent offences because these other petty criminals simply do not have the necessary traits in their personalities that dispose them toward such cruelty and abominations. There is not a good supply of petty criminals to take the place of intractable often psychopathic violent offenders covered by three strikes laws.

That was the fundamental flaw are the recent lecture by Brookebanks on the three strikes law in New Zealand. He did not address the incapacitation of criminal psychopaths of various ilks.

That said, it would be good if three strikes delivered on criminal deterrence because it is cheaper than incapacitation. Better that the hardened criminal be deterred in the first instance rather than a third strike be committed and he is locked away for a long time as a way of stopping further crimes. Deterrence is great, but I am happy to live with incapacitation as the main benefit of three strikes.

What is the evidence on three strikes?

There have been a range of studies of sentencing enhancements to see if they deliver on incapacitation and criminal deterrence. As Levitt explains:

Becker’s well-known economic model of crime is based on deterrence: potential criminals alter their behaviour in response to changing incentives.

Empirically, however, it is often difficult to distinguish between deterrence (which is a behavioural response) and incapacitation (in which reductions in crime are attributable solely to criminals being unable to commit crimes because they are locked up). Virtually all of the empirical work that purportedly supports the economic model of crime is equally consistent with incapacitation.

Levitt and Kessler exploited a unique feature of sentence enhancements to isolate deterrence. Proposition 8 in California selectively instituted sentence enhancements for some crimes. If deterrence works, the incidence of these crimes should drop straightaway. If it is only incapacitation that works, crime will not drop until after the base sentence expires and these would-be criminals are kept locked up for longer and therefore not able to commit crimes but for their sentence enhancement. They found an immediate, sharp decline in eligible crimes relative to those that are unaffected by the sentencing enhancement law in Proposition 8 suggesting the importance of deterrence.

There is good evidence to suggest that criminals do not enjoy the prison experience. Levitt investigated this through the impact on prison overcrowding litigation on criminal deterrence. These Civil Liberties union lawsuits reduced state prison populations, but they were otherwise unrelated to crime rates. One reason for this is the cases often take a decade or more to resolve.

In the three years after a final decision was handed down by the courts in those cases, prison populations fell by 14.3 percent compared to the population of the nation as a whole, whereas violent and property crime rates increased 10.2 percent and 5.5 percent respectively… A one-prisoner reduction is associated with an increase of fifteen Index I crimes per year.

Helland and Tabarrok looked at post-sentencing crimes of criminals who were convicted of a strikeable offense with those who were tried for a strikeable offense but convicted of a non-strikeable offense. They found that California’s three-strike legislation significantly reduces felony arrest rates among the class of criminals with two strikes by 17–20 percent. This is a clever strategy because it is based on the assumption that many of the criminals convicted of a non-strike offence but charged with a strikeable offence were not convicted because of a lack of good evidence of their guilt rather than sheer innocence. Helland and Tabarrok found that

California’s three-strike legislation significantly reduces felony arrest rates among the class of criminals with two strikes by 17–20 percent.

Brookbanks’ preferred a 2012 study that showed that three strikes had no impact on criminal offending in California:

Declining crime rates in California and nationwide reflect declines in alcohol consumption, not tough-on-crime policies such as three-strikes laws… Three-strikes has had nothing whatsoever to do with the drop in violent crime.

The paper makes a very definitive conclusion despite ignoring most of the economic literature up until 2012 bar Shepherd (2002). The paper also had a cartoon version of the economic model of crime as perfectly informed rational calculators instead of the proper one as explained by David Friedman.

The economic analysis of crime starts with one simple assumption: Criminals are rational. A mugger is a mugger for the same reason I am a professor-because that profession makes him better off, by his own standards, than any other alternative available to him. Here, as elsewhere in economics, the assumption of rationality does not imply that muggers (or economics professors) calculate the costs and benefits of available alternatives to seventeen decimal places-merely that they tend to choose the one that best achieves their objectives.

If muggers are rational, we do not have to make mugging impossible in order to prevent it, merely unprofitable. If the benefits of a profession decrease or its costs increase, fewer people will enter it-whether the profession is plumbing or burglary. If little old ladies start carrying pistols in their purses, so that one mugging in ten puts the mugger in the hospital or the morgue, the number of muggers will decrease drastically-not because they have all been shot but because most will have switched to safer ways of making a living. If mugging becomes sufficiently unprofitable, nobody will do it.

Criminals respond to incentives in the same way as the rest of us with the same degree of success. Everyone agrees with that as long as you put them on a turf where they have to show their true colours.

Do hardened lifers respond to incentives?

One of the arguments against life without parole put up by those who are soft on crime is criminals sentenced to life without parole will be difficult to manage in the prison system because they have no hope of release. That is unless they have the incentive in the form of a prospective release at some time in their life, they will misbehave. That precisely is the economic model of crime.  Crime is an occupational choice most attractive of those with fewer opportunities in legitimate occupations.

The role of empirical findings in criminal justice policy

The first article in my honours econometrics methodology course was the just published Edward Leamer’s Let’s Take The Con Out Of Econometrics. He used the death penalty debate to illustrate the fragile nature of empirical findings. Leamer showed that the death penalty could be shown to greatly reduce or greatly increase murder rates depending on how you did your econometric modelling and what prior beliefs you bought to the table. I remembered what Leamer said through my entire career.

The main task of econometrics is to measure proven relationships rather than to establish whether they exist at all as Bryan Caplan explains:

Being An Intelligent Consumer of Econometrics

  1. Economic Significance vs. Statistical Significance
    1. For most of the class, we’ve checked for statistical significance – i.e., whether the results were likely to occur purely by chance.
    2. But it is at least as important to know if the results are economically significant – i.e., are they big?
    3. If you have a lot of data, almost everything will be statistically significant, but still may not be economically significant.
    4. If you have little data, little will be statistically significant, but it may still be economically significant.
  2. Econometrics One Tool of Empirical Research
    1. Econometrics is only one tool of econometric research.
    2. More important: economic history. Econometrics may help you understand economic history better, but statistics are not a good substitute for knowing the historical facts.
    3. Knowing history helps you to distinguish correlation and causation.
  3. Data-Mining
    1. A lot of statistical work is produced by “data-miners” who torture the facts until they confess. So whenever you see statistical results, ask yourself:
    2. What data was used?
    3. Does the data actually capture what it is supposed to measure?
    4. How many alternate specifications were tried? Of these, how many were shown?
    5. Does the study confuse causation with correlation?
  4. Economic Theory and Econometrics
    1. Sometimes, you use econometrics to test economic theories.
    2. However, when an economic theory is fundamental, you can reverse this: use the theory to test whether the econometrics works well.
    3. Example: I am convinced by all of my personal experience and historical study that demand curves slope down. If a study claims that the minimum wage increases employment, it just makes me think that econometrics is unreliable. (How come no one checks to see if the demand for asparagus is negatively sloped?)
    4. While some will call this dogmatic, I don’t think that it is. Econometrics is itself a sort of theory that merits testing and must be double-checked against other sources of knowledge.

Do not just ride out on the latest empirical study which suits your prior beliefs. Say what those prior beliefs are and base them on well proven understandings of human behaviour. Incentives matter even to criminals.

Does addiction and mental illness dull responses to incentives

Brookbanks is correct that criminals have addictions and mental illness and this contributes to their offending. I found the chapter in Tullock and McKenzie’s book on token economies in mental hospitals to be most enlightening in regard to addictions and mental illness clouding judgement.

The tokens in a token economy were spending money at the hospital canteen and trips to town and other privileges. They were earned by keeping you and your area clean and helping out with chores at the mental asylum.

The first token economies were for chronic, treatment-resistant psychotic inpatients. In 1977, a major study, still considered a landmark, successfully showed the superiority of a token economy compared to the standard treatments of these type of psychotic inpatients.

Experiments which would now be unethical showed that the occupational choices and labour supply of certified lunatics responded to incentives in the normal, predictable way. For example, tokens were withdrawn for helping clean halls and common areas. The changes in occupational choice and reductions in labour supply was immediate and as predicted by standard economics.

Some patients would steal the tokens for other patients, so the tokens were individually marked. The thefts almost stopped. Crime must pay even for criminally insane inpatients. Kagel reported that:

The results have not varied with any identifiable trait or characteristic of the subjects of the token economy – age, IQ, educational level, length of hospitalization, or type of diagnosis.

Most people age out of addiction to drugs or to alcohol.  By age 35, half of patients with active alcoholism or addiction diagnoses during their teens and 20s no longer take drugs or drink:

The average cocaine addiction lasts four years, the average marijuana addiction lasts six years, and the average alcohol addiction is resolved within 15 years. Heroin addictions tend to last as long as alcoholism, but prescription opioid problems, on average, last five years. In these large samples, which are drawn from the general population, only a quarter of people who recover have ever sought assistance in doing so (including via 12-step programs). This actually makes addictions the psychiatric disorder with the highest odds of recovery.

Studies of demand elasticity normally find that consumption of hard drugs is quite sensitive to price. Addicts respond to incentives, in particular, to price rises by cutting back on their drug taking.

At the beginning of this century, the Dutch government controlled the opium market in the Dutch East Indies–nowadays Indonesia–for several decades. This state monopoly was called the opiumregie. Using information gathered during the opiumregie, this paper estimates price elasticities of opium consumption. It appears that short-term price elasticities of opium use are about -0.7. Long-term price elasticities are about -1.0.

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