The Fed must control inflation for public safety
Recently, the Federal Reserve announced further interest rate hikes to curb the runaway inflation we have seen over the past few months. This is an important step, because what happens to a society when consumer prices skyrocket is not a pretty sight.
We have vivid historical examples of the devastation that runaway inflation can wreak: Germany immediately after the First World War, Argentina for most of the last four decadesVenezuela after the election of President Nicolás Maduro in 2013. In each case, massive suffering ensued, political conflict escalated, civil unrest spread, and crime rates increased.
While these cases have each seen inflation at far higher levels than we have now, more modest price increases can also trigger crime and social unrest. Crime rates in the United States rose sharply during the period of sustained inflation of the 1970s. With inflation now at its highest level in 40 years, price stability must become a major policy priority of the Biden administration to avoid a similar fate.
Rising prices increase both non-violent and violent crime. Inflation drives up so-called acquisitive crimes – offenses committed for profit. Inflation reduces purchasing power, especially when incomes do not keep up with rising prices. As prices rise, consumers turn to discount outlets in search of cheaper products. Some enter the stolen goods market. The expansion of underground markets increases the incentives for thieves and thieves who supply the goods and crime rates increase.
Violent crime, including homicide, is also high in underground markets. Markets for stolen goods are ‘stateless’, bringing together sellers and buyers who lack formal means to settle disputes over the price, quantity and quality of goods. Those with stolen goods are also at risk of being attacked by street thieves. Therefore, as the trafficking of stolen goods increases, so does the violence.
Acquisition crime and homicide rates have risen and fallen with inflation over the past half century in American cities. Our research shows that increases in homicides are greatest in the most economically disadvantaged cities. In some cities (for example, Atlanta, Boston, and New York), inflation first increases crimes such as robbery, burglary, and theft which, in turn, leads to an increase in homicides. But elsewhere, the effect of inflation on homicide rates occurs through other means, including declining trust in social institutions.
Creeping inflation has far-reaching effects on public confidence, social order and political stability. In fact, rising inflation rates were one of the causes of the fall in trust in American institutions during the quarter century between the prosperous 1960s and the early 1990s. Political analyst Michael Tomasky has writing that the hyperinflation of the 1970s in the United States “was as crucial a factor in our national crisis as Vietnam and Watergate”.
Institutional confidence is again at historic lows. According to the PEW research center, only about a quarter of Americans currently trust the federal government to do the right thing “almost always” or “most of the time.”
Lack of trust in the federal government can seem like a distant and insignificant source of often trivial tensions, disputes and grievances that culminate in homicide. Yet, as to research As historian Randolph Roth has shown, feelings and beliefs about the interests and identities served by those in power can have dire consequences for everyday life. Mistrust sows discontent, hostility and conflict, preconditions for violence.
Inflation has more immediate, direct, and widespread consequences for economic well-being than any other economic factor, especially for people of modest means. A rise in unemployment poses obvious challenges for the unemployed, but most people remain employed even during an economic downturn. Except for the very wealthy or business owners who can adjust their own prices, inflation affects everyone.
For these reasons, price stability is a key public policy priority. This is one of the three central goals of the Federal Reserve, along with maximum employment and moderate long-term interest rates.
Given the substantial evidence that inflation increases crime, public safety must now also be a direct goal of US monetary policy, especially when it comes to preventing steep and prolonged price increases. The Fed lists among its objectives “the promotion of consumer protection and community development.” Fighting inflation and improving public safety serve both ends.
Richard Rosenfeld is emeritus professor emeritus of the curators of criminology and criminal justice at the University of Missouri-St. Louis. He is a Fellow and Past President of the American Society of Criminology. Matt Vogel is an associate professor of criminal justice at the University at Albany and an affiliate professor in the Department of Sociology and the Center for Social and Demographic Analysis.