A Note from the Underground

A consensus seems to be emerging about crime rates during the recession. First there was this post from Peter Orszag, whose day job involves heading up the Office of Management and Budget.Then there was this data digest from the Wall Street Journal. The upshot was that property crimes tend to rise during a recession, but violent crimes aren't correlated. I was skeptical. Sure, rape and recession may have little to do with each other, but could it actually be that the streets aren't getting a bit meaner overall this year?

Nope, says Sudhir Venkatesh, the underground economy scholar whose escapades with drug-dealing gangs were recounted in a section of Freakonomics. (Ironically enough, Orszag actually cited Steve Levitt, the author of Freakonomics, to support his conclusion.) I called him up to ask for clarification, recalling that he'd told Forbes a few weeks back that "the recession is engendering more violence." Here's the problem, he says: violent crimes are often economically motivated, but that tends to be reported much less frequently than property crimes. In fact, he's seeing more violence among the sex workers and drug dealers he tracks, as well as in other forms of a rapidly expanding underground economy. "Your desire to address the grievance is mitigated by the fact that you're involved in some sort of off-the-books activity. But animosities can really flare," he told me.

Of course, observations like that wouldn't hold up to the scrutiny of economic data-crunchers—and nor should they, as Venkatesh himself notes. But that doesn't mean the crimes aren't happening. In recessions, the working poor often lose contact with institutions of all stripes—making it tough for any of the data-crunchers to reflect a realistic image of the world. In restaurants, bars, cleaning services, construction, and landscaping, to name but a few, firms are switching overnight from formal to informal relationships with their employees to cut down on costs. "We're not seeing anything about this person's life in any systematic kind of way, so I'm sort of worried in this time period that we're not really seeing the full extent of the problem," he said. We might--might--be starting to see some green shoots with the big indicators now. But combine what Venkatesh has to say with reports of squeezed budgets and shrinking police forces, and it becomes doubly irresponsible to paint too rosy a picture at the micro level.

Anyway, while we're on the subject, check out his NYT post from earlier today on the booming loan shark business. Interestingly enough, as he told me the other day, that biz makes for a notable exception to the rising violence levels he's seeing in other parts of the underground economy. At the end of the day, it just doesn't pay to hurt the person who owes you money. Not a bad lesson for some financiers everywhere to learn!