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Is Crime Prevention Wasteful? Should It Be Taxed?

Mises Daily: Tuesday, November 22, 2005 by


If you protect your property from thieves, are you part of the problem rather than the solution? The answer might seem obvious, but Steve Landsburg's 1997 article on Slate stirs the pot. He makes some specific claims regarding theft prevention devices. Some theft prevention devices deter criminals only from preying on the person who employs them, causing them to move on to other victims. If this merely alters the composition of victims without reducing their total number, he says, then the expenditure on theft prevention devices is socially wasteful.

For example, if a criminal avoids my property because I have a visible security system (e.g., a steering wheel Club) then I am imposing an externality on the person whom he victimizes in my place. Yet if I use some invisible device that imposes costs on criminals (e.g., a LoJack), this provides a positive externality by deterring crime for everyone, except for myself. Socially wasteful devices that shift the incidence of crime should be taxed, he says, and socially productive devices that reduce the total amount of crime should be subsidized.

There are three general problems with this argument. First, its internal logic is faulty. In order for taxation and subsidization of crime prevention devices to result in higher "social welfare" the political process by which taxes and subsidies get established must be efficient. If people can bargain over public policies at zero cost, then we can arrive at efficient subsidies and taxes without any social waste from politics.

In reality, political activism consumes time and various goods — both of which could be put to making consumer goods and services. There is a real cost to creating efficient taxes and subsidies. Also, taxes and subsidies may be used to transfer income from the politically weak to the politically influential. The fiscal powers of government can and often are used to transfer income rather than for optimal social policy.

Such use of governmental powers is in fact a kind of theft. If I use the government to take some of your income, simply because I have the power to do so, this is really no different than a situation where I used my ability to pick your pocket or crack your safe to gain at your expense.

Landsburg has committed the Nirvana Fallacy. The idea that subsidies and taxes necessarily lead to economic efficiency derives from a false comparison between an imperfect private sector and a perfect public sector. If my security system causes criminals to attack my neighbor, he could lobby the government for corrective taxes and subsidies, or he could negotiate some agreement with me. (Or he could just buy himself a security system!)

The cost of negotiation could make a contract between us impossible. Costless bargaining with politicians would solve the "problem," but politics is not costless. In fact, the imperfections of the public sector can easily outweigh the imperfections of the private sector. They often do.

Also, externalities do not necessarily matter. Externalities only matter if they are relevant at the margin of production. It could be that the people who buy LoJacks for their cars already provide enough "positive externalities" to cover the social benefits. The conclusions of his article are unfounded.

Second, Landsburg aims at improving "social welfare." While there is nothing wrong with the intention of making the world better for all, there are serious problems with knowing when you have done so. It is quite certain that some theft devices merely shift the incidence of crime. Knowing when this is the case is rather difficult. Landsburg admits this.

Yet, there is more to this matter. Even if we know when there has been a shift in the incidence of crime we do not know the value of the crime to the persons involved. The one who bought a security device has given us some indication of the value of being free from crime. This is shown by the money he or she spent on the device. The one who gets robbed instead has indicated that it was not worth spending the money on such a device. Has social welfare been harmed? Perhaps it would be socially wasteful to subsidize security devices for people who value them so little that they refuse to spend money on them.

Landsburg might reply that there are externalities involved. Externalities derive from unexpressed preferences. We do not know their magnitude. If we assume that the value of avoiding theft is the same for everyone, then we could reach his conclusions.

This is most unlikely. The people who spend the most on security are likely the ones who have the most to lose from crime. There is no way of proving this, but it seems most likely. His scenario where people fail to protect their property even though it is just as important to them is rather unlikely.

Externalities may or may not be relevant at the margin. They may or may not be large relevant to the social waste that results from government efforts to deal with them. Since they are unseen (other than on Professor Landsburg's blackboard) we have no reliable method of measuring them. We could only hope that the political process that determines taxes and subsidies is efficient enough to address significant externality problems in an efficient manner. There is good reason to lack such faith.

Third, Landsburg seems to think that we are somehow obligated to promote social welfare instead of our own. Now, I don't want criminals to prey upon my neighbors, but I am not responsible for the failure of others to protect their own property. The fact that we each have property rights means that we have a responsibility to maintain and protect our own property with useful anti-theft devices.

The idea that I should be forced to pay for theft prevention devices for someone else's property is a step towards collectivism. Of course, we already pay taxes for police and courts. But Landsburg is arguing for additional extension of the public sector into the provision of theft prevention devices. Most people think of the police and courts as a basic function of government, as something that we are automatically entitled to as citizens in civil society.

Should devices that are specific to the protection of one person's property be financed in the same way as courts? 

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Landsburg is thinking strictly in terms of utilitarianism. Ironically, he is discussing the protection of private property rights without any notion of the right of individuals to own property. Property then becomes merely a utilitarian tool for promoting social welfare. Every imperfection that leads to social waste then justifies government infringement upon property rights to protect them.

Private expenditures on alarms and other theft prevention devices do much to prevent crime. While there are certainly some externalities, they are not necessarily serious and they do not necessarily need to be addressed. As a practical matter, they are impossible to measure.

Government has its own imperfections that damage the case for corrective taxes and subsidies. The efficiency, or utilitarian, case Landsburg makes is far from proven. The idea of individual rights provides a far more clear basis for property rights. The taxes and subsidies that Dr Landsburg suggests lack both utilitarian and ethical justification.

D.W. MacKenzie teaches economics at Ramapo College. Send him MAIL and see his Mises.org Daily Articles ArchiveComment on the blog.