Money in a suitcase

How Is Crime Currently Affecting Our Economy?

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Crime has a much larger negative impact on the economy as a whole than you might think, especially when you start to factor in the indirect effects on businesses and individuals. When you think of crime, you might immediately jump to what you see on TV, such as murder, or a crime that might often take place in a business, such as shoplifting. Although those can be serious crimes, they do not have much effect on the overall economy. Economic crime typically revolves around issues such as fraud, computer crimes, drug-related issues, and tax evasion.

Fraudulent activities

People in positions of power who commit fraud can wreak havoc on financial markets which can negatively impact the economy as a whole from the biggest investment banks, down to the retirement accounts of individual workers. Fraud can mean not disclosing the right numbers in terms of expected earnings, accounting practices, misrepresentation, etc. What matters is that when fraud is exposed in companies, it shakes investor confidence, sometime to the point where the company cannot recover, as in the case of Enron. When you don’t want to invest in a certain company because you don’t know if they are telling you the truth about their financial status, the stock price drops dramatically, which can take a heavy toll on those involved with the company, and those invested in the company.

Computer crimes

Another type of crime that hits businesses hard deals with computer security. Anytime you hear that a business has been hacked and customer data stolen, especially personal or financial data, you tend to see a drop in stock price, and unless extreme measures are taken to make sure it doesn’t happen again, the stock price will have a hard time regaining what it lost. More importantly though is that if credit card or social security numbers are stolen, it can potentially put millions of people at risk for identity theft, which has a noticeable effect at the individual level. Companies already spend hundreds of millions of dollars a year on computer security to prevent these types of crimes, and yet not all of them can be stopped.

Drug crime

Illegal drugs are a huge business in the U.S., but the vast majority of that money goes to all the wrong people. Drug related crimes have a very large impact on the economy as a whole, especially when you take into account all the money that is spent on law enforcement, lost productivity, family disruptions, and money flowing out of the country. Taxpayers end up footing most of the bill for this through increased spending for police, prisons, courts, etc. Since just about everyone pays taxes in one way or another, everyone is affected by this to some degree, from the need for tax increases to fully fund state and local law enforcement activities, to the government worker in another sector who may not see a raise due to lack of funding.

Tax evasion

Under-reporting income, or just not paying what you owe in taxes, has a negative effect on the economy because the government has a lot less money to work with than it should have. When government institutions are fully funded, they can afford to spend more money creating new jobs, buying more of what they need, and generally stimulating the economy. While not paying part or any of your taxes may help out an individual in the short term, if they are ever caught, they will have to pay back what they owe plus interest and penalties, which can have a very big impact on your personal finances. Tax evasion also has a disproportionate impact on the lower and middle classes, since most of the money that isn’t paid in taxes, but should be, comes from businesses and wealthy individuals. Those who depend on any type of government program end up bearing the brunt of this impact in the form of reduced funding.

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2 Responses to How Is Crime Currently Affecting Our Economy?

  1. Pauline says:

    Interesting topic, I always wonder how much of the economy is supported by illegal businesses, people working but not being declared, etc. The economy would have an even worse crisis if all that cash wasn’t earned under the table.
    Pauline recently posted..Classic bikes: A good investment?My Profile

  2. What scares me is that after the major crimes committed by the US banks in 2008, the repercussions have been non existent, except to the economy of course .
    Stefanie @ The Broke and Beautiful Life recently posted..Part Time Work and Unemployment. Is it Worth It?My Profile

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