Featured Intern Article

The Economy and Externalities

By TRCF Intern Natalia Matsui

As the global economy spiraled into a simultaneous recession, the interconnectedness of different regional economies was apparent. In conjunction, narrowing the scope down to the national economy and to more local economies of towns, the various connections can still be seen. Part of these ties can be explained via externalities. An externality is an action by either a producer or consumer which affects other producers or consumers, but not accounted for in the market price. This is a concept that is used in economics to account for “side effects,” but can also be applied to various aspects in society.

When considering externalities, there is a common connection made between education and the drop in crime rate. The idea is that as the population becomes more educated, the crime rate drops as people are able to attain higher paying jobs. However, the opposite was shown in regard to Harrisburg, Pennsylvania. Unemployment climbed with the troubled economy and businesses laid workers off in masses. With the joblessness running rampant in Harrisburg, the town saw a rise in the crime rate.

Unemployment can be seen as a negative externality of a troubled economy, but so can the crime rate. As people lost jobs, incomes halted, and as unemployment benefits ran out people became desperate. When someone is within the despair of being without a job for months on end and seeing no end in sight, the person may take the situation into their own hands and lead to crime. In addition to the private loss that is associated with unemployment, there is a further cost associated to the public via crime.

There have been studies by economists analyzing national crime statistics that found that unemployment and crime have a positive correlation. In addition, as there are budget cuts in state funding, social services maybe reduced resulting in a decrease in police presence. Aside from less police patrols, education is likely to feel a large portion of the cuts. Being as a drop in crime rate is a positive externality of education increases, the opposite effect of a rise in crime rate can be expected with a decrease in education.

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