In the 1990s, I was seasonally employed at Camelot Music, a store that sold cassettes, CDs, videos, posters, and so on. In 2007, I visited Northland Plaza in Columbus, Ohio, where the store was located, and found to my dismay that it is now one with Nineveh and Tyre. My time there taught me an early lesson on the costs of successful theft and the costs of successful rent-seeking — which in most cases are practically the same thing.
One day, I arrived at work and was told by a manager to watch a particular customer because they thought he was trying to steal something. For about two hours, the customer would wander through the store, pick things up, wander around with them, put them back, and so on.
Finally, he took a small stack of items to the cash register to check out. After the cashier had tallied his total, he picked up an item — Janet Jackson’s Design of the Decade CD — said “I think I need to put this back,” and bolted out the door with it.
I was angry and puzzled. The guy had spent two hours (at least) and stolen a single CD. He could have spent about two or three hours working at a minimum wage job and earned enough money to buy the CD. Perhaps he had designs on a larger haul but was thwarted by the store’s eagle-eyed employees. Perhaps he had confederates who successfully made off with a large haul while he had everyone distracted. Regardless, the whole episode made the world a little bit poorer.
It’s not because Camelot Music shareholders lost the CD or because Camelot employees lost benefits because of theft. I recall a meeting during which we were told that shrinkage — the industry term for theft — had gotten really bad, that employees needed to be more watchful, and that the losses were hitting us in the form of raises and merchandise discounts and other things we weren’t getting. No, the shrinkage per se is a pure transfer from the robbed to the robbers.
The social loss came from the time and energy the thief spent trying to steal and the time and energy we spent trying to stop him. The cost of the pinched Janet Jackson CD was what the thief could have produced with the time and energy he spent stealing the CD.
Suppose he had worked at the Donato’s Pizza at the end of the block, where I occasionally went for lunch. Then he could have taken the money he earned making pizza and bought the CD. The social cost of the theft in that case was the pizza he didn’t make because he was busy stealing. And even if he couldn’t have gotten a job at Donato’s, he could’ve shoveled snow or scraped windshields or done any of a number of odd jobs until he earned enough to pay for the CD.
The resources consumed in trying to prevent theft are socially costly. These include the jewel cases in which CDs and tapes were displayed for theft prevention. What else could we store employees have done had we not been watching carefully to prevent even-greater theft?
Perhaps we could have made more sales. Some customer likely left the store less than fully satisfied because she didn’t get the service she would have gotten had we not been watching the guy who was trying to rip us off. These, too, are among the costs of theft.
In this sense, your home security system and the cop walking the beat are social losses: they’re good for you because they mean your stuff is less likely to be stolen, but you would be better off if people didn’t steal and we could use these resources and labor to produce something else.
This Is Politics
The story has an application to the economics of politics. What are the incentives, and what do they mean for general prosperity? Ask, as many economists have: do people have incentives to trade or incentives to raid? When people have incentives to trade, they have incentives to actually create wealth. When people have incentives to raid, on the other hand, they have incentives to destroy it.
Think about politicians, lobbyists, and the firms that employ them. Firms want income-increasing special privileges. These include subsidies, rules like licensing restrictions, and other barriers to entry that allow them to raise profits by raising prices and cutting output, or tariffs that protect them from foreign competition and allow them to raise profits by selling at higher prices.
The prizes they are getting — the increased profits from subsidies, restrictions, or tariffs — are like the Janet Jackson CD that was stolen from Camelot Music over 20 years ago.
Importantly, the resources firms invest in trying to get those special privileges — things like high-priced lobbyists — are like the time and energy the thief devoted to stealing the Janet Jackson CD. The firms are consuming resources, and in a way that rewards them. They are better off, the politicians who are in a sense “selling” special privileges are better off, and the lobbyists are better off.
Not all lobbying is bad, of course, and a lot of lobbying happens as part of defensive efforts to shield people from depredation just like a lot of my job at Camelot Music was theft prevention. Think of the many millions expended by the business community in the last year to beg government not to disrupt supply chains with new tariffs.
However, whether it is offensive or defensive lobbying, they’re not actually producing any new goods or services while trying to get the prize. Society is worse off to the tune of what these firms would have produced had they actually devoted those resources to creating wealth rather than simply redistributing it.
If you’re looking for additional resources on the subject, Tullock’s classic article on the welfare costs of monopoly, tariffs, and theft and Mike Munger’s “Rent-Seek and You Will Find” are both great.