How the Decline of Cash Makes America a Safer Country

Yet another reason to hate coins and bills: They're the lifeblood of the criminal underworld.
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Reuters

Why has crime in the U.S. declined so dramatically since the 1990s?

Economists and sociologists have offered a bounty of reasons, including more police, more security technology, more economic growth, more immigration, more imprisonment, less lead in paint and gas, and even, most controversially, more abortions.

The "real" answer is almost certainly a combination of these factors, rather than one of them to the exclusion of the rest. But a new paper adds a surprising variable to the mix. What if the decline of crime in America started with the decline of cash?

Cash is critical to the health of an underground economy, because it’s anonymous, nearly untraceable, and easily stolen. This makes it the lifeblood of the black market, and the types of crimes that have declined the most since the 1990s, like robberies, are focused on getting cash illegally to spend on other illegal activities, like drugs, guns, and prostitution. (Indeed, a recent Urban Institute study on these underground economies measured their size relative to the cash economy of their respective cities.)

But Americans are rapidly abandoning cash thanks to credit cards, debit cards, and mobile payments. Half a century ago, cash was used in 80 percent of U.S. payments. Now that figure is about 50 percent, according to researchers.

It’s absurd to assume that any trend that started in the 1990s caused the concurrent decline in crime (Boy bands killed crime! Russell Crowe’s film career killed crime!), so the researchers found a clever way to track the demise of cash. In poorer neighborhoods, lots of cash comes from welfare payments, whose recipients "represent especially attractive targets for predatory offenders desperate for cash to sustain their pursuit of illicit action,” the researchers write.

But in the 1980s, the federal government switched from paper money to electronic benefit transfers. They didn't switch all at once. They switched one county at a time within states. This created a kind of randomly controlled environment for the researchers, who studied Missouri's counties to establish whether the areas that switched from welfare cash to electronic transfers saw a concurrent decline in crime.

The results were striking: The shift away from cash was associated with "a significant decrease in the overall crime rate and the specific offenses of burglary, assault, and larceny in Missouri and a decline in arrests.” In other words, the counties saw a decline in specific crimes when they switched away from cash welfare. The researchers go on:

EBT implementation is associated with a 16.6 percent reduction in total crime rate per 100,000 persons. The magnitudes of the effects for individual crime outcomes are also sizeable, suggesting declines of 22.7 percent for assault, 13 percent for burglary, and 16.3 percent for larceny. While the effect is negative for motor vehicle theft, it is relatively small in magnitude and statistically indistinguishable from zero

Perhaps most interestingly, they found that the switch to electronic transfers reduced robbery but not rape, suggesting that the move away from cash only had an impact on crime related to getting and spending cash. 

The move toward cashlessness in the U.S. continues apace. Google now lets you attach money to emails to send to friends. Mobile payment apps like Square continue to grow their relationships with vendors, which means that for some shoppers, pulling out your credit card could become as rare as finding exact change in your coin purse. It might seem absurd to imagine Visa, Square, and Google Wallet as crime-fighting technologies. But with a better understanding of how cash's availability affects crime, perhaps the government should consider killing more than just the penny

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Derek Thompson is a senior editor at The Atlantic, where he writes about economics, labor markets, and the entertainment business.

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