With the 2024 election season already begun, a renewed debate is emerging over the future direction of the Federal Reserve. The Fed’s gargantuan money creation, and its up-and-down interest rates, have resulted in a dollar whose shifts in value have been behind the major crises of the past 20 years — including the worst inflation in more than four decades.
In a widely read Wall Street Journal opinion piece, Republican presidential contender Vivek Ramaswamy made a powerful case for a return to Federal Reserve policies of the 1980s-1990s, which were based on maintaining a stable currency.
Sound money with a value that doesn’t dramatically fluctuate will calm a volatile economy, encourage trade and investment and put the country back on a path to prosperity.
But there is another reason that we need a sound dollar — to help end the crime wave gripping American cities.
This epidemic of criminality has been attributed to pro-criminal legal ‘reforms,’ the movement to defund the police and widespread drug addiction, among other causes.
All are very real issues that must be addressed. Largely overlooked, however, is the role played by Fed-enabled inflation, which, at slightly under five percent, is around twice the rate it was before COVID-19. The pandemic spike is in addition to a slow-motion inflation that has transpired over the past 20 years. That was produced by Federal Reserve weak-dollar policies, including unprecedented money creation used to ‘stimulate’ the economy after such downturns as the financial meltdown of 2008.
All of this has resulted in a precipitous decline in the value of the dollar. Its purchasing power has dropped by more than 40 percent since the year 2000.
Central bank policymakers have forgotten the famous warning of economist John Maynard Keynes: "There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency." One result can be a spike in crime.
The link between inflation and crime has been demonstrated repeatedly in studies of many countries. High-crime nations like Brazil and Venezuela, for example, are also high-inflation countries. The New York City crime wave taking place right now is often compared to the "bad old days" of the 1970s and early ’80s, the era known as The Great Inflation.
Even the New York Times has acknowledged the connection of inflation to crime. This is not just a vague correlation. Criminal justice expert Howard Henderson has observed that, as prices rise, crime does too. He’s noted that, "after decades of steady declines," violent crime started to rise in the mid-2010s, around the time inflation began to increase.
Inflation’s greatest effect, however, appears to be on property crime. An analysis of U.S. data from 1950 to 2010, revealed a strong relationship between rising prices and property crime — which might help explain the surge in shoplifting seen in New York and other major cities. A surefire way to bring down rising prices, after all, is by stealing.
Inflation may have a greater impact on crime rates than even joblessness. You’d think losing a job would drive people to steal. However, Richard Rosenfeld, a noted criminologist on the faculty of the University of Missouri-St. Louis, found that crime did not increase in the immediate aftermath of the 2008 financial crisis, despite an economic contraction and soaring unemployment. Rosenfeld said this was because, during the post-2008 downturn, the U.S. briefly experienced deflation — falling prices.
Adam Fergusson, author of "When Money Dies," the classic history of the infamous hyperinflation in post-World War I Weimar Germany, described how that trauma "brought out the worst in everybody," encouraging "the subversion of law and order." Citizens whose wealth was devastated by soaring prices resorted to desperate measures to hold on to what they had.
The political class often associates money with "greed." In fact, it is vital to social trust. Money provides an agreed-upon unit of value that allows total strangers to trade and cooperate in the marketplace. When currency suddenly loses value on account of inflation, this trust is destroyed.
Not only does this damage commerce. People who can no longer pay their bills see others with investments and businesses benefiting from Fed-created dollars and appearing to get rich. The link between effort and reward is severed. Resentments flare that can stoke criminal behavior.
The Fed’s answer to the inflation dysfunction has been to hike interest rates. And, indeed, inflation has dropped since its 9% peak in June of last year. But history has shown that, sooner or later, inflation and its ill effects — including crime — will come roaring back unless steps are taken to stabilize a currency.
None of this mitigates the need for solutions to the crime crisis — like increased law enforcement. Our point is that the Washington political class tends to discuss the subject of "monetary policy" in the driest possible terms, without fully grasping the human toll taken by today’s unstable dollar.