Identity Theft to Increase if Economy Enters a Prolonged Recession or Slowdown
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According to a recently published survey by Gartner, Identity Theft fraud has risen by more than 50% since 2003, affecting about 15 Million Americans in the 12 months ending August 2006. Meanwhile, a report released by the FTC concluded that fewer Identity Theft complaints were filed in 2006 vs. 2005, leading Better Business Bureau (BBB) to estimate 8.9 Million Identity Theft victims for 2006 vs. 9.3 Million victims in 2005. Who is right? Is Identity Theft increasing or decreasing?
The difference between the two estimates could be attributed to several factors. The data time span for Gartner is Sep ‘05 to August ‘06, while for the FTC report it is Jan ‘06 to Dec ‘06. The methodology for data collection for Gartner involves 5000 Internet adults, extrapolated to the rest of the population, while for the FTC report it is based on actual complaints filed. It is very possible that actual unreported incidents of Identity Theft are higher than BBB assumptions. Although we can name several additional reasons for the differences, losses associated with Identity Theft are still staggering (at over $49 Billion) and a more relevant question is: will Identity Theft increase or decrease in the future?
There are several factors that affect trends in crime in general. Traditionally, higher rates of crime are said to be associated with worsening economic conditions. Many believe that the drop in US crime rates in the 1990’s is a result of improving US economic conditions. However, there are several findings that dispute such theory. For example, some would argue that in certain cities, such as Bridgeport, CT, violent crimes dropped in 2000, despite declining economic conditions and rising unemployment for that year.
As we closely examined crime rates for the year 1999, 2000, 2001 and 2002 for the entire US, we actually concluded that overall crime rates did not improve. The FBI Uniform Crime Reports indicate a crime index of 4,266.5 per 100,000 inhabitants in 1999, followed by 4,124.8 , 4,162.6 , and 4,125 for 2000, 2001 and 2002 respectively. Hence, there simply seems to be a lag between the economic events of 2000, and the resulting crime trends. Furthermore, although the violent crime index fell consistently between 1999 and 2002, property robbery, burglary and vehicle theft increased in 2001 and 2002 from 2000 levels.
A longer general historical look at crime rates also supports correlation between crime rates and economic conditions. For example, Homicide Crime generally increased in the mid 1920’s to peak in the early 1930’s following the market crash of 1929. The index dropped from the early 1930’s until World War 2. Following the end of World War 2 in 1945, although there was a small spike in homicide crime in the following few years, homicide crime rates regained their downward move until the mid 1960’s. The 1970’s and 1980’s were characterized by high homicide crime rates, coinciding with the oil shocks of 1973, 1979, early 1980’s, and market crash of 1987. Homicide rates and the general crime index peaked between 1991 and 1992, and started a downward spiral which lasted to 2005. It should be noted that in general, crime rates between 2000 and 2005 have been relatively stable (with general crime index between 4,124.8 and 3,899, as opposed to the index being at 5,897.8 in 1991).
Although a year by year correlation analysis may lead to differing results about correlation between economic growth and crime, there is no question that such correlation exists during periods of noteworthy economic developments: 1929 crash, 1970’s oil shocks, early 1980’s Iran-Iraq War oil shock, 1987 crash, 1990’s sustained growth. The key in such analysis is the length of the sustained economic environment: sustained economic malaise ultimately leads to increased crime, and sustained economic growth ultimately leads to a drop in crime.
Several studies have also identified other factors affecting crime trends, such as demographic changes (including population age distribution), increased incarcerations and crime fighting measures and budgets, education, social structure and acceptable behaviour norms, social and family disorder, etc… However, many such explanations also have had contradictory data. For example, although crime rates in the US fell in the 1990’s as incarcerations and crime fighting budgets were increasing, crime ratesalso fell in Canada, despite decreasing incarcerations and decreasing crime fighting budgets in Canada. Such finding can be explained by the substantial improvement in economic conditions in Canada during the 1990’s. Hence, a sustained strong economy took precedence over falling crime punishment and falling police manpower per 1000 residents.
Although history may not tell us what the future will hold, we can still draw some useful conclusions: A- sustained changes in economic conditions ultimately lead to changes in crime rates B- crime rate changes sometimes lag changed economic conditions C- non-violent crime rates and violent crime rates may diverge.
If the recent turmoil in subprime lending leads to a substantial negative effect on the housing industry, and if it is ultimately coupled with job losses and a sustained economic slowdown or recession, then it is rational to expect crime rates to increase. Such risks are real, given Greenspan’s recent warnings on the possibility of a recession. In such case, Identity Theft, a predominantly non-violent crime, may lead the way.
Furthermore, if a sustained economic slowdown or recession materializes, the government will ultimately be forced to tighten spending as its tax revenues decrease. This will lead to smaller budgets to fight Identity Theft. The elusive aspect of Identity Theft makes it harder to control without adequate budgets for proper public education, awareness, and enforcement. As a result, consumers will be well served to stay ahead of the curve, employing proper Identity Theft deterrence steps.
Technorati Tags: identity theft, identity fraud, identity theft protection, greenspan, recession, economic slowdown, business, wall street, federal reserve, stock market crash, economy, subprime, finance, crime
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