Crime, and Punishment?

One of my favorite books is Crime and Punishment by the great Russian novelist Fyodor Dostoevsky. In brief, the book explores the moral anguish, legal ramifications and eventual spiritual redemption of Rodion Raskolnikov - a poor student who murders an elderly pawnbroker for her money in the hopes that it would liberate him from poverty, but then must deal with consequences of his actions. The crime happens quickly in the book and the majority of what follows is about the punishment. No surprise, there were severe consequences to Raskolnikov's actions.

If Dostoevsky were living and writing in Chicago today, however, his title might be more along the lines of "Crime, and Punishment?" Commit a crime in the city right now and you very well might not get caught or, if caught, go unpunished for even a violent offense. It's an interesting experiment in criminal justice to say the least, except for those of us living with the repercussions of current policies.

I know I said I'd stick to markets, economics and investing for awhile after my last article on ESG, but please allow me one more digression. Everyone has a certain threshold for how much they can tolerate something, and I've reached mine when it comes to local, violent crime. Persistent gun violence in the vicinity of your children is the kind of thing that will rattle you. Enough is enough, and if we don't improve the situation soon our city's residents and economy will all be the worse for it.

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This is an article about the deteriorating state of affairs in Illinois and, specifically, Chicago. But it’s probably applicable to other cities and states that in recent years have experienced rising crime and slowing growth.

My thoughts aren’t 100% formulated yet, but I want to start building out my thinking on some urgent issues and hopefully create an intelligent discussion space. As time goes on, I will likely have more to say and bring more data and actionable ideas to the table. (But probably not on LinkedIn as I want to keep this account mostly focused on markets).

Finally – before diving in – I want to say at the outset that I’m intensely non-partisan. I have what some might today call a libertarian / center-right bent, but I’m not party-driven in my views. I just want to see society function well and that requires skilled leadership and sensible policies.

I appreciate everyone who wants to make the professional and personal sacrifices to get involved in public service. Please note that any criticism I have in what follows is in no way, shape or form personal, but rather based on a good-faith disagreement over policies and priorities.

So Illinois and Chicago... The state and city are in quite the conundrum.

1) We have out of control, unfunded pension liabilities.

2) We lay claim to the worst credit rating amongst all 50 states (to my non-finance friends, the color red and letter Bs are bad).

3) We've got stagnant to shrinking population growth.

4) We have sluggish economic growth (using 2018-19 GDP growth rates prior to the onset of Covid).

5) Don't forget the high tax burden.

6) And last, but not least, rising crime.

It’s not the best combination of factors and the trends are getting worse. Most frustrating of all, it doesn’t need to be this way. The future of the state and our city is at stake, and I think it’s time for pragmatic and thoughtful people to speak up before it’s truly too late.

Let’s start with the economics side of the picture because I think an improving economic outlook is key to the solutions.

Illinois is a state. It doesn’t have a reserve bank like the Fed to finance our deficits. To all the new-age, progressive economists out there, you can’t do Modern Monetary Theory (or MMT) at the state level. Nor can we depend on more federal bailouts. That means taxpayers are ultimately on the hook for our liabilities. And boy, do we have a lot of them…

This is bad, because money spent on unfunded pension contributions and debt servicing is money that could otherwise be spent on productive uses such as education, infrastructure, community services, etc. As shown below, pension contributions and debt servicing are major state and city expenses for the FY 2022 budgets.

IL State Budget for 2022

Chicago Budget for 2022

So the options are (A) borrow your way out of this mess, which really just pushes the can down the road. But we have such bad credit ratings at the state and municipal levels that borrowing carries a high price.

Though bond yields have come down somewhat thanks to federal assistance, last May IL borrowed $800m at the state level at 5.85% (which at the time was close to a 5% spread over the yield on U.S. 10-year Treasuries). Chicago has benefitted from a rally in municipal bonds, but we still have a higher cost of borrowing relative to more fiscally disciplined cities. 

(B) We can tax our way out of this hole, but raise taxes anymore and we will see mobile businesses and people begin to take their talents to South Beach (literally, but by this I mostly mean lower tax burden locations – of which Florida definitely makes the cut). 

(C) We can grow our way out. This is by far the best option. Attract new residents, businesses, jobs, tourists, etc and generate more revenue as a result of the additional economic activity in the state.

(D) The city can also default and go through bankruptcy, but that is an extremely remote possibility (and the IL Supreme Court has ruled pensions are protected under the state constitution). Also, a default means we’d have a hard time ever borrowing again.

C is really the only viable choice. But it's also maybe the hardest to imagine at the moment given how disastrous the current state of affairs seems.

In short, you can’t grow your way out of an economic mess if the average person and business feels increasingly under threat and fewer and fewer from out of state would think to set up shop here, let alone visit.

(As an aside - not really worth getting into now, but businesses also need to feel like the political leadership appreciates their role in contributing to a prosperous society. Anti-capitalist, anti-business sentiment isn't helpful - or very well informed for that matter).

To all my liberal, progressive and even democratic socialist friends out there: please understand something. Money doesn’t grow on trees (at least not at the state level). It grows on the productive output and taxable assets and income of in-state businesses, workers, consumers and property owners.

Unless the city and state intend to build an impenetrable wall around our borders, you can’t just tax people to oblivion. People and businesses can leave. Leaving a state is not like giving up U.S. citizenship. You move and mostly get on with life just as before.

There should be and are compelling reasons to live here. We have world class universities, a relatively affordable cost of living compared to coastal cities, no natural hazards (like fires, earthquakes or flooding), a rich cultural scene and a still large base of good employers.

But very few are moving in at the moment – especially in this Zoom-centric post-pandemic age, where if you have valuable service-sector skills, you can really work from anywhere.

To diagnose and treat our problems, I think we need to understand some first principles. Let’s start with a little political history and theory. I won’t bore anyone with historical and philosophical citations (though I suggest brushing up on Hobbes and Locke), but governments don’t just arise out of thin air.

As a history professor of mine in college said: the first rule of history is people need to eat. People need basics: like food, water, shelter, energy and security. The history of government (and for what it’s worth, conflict) is largely a history of people giving up individual sovereignty in exchange for securing these needs (yes, I am aware of all the egregious exceptions where people were conquered rather than freely acquiesced to power).

No matter how a government comes into being, its legitimacy – regardless of the form - is conditioned on securing the basic needs of its subjects. Fail for long enough, or fail severely enough, and you lose the seat of power.

Relevant to Chicago in particular, you can’t have a vibrant and prosperous society when the city or state is under the constant threat of violence, which has forestalled the chance of a durable economic rebound.

So it’s strange to me that we are experimenting with policies that seemingly will make this situation worse. I don’t doubt that public officials (like Cook County State's Attorney Kim Foxx, Cook County Board President Toni Preckwinkle and Chief Judge of the Cook County Circuit Court Timothy Evans) have their hearts in the right place. I do have questions about their policy choices though.

State's Attorney Foxx has pushed for dropping an increasing number of felony charges, which may be leading to a jump in repeat offenders. I certainly see many anecdotes suggesting this.

I also learned of a new theory recently from the office of SA Foxx regarding "mutual combatants." I don't remember the part of my criminal law course though where you can't pursue prosecutions because two sides were shooting at each other in mutual combat.

The Cook County Board President, Toni Preckwinkle, supports defunding the police.

And the Chief Judge of the Circuit Court of Cook County, Timothy Evans, supports more lenient bail rules even for those accused of violent offenses.

Even Chicago's Mayor, Lori Lightfoot – who I think is operating under exceedingly difficult conditions – has probably made some unfortunate errors. For one, why not support the Governor's willingness to send in the national guard to help with crime? A lot of people would feel safer. Is it optics? If so, I assure you that the optics of a child getting injured in a carjacking (as almost happened this weekend to neighbors) is worse.

I think people should get one of the several available Covid vaccines for their own safety and that of the community, but if I’m getting robbed or my house is on fire I really don’t care if the police or firemen are vaccinated. The Mayor's stance - which is similar to that of several other big city mayors - may result in the police force having a major reduction in available personnel during a time of heightened crime and violence.

All these lax criminal justice policies are rooted in some degree, I think, in the painful experiences that many of our city’s most disadvantaged communities have had with law enforcement. I can’t speak to these experiences, nor will I even attempt to. I think its important to listen to those who can speak to these issues first-hand and learn.

But here’s also a harsh reality for those who support progressive criminal justice policies: the lives of socioeconomically disadvantaged people are not going to sustainably improve without economic opportunity. And no opportunity is coming when the city is descending into violent disarray. So perhaps police reform is a lot better idea than police defunding.

Unfortunately, the lax crime policies implemented in Chicago may ultimately cause more pain for economically disadvantaged communities. These communities – like the rest of the city – need a safe environment for businesses to feel good about investing in and creating opportunities.

Now my experience with law enforcement might be 180 degrees different than others (I truly appreciate that), but my impression is these are mostly hard-working men and women trying to make a positive difference in the community.

They are operating under extreme stress, with an increasingly thankless populace and antagonistic politicians, all while being underpaid relative to the risks they assume. And you wonder why we can’t attract better people to the police force…

Look - I am not really politically aligned or active, so I’m not sure how much my advice is worth to all the left-leaning politicians and their supporters out there. I’m just an investor (with an appreciation for history and philosophy), but I’m pretty good about spotting the second and third order effects of things.

To Chicago's and Illinois’ current progressive leadership, I’d say that you are winning the short-term battles with respect to criminal justice reform at the expense of losing the long-term war. If these policies result in chaos for the city and state, you run the risk of getting voted out and the pendulum will likely swing far to the other side.

Whatever progressive priorities you may have (criminal justice or otherwise) are entirely at risk of achievement if you lose popular support because our crime and economic issues are becoming untenable. Most people aren’t hyper-partisan and vote on dinner table issues. Is my life better or worse? For a lot of people in the city and state, that answer is easy. It’s far worse than a few years ago.

These issues have reached a boiling point for me because my family’s safety is now in danger. I don’t mean at all to detract from others who live in far rougher neighborhoods, but I am definitely not used to daily crime at the barrel of a gun.

Just in the last 18 months (and increasingly the past few weeks) I have been present or right by the following: a crew armed with AK-47s slammed into a police vehicle on my street corner, injuring an officer, which led to an armed chase down my alley.

A woman was carjacked by an armed thief in broad daylight directly outside my son’s daycare, just moments before I picked him up and while other parents were getting their children.

A young woman was carjacked by an armed criminal – again in broad daylight around 9:30am - right by the route of my son’s Halloween school parade.

Just yesterday, a close-by family – again in broad daylight on a quiet Sunday morning – was carjacked by a gunman with their toddler still in the backseat. The parents bravely got their child out of the car despite having a gun to their heads demanding the vehicle.

For those unfamiliar with Chicago, I live on the North Side of the city in what I’d consider a quiet neighborhood of mostly working professionals and families with children (and dogs). Crime never felt like a pressing issue until the current slate of politicians came into power and it accelerated post-Covid.

I know a lot of my friends on the left and political leaders would say that we need to consider the circumstances of the criminals when doling out punishment and we have to try empathizing with the plight of anyone who was drawn into crime. That is surely true to a large degree. We need to care about what's going wrong in the lives of so many to lead them astray into lives of criminality, and we have to focus on their rehabilitation to become productive members of society.

But I get frustrated when it seems like the plight of criminals receives more attention and sympathy than the safety, suffering and wellbeing of their victims.

Being a parent has made me more empathetic than I ever had been. To love a child is to understand that at one point we were all children. Every life is precious. But along this line of reasoning, there has to be some clear moral order for society to function or we will all descend into chaos.

Those who don’t value life – to the point they threaten the lives of others – are not functional members of society. If we excuse their behavior, we will undermine the humanity for the rest of us who can appreciate it.  

Just because someone has a hard life, why should they be excused for pulling a gun on someone else? There is still a right and wrong in this world. Turning a gun on someone while committing a crime is never excusable. In overly focusing on the humanity of criminals, we are dehumanizing their innocent victims.

The drastic uptick in crime in my neighborhood and across the city is nothing short of domestic terrorism. People are nervous to walk outside, drive to the grocery store, take their kids to school without running the risk of being robbed or shot in a random act of violence. Our response to terrorism has not historically been to let the terrorists off easy because they may come from a tough background.

Functional society can’t exist when decent, moral people who are law-abiding citizens feel under threat all the time. There is no prosperity without security and no security without much stronger criminal behavior deterrence.

If we continue to let these crimes go unpunished or undeterred, more will surely come. This will drive people and businesses to leave the area, causing the state and city's economic problems to spiral further downward.

The solutions here aren’t rocket science. Hold accountable those who commit violent crimes and don’t let them back out on the streets so easily. Doing the opposite will imperil our economic recovery and just create more hardship for communities already suffering.

People whose lives have meaning typically stay away from crime. In history, it's usually just the economically disassociated and desperate who become rebels. Those who are content in life or see hope for a better future tend to not want to mess that up.

So this may seem counterintuitive for those on the far left end of the political spectrum, but by being hard on crime, we can create better conditions for economic growth, which will in turn create more opportunities for those most in need.

As a caring and concerned resident of Chicago and citizen of Illinois, I say let’s grow our way out of this mess together, civilly and prosperously.

Let’s give businesses a reason to invest here again. Families a reason to move here. College and graduate students a reason to stay. Entrepreneurs a reason to take risks. Tourists a reason to visit. And most importantly, everyone a reason to have optimism about their futures.

Bob Dylan sang that “when you ain't got nothing, you got nothing to lose.” So most importantly, we have to make sure everyone in our community has something to live for. Let’s rebuild the kind of safe environment where we can again create the space for everyone to have meaningful opportunities.

We can solve these issues for our great state and city, but we have to start getting smarter about policy choices today. We don't have the time or the livelihoods to waste.

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Thank you for your time if you made it through this. If you disagree with anything, please let me know. If you agree and are concerned, please share this with others. And I promise - the next post will be about market and economic analysis again.

Sincerely,

Stuart