Sometime this year, the US prison and jail population will reach two
million inmates -- most of whom are males of prime working age.
Incarceration rates and spending on prisons have been rising rapidly.
Indeed, the number of prime age males in prison now approaches the
number of officially unemployed adult males, while prisons have become
a major growth industry in at least some regions of the country.
Further, there is a movement to increase employment and production of
goods and services within prison walls and two bills were introduced
in Congress that would encourage this while at the same time
subjecting prison labor to greater market discipline.
In this note, we raise the question "can penal Keynesianism replace
military Keynesianism". First we should describe the economics of
"military Keynesianism". It is useful to identify two supply-side and
two demand-side impacts. First, maintenance of large standing armies
helped to remove young, lower-skilled males from the labor force -- that
is those with a high probability of becoming unemployed -- especially
young black males. The other "supply side" impact was on technological
advance and development of infrastructure that might "spin-off" to
enhance productivity of the non-military sector. There were also two
primary demand-side effects: the demand for goods and services
generated directly by the government's spending, as well as the
induced "multiplier" effect on consumer demand.
Because much of the government's spending on hardware created
high-paying jobs in the advanced industrial sector, the induced demand
was important in keeping national aggregate demand high. This was
important, for unless aggregate demand were raised, enhanced
productivity could have merely led to stagnation (by increasing supply
without raising demand) -- successful operation of military Keynesianism
thus required the complementary supply-side and demand-side
effects.
However, military Keynesianism also carried with it some aspects that
made it difficult to sustain over a long period. First, the
technological spin-offs were probably fairly limited outside a few
well-known examples (the 747, the Internet). To the extent that
military spending did not enhance productivity of the non-military
sector, it would add to aggregate demand without raising supply much,
thus, would tend to be inflationary. This effect was multiplied due to
the fact that military spending largely resulted in
"hiring-off-the-top" as the military-industrial complex hired the
best-educated workers, in competition with non-military demands for
similar workers, thus contributing to a wage-price spiral.
Second, for a variety of reasons, maintenance of a large standing army
encouraged evolution of "cold wars" into disruptive "hot wars". Many
young men returning from hot wars became less employable. Further,
social unrest resulting from hot wars made large-scale military
intervention less politically feasible. With the removal of the Soviet
Union as a viable threat by the end of the 1980s, it became difficult
to justify continued expansion of military spending. Downsizing of the
standing force along with enhanced technology of the hardware led to
significant upgrading of the qualifications such that the military no
longer serves its traditional function of "employer of last resort"
for the poorly educated. And while defense still plays an important
role in maintaining aggregate demand, military spending won't rise as
fast as GDP in the future.
For these reasons, we were intrigued by the possibility that penal
Keynesianism might substitute for (or, at least, add to) military
Keynesianism. On the supply side, imprisonment acts as a substantial
outlet for excess labor supply, essentially drawing from among the
same population that used to find its way into the armed forces. And
while the prison system used to be fairly low-tech, it is increasingly
relying on fairly high-tech products and services of private industry.
In addition, and unlike the military sector, the prison sector
actually produces goods and services that can be purchased in markets
by consumers. Furthermore, penal Keynesianism increases demand
directly and through a multiplier; and spending on prisons is growing
rapidly -- much faster than spending on the military or GDP.
Let us quickly turn to the characteristics of today's prisoners. The
vast majority have low educational attainment: three-fourths are
functionally illiterate; almost half have not graduated from high
school (versus 17% of the US population as a whole); and only 13.5%
attended college (versus half of all Americans). Employment rates for
adults who do not graduate from high school are low and falling: in
1970, nearly 65% of Americans aged 25-64 without a high school degree
were employed, but that fell to just over 50% by the mid 1990s. Given
the low employment rates of Americans without a high school degree,
and the very low educational status of prisoners, it is likely that
the vast majority of US prisoners were not employed at the time of
arrest. Indeed, data from California show that only 35% of inmates
were employed prior to arrest.
Sometime this year 2000, the US prison and jail population should
reach 2 million. By contrast, there are currently about 4 million
adults over age 25 counted as officially unemployed. In fact there are
more adults without a high school degree in prison than there are who
are officially unemployed. While precise data are hard to obtain,
perhaps 10% of all prime-age males without a high school degree are
currently in jail or prison; for prime-age black males without a high
school degree, that figure is close to 30%. Note, also that the number
in prison significantly understates the number of people who have
served time. Another 4 million (mostly males) are on probation or
parole. Thus, at any point in time, almost 3 million of the 9.5
million adult males without a high school degree are being supervised
within the correction system.
Averages, of course, can be quite misleading. While Blacks account for
about 12% of the US population, they make up over 40% of the prison
population. Indeed, 42% of all black men in Washington DC between the
ages of 18 and 35 are under the control of the correctional system; as
many as 85% of all black men in the city face arrest at some time in
their lives. In California in 1994, 40% of all black males in their
twenties were in jail or prison, or on parole or probation (the
similar figures were 5% for white males and 11% for Hispanic males).
It is likely that in some cities, a greater number of high school
dropouts are behind bars than are employed.
The number of prisoners is growing rapidly -- from under 200,000
in 1971 to 600,000 in 1981 and to 1.8 million by 1998. The
incarceration rate (number incarcerated per 100,000 population)
reached 668 in mid year 1998. At current rates of growth, it will
reach 1900 by 2025.
Total justice system expenditure grew from under $36 billion in 1982
to $120 billion by 1996. Per capita justice spending has increased
from about $150 per year in 1982 to nearly $450 in 1995. The fastest
rising component of justice spending is expenditure on corrections.
The direct cost of incarceration now runs at about $25,000 per year
per inmate, but indirect costs (including support of the prisoner's
family) raise that substantially.
Let us now assess the "Keynesian" impacts of our prison system in
comparison with military Keynesianism.
Labor supply:
Prisons and jails remove nearly 2 million mostly young, and mostly
male, individuals from the potential labor supply -- the same population
that used to go into the military, but is now excluded. However, while
military service probably enhanced the employability of many (perhaps
most) recruits, it is doubtful that imprisonment changes the behavior
of prisoners in a positive manner. On average, prisoners commit 12-15
crimes per year after release from prison, with an estimated cost to
society of $80,000 per year per releasee. Presumably, this is not the
sort of behavior that employers seek in a potential employee. With the
near abandonment of attempts to rehabilitate or educate prisoners, it
is unlikely that most prisoners leave prison better prepared for
employment.
It is true that there is a growing movement to increase employment in
prisons and jails -- which would presumably enhance employability after
release. Currently, little more than 6% of prisoners work in jobs
other than those directly related to prison support. About 75,000
prisoners produce goods for use in the public sector while another
2500 work for the private sector producing marketable goods and
services. In contrast, in 1889 90% of prisoners worked, with many
leased to private firms and farms -- and many would like to return to the
good old days of use of prison labor for profit. We are moving in that
direction.
For example, TWA employs inmates to handle telephone reservations. The
next time you make a reservation, you should realize that a prisoner
now has your credit card number, the names of family members, your
address, and your vacation travel plans. Other uses of prison labor
already include telephone solicitation for long distance phone
companies, computer assembly, data entry, and athletic shoe
manufacture, while employers include Lee Jeans, Microsoft, Boeing, and
Victoria's Secret (no doubt a relatively popular employer).
Prison employment is seen as a means to enable prisoners to earn wages
to compensate victims, support families, and pay for prison room and
board. Others emphasize that employment in prison will help prisoners
to obtain jobs after release, thereby reducing recidivism.
Unfortunately, most studies find that prison employment only reduces
recidivism by 3-8% (although at least one study shows a 20%
reduction). Furthermore, on not-implausible assumptions of
elasticities, employing prison labor could result in net costs to
society because the benefits resulting from slight reductions of
recidivism and greater prison output would be more than offset by
higher unemployment and increased crime rates outside prison through
displacement of low skilled, non-prison labor (some portion of which
would commit crimes and become incarcerated).
Finally, and perhaps most surprisingly, increased employment of prison
labor is being encouraged as a way to compete with imports from low
wage countries. Indeed, HR2558 (introduced in Congress in 1999) would
specifically exempt prison labor from minimum wage laws if it competes
directly with "foreign made products". This is a rather surprising
turn of US policy, given objections to supposed use by China of
convict labor to increase its international competitivity.
Technology and infrastructure:
Many prisons are a hundred years old, with technologies that changed
little over the past century. Still, lots of new prisons are being
constructed and some of these are high tech. For example, the new
"supermax" prisons utilize high tech surveillance and round-the-clock
lock-up of inmates, two-to-a-cell. Food is pushed through slots in the
door, and the only human interaction an inmate has is with his
"roomie". "Recreation" consists of one hour alone in a "kennel"
attached to his cell, just large enough for jumping jacks. Spin-off
technologies might find application in home and commercial security.
More importantly, new prisons bring new infrastructure to host
towns -- roads, businesses serving guards, prisons, and prisoner
families, and new homes. While prison and related infrastructure
construction is not yet nationally significant, it is already locally
and even regionally important. For example, prison construction and
operation is the most important growth industry in upstate New York.
Demand stimulus:
Similarly, prison construction and operation provides an important
stimulus to aggregate demand in many areas, but is still too small to
add much to our nation's GDP. Indeed, it is not clear that prisons add
net demand at all. Prisoners cost society $25,000 per year while
incarcerated, but $80,000 per year when released (primarily due to
costs of crime) -- which means they may add more to demand when they are
out of prison and busy committing crimes. Whether the net effect of
our penal system on aggregate demand is positive probably cannot be
determined.
On the other hand, it is clear that penal Keynesianism is an important
source of demand at the local level. The new supermax in Malone, NY,
will create 510 sorely needed jobs (guards, administrators, and
clerical workers) to help replace the 750 Tru-Stitch Footwear jobs
lost to downsizing. New prisons also create significant numbers of
jobs in local businesses. Note, also, that penal Keynesianism tends to
promote hiring off the bottom (guards, convenience store clerks) -- which
is good for the supply side (creating jobs for the low skilled) but
less beneficial for the demand side (relatively low wages) when
compared with military Keynesianism.
Turning to world aggregate demand, increased prison labor that
produces goods and services for market will almost certainly lower
demand by displacing higher wage labor. Even at the level of US
states, prison construction and operation probably adds little to
demand because it merely displaces other types of spending. Both
California and New York, which long had two of the best systems of
higher education, now spend more on prisons than on higher education
and it is likely that justice spending has displaced education
funding. Unlike military Keynesianism -- which was largely federally
financed (thus, only loosely constrained by government revenues) -- penal
Keynesianism is mainly state and local government financed (thus,
subject to balanced budget requirements).
In sum, it appears that penal Keynesianism is a poor substitute for
military Keynesianism on either the supply side or demand side.
ALTERNATIVES
Is there an alternative to penal Keynesianism (and to military
Keynesianism)? In recent years there has been growing support for a
nation-wide program of Public Service Employment (PSE) that would
guarantee jobs for all who are ready, willing, and able to work. In
our favored version of the plan, the federal government would
establish a fixed, universal wage and benefit package for PSE workers.
All state and local governments as well as approved nonprofit agencies
could hire as many PSE workers as desired, with the federal government
paying the wage and benefit package.
The target population for the PSE program would be the low-skilled,
poorly educated population that used to be recruited into the
military, but now remains out of the labor force and in prison. It is
somewhat ironic that there is a movement to employ high school
dropouts who are incarcerated, yet, there is no concerted effort to
provide jobs for the portion of high school dropouts who are not (yet)
in prison. If it is true that prison employment reduces recidivism,
increases chances of obtaining jobs after release, and reduces
probability of committing crimes upon release in spite of all the
negative influences on character (actual and perceived) of serving
time in prison, then employment outside prison should be even more
effective at accomplishing such social benefits.
Further, employing prisoners in the absence of a universal PSE program
may simply reduce employment opportunities of the non-imprisoned. At
the very least, we should offer the same employment opportunities to
those who are not imprisoned as we offer to inmates. Why not simply
offer a job to all who are ready, willing, and able to
work? 
Note: this article is based on a longer article, "A New Economic
Reality: Penal Keynesianism", Challenge, September-October,
2000.
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