Retailers’ panic within a panic

As the holiday shopping season gets into high gear, retailers are complaining about theft and fraud. The panic centers on what are known as “flash mobs,” groups that storm large corporate retailers, grab what merchandise they can and flee.

Big-box retailers have also blamed platforms such as Amazon and Facebook Marketplace for allowing the resale of misappropriated goods, and what they describe as easing of punishments for theft offenses in some states.

Concerns about retail theft are not new. American culture has long valorized the consumption of goods that only some can afford to purchase. The firms complaining loudest about theft and fraud —corporate retailers—often contribute to wide disparities in access by failing to pay their workers a living wage. Under these conditions, some necessarily ignore socially acceptable means to attain socially approved ends. They take what they can’t pay for.

Retail theft thus reveals a core tension at the heart of American capitalism. Corporate retailers try to make consumption convenient to maintain the illusion of a classless shopping experience. But locked-up merchandise and store security demonstrate that while some have access to consumer abundance, others do not.

Where possible, retailers resolve this tension by enlisting the government to do the policing for them. Moral panics such as the present one is the surest means of persuading policymakers to devote public resources to protect private profits.

This is a common pattern. Beginning in the 1960s, credit card firms, which also promoted consumer convenience while seeking system security, stoked repeated moral panics about credit card fraud to lobby for new fraud laws. While card fraud was a real problem for card issuers, the panics distracted from the growing economic precarity which came with stagnant wages, inflation and debt-financed consumerism.

American policymakers built the post-World War II economy on the promise of mass consumer abundance. White Americans especially experienced growing prosperity, secured by strong unions and a robust welfare state. Tapping into greater consumer wealth, Diners Club and American Express developed new nationwide card plans, offering social elites novel status and exclusivity. By enabling debtfinanced buying, card companies fueled a narrative of American consumer bounty.

Meanwhile, as the news media ran breathless accounts of this revolutionary new shopping technology, reporters also told sensational stories of fraudsters creatively bilking the card companies.

In 1959, Life magazine profiled Joseph Miraglia, a 19-year-old from New York, who used a clutch of cards to finance an international spending spree. “I had collected a truckload of loot and charged almost $10,000 worth of fun,” Miraglia boasted.

As cards became easier to obtain, more people tried their luck at using them illicitly, and card fraud losses increased nearly eightfold from 1958 to 1962. Most fraudsters acted alone, and their tactics were unsophisticated. Some such as Miraglia filled out false applications. Others stole cards from their rightful users.

Over time, though, fraudsters became increasingly inventive, entrepreneurial and sophisticated, maximizing illicit gains. In cities such as Los Angeles and New York where business elites were known to party and mislay their cards, organized thefts fueled active markets in stolen cards.

In a common scheme, ill-gotten cards were used to buy and then sell airline tickets through networks that included corrupt bartenders acting as black-market travel agents. Card issuers bore these losses, recognizing that if they pushed them onto merchants or consumers, they would scare participants away from their credit networks. By the mid-1960s, card firms had had enough. First, they asked merchants to police credit card charges, to vet customer signatures and to check cards against lists of lost and stolen cards, responsibilities merchants resisted.

Then, card-issuers turned to the government for help. American Express hired legal experts to draft a comprehensive fraud law, which criminalized the entire fraudulent supply chain, including those who stole, distributed and used cards. Amex and other card issuers lobbied state lawmakers to adopt the law, and in 1967, legislatures in California, North Carolina and Florida enacted the bill. Many other states would follow.

Even though card fraud didn’t really affect consumers, card companies excited lawmakers to action by emphasizing the role of organized crime rings, thereby portraying card criminals as a threat to social order. Meanwhile, the news media helped raise the specter of the mafia, and right-wing politicians stoked anxiety about “professional criminals” in cities such as New York and Chicago.

This narrative sparked fears of violence, but it also raised concerns about higher prices. Consumers worried that they might pay more for goods to make up for companies’ losses because of fraud.

Like today, American consumers faced increasing hardships during the 1970s when the oil crisis and de-industrialization hit people especially hard, and inflation undermined the public’s faith in capitalism. Faced with rising prices and stagnant wages, more consumers were willing to buy goods at a discount, even when they suspected those goods might be stolen.

In this context, state laws did little to deter illicit card use. Card fraud proved complicated and expensive to prosecute, especially when criminals crossed state lines. Further, with the entry of banks into the credit card business under the Visa and Mastercard networks, more cards circulated and more merchants participated in card plans, which meant more opportunities for theft and fraud. Plus, fraudsters learned how to counterfeit cards from scratch.

The cost of card fraud to card issuers grew from $20 million in 1977 to $125 million in 1982, coinciding with a rapid rise in inflation, unemployment and a moment when Federal Reserve Chairman Paul Volker slammed the brakes on the economy. As more people turned to fraud to survive economic hardship without a drop-off in their lifestyles, card issuers pressed Congress to get tough on credit card crime.

Behind the leadership of lawmakers such as Sen. Strom Thurmond (R-S.C.), Congress assented. The Credit Card Fraud Act, a major escalation of federal policing of illicit card use, became an integral part of the 1984 crime bill, which President Ronald Reagan signed in October 1984. The law placed federal card fraud policing under the jurisdiction of the Secret Service. The agency charged with protecting the president and the nation’s currency would protect private card systems as well.

American capitalism has long relied on the consumption of Americans of all classes, even as it maintains— and in recent decades has exacerbated—economic and social inequalities that undermine the ability of many Americans to consume freely. Since the 1970s, as American wages have stagnated, many have relied on credit, even as it meant more financial risk and precarity. Others facing tough circumstances resort to theft.

Public resources are now dedicated to protecting private credit systems at multiple levels of government, including the Secret Service, the FBI, the Postal Inspection Service and state and local agencies. At the same time, the federal government has gotten “tougher” on people with consumer debts, with Congress enacting stricter bankruptcy rules in 2005. The government stands behind firms as both debt collector and police.

Today’s crisis of inflation has helped expose the underlying problem. We can see retailers’ responses to “flash robs” as panic within a panic. Retailers, like credit card issuers, want to draw the public’s attention to theft and fraud to secure more state resources to protect their property. They are using the stories of rising fraud rates to lobby Congress for further protection.

The fraud panic, in turn, is part of a larger inflation panic, which corporate elites are using to fight calls for greater economic equality. Companies use fraud to justify raising prices, arguing that the cost of theft must fall on consumers. They suggest that more government policing will keep prices low.

At the same time, corporations use inflation as an excuse to fight increasing wages, arguing that paying employees more would also harm consumers. Companies work to build support for tighter monetary policy that, as in the 1970s, will crush inflation at workers’ expense. If we do see more people embracing illicit means to acquire the consumer goods that they need, it will be because of this economic context, not the laxness of our criminal legal system.

The fraud panic is thus part of an effort to end inflation without addressing class disparities and worker wages—the very things that drive most fraud and theft. Corporate retailers hope panic will persuade government to protect private profits. In the past, that has been a safe bet.