Since 1968, there have been 1,516,863 gun-related deaths on US territory compared to 1,396,733 war deaths since the founding of the United States[i]. This means that up to 2015, according to data collected by Politifact, the death toll for citizens and visitors of the United States from domestic gun violence exceeds that of all the deaths from all the wars the US has participated in since its inception.
The statistics on US gun violence remain mind-boggling to many. A study by Health Affairs states that more than 100,000 people are shot each year in the US. 350 people are estimated to have been killed in American mass shootings[ii] this year, according to data gathered by GunsAreCool - a sarcastically named community that tracks gun violence in the country. In comparison, 432 people were killed in mass shootings in 2016 and 369 in 2015, which means that on average, more than one person is killed in a mass shooting for every day of the year. According to the Small Arms Survey via the Guardian, America has 4.4% of the world’s population, but almost half of the civilian-owned guns around the world.
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For both individuals and society as a whole, gun violence imposes heavy psychological burdens. The media regularly highlight the emotional cost, and rightly so. But what is the economic cost of US gun violence? What is the financial cost to society from all that carnage?
The price tag
Back in 2012, Mother Jones, the liberal magazine, launched a three-year investigation, following the Colorado cinema shooting rampage in July, when James Holmes killed 12 people and injured 70. The magazine went through the combined annual impact of a total of about 11,000 murders, approximately 22,000 suicides and 75,000 injuries that are the result of gunfire. The findings of the investigation showed that the annual cost of fatal and non-fatal gun violence to the US was $229 billion, representing 1.4% of total gross domestic product. In comparison, obesity in the US costs the country $224bn, which makes the economic impact of gun violence higher than that of obesity. These $229bn are also the equivalent of the size of Portugal’s economy or the equivalent of $700 for every American citizen.
The study notes that about $8.6bn is direct cost, including emergency care and hospital charges, the expense of police investigations, the price of court proceedings, as well as jail costs. According to the investigation, $169bn goes to the estimated impact of victims’ quality of life, based on jury awards for pain and suffering in cases of wrongful injury and death, and the rest $49bn account for lost wages and spending.
It is of course worth mentioning the positive economic impact that the gun and ammunition manufacturing industry has on the country, which according to IBIS World was $13.5 billion in 2015, with a $1.5 billion profit. However, it is also worth pointing out the distinction between the profit from manufacturing the very products used in shootings, in comparison to the financial loss seen due to gun violence.
The impact on US firearm manufacturers
In recent years, firearms sales tend to increase and gun stocks tend to rally in the immediate aftermath of mass shootings in particular. Shares on gun manufacturers such as Sturm, Ruger & Co. (RGR, +1.91%) and Smith & Wesson maker American Outdoor Brands (AOBC, +0.74%) rose sharply right after the mass shooting in Las Vegas from earlier this month, when 59 people were killed and hundreds were injured. Only a few hours after the deadliest mass shooting in modern US history, shares of Sturm, Ruger & Co. rose 3%, American Outdoor Brands jumped 5%, while Vista Outdoor (VSTO, -0.67%) popped 2%. The explanation behind this is quite simple - investors predict a rise in sales as people buy firearms to defend themselves and their families in the event of another potential attack. Sales are also likely to spike due to the fear that an attack may result in law changes and guns becoming harder to buy.
Despite the fact that mass shootings lead to increased firearm sales, research by Anandasivam Gopal and Brad N. Greenwood published on 28th May 2017, points out that when mass shootings occur, investors appear to be reducing their valuations of publicly traded firearms manufacturers – an effect driven by the threat of impending regulation. However, these tendencies were most prevalent in 2009 and 2010, but seem to disappear in later events, indicating the possible markets’ acceptance of mass shootings as the ‘new normal’.
How do local economies respond to increased gun violence?
A report by the Urban Institute, published on 1st June 2017, found that surges in gun violence in the US can ‘significantly reduce the growth of new retail and service businesses and slow home value appreciation’. According to the study, higher levels of neighbourhood gun violence drives depopulation, discourages business and decreases property values, resulting in fewer retail and service establishments, fewer new jobs, lower home values, credit scores and homeownership rates. The report features interviews with local stakeholders (homeowners, renters, business owners, non-profits, etc.), who confirm the findings, which state that ‘Business owners in neighbourhoods that experience heightened gun violence reported additional challenges and costs, and residents and business owners alike asserted that gun violence hurts housing prices and drives people to relocate from or avoid moving to affected neighbourhoods’. In Minneapolis for example, the report finds that each additional gun homicide in a census tract in a given year was associated with 80 fewer jobs the next year, while average home values in Minneapolis census tracts dropped by $22,000.
Is gun violence really the ‘new normal’?
It seems as if the US lawmakers, and indeed large swathes of the US population, are now willing to accept gun violence as a part of their daily lives in a manner that may shock others. But what is more surprising is that a country founded on capitalism permits this as the status quo in the knowledge that gun violence is having a severe and negative impact on the US economy. From hospital fees through to deterring business investment, mass shootings and gun crime are the cause of considerable financial losses to the United States. These acts of violence cost the country a great deal of money, but most importantly – they cost lives. And although markets have seemed to accept mass shootings as ‘the new normal’, should this be the case for the rest of us too?
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[i] That figure includes American lives lost in the revolutionary war, the Mexican war, the civil war (Union and Confederate, estimate), the Spanish-American war, the first world war, the second world war, the Korean war, the Vietnam war, the Gulf war, the Afghanistan war, the Iraq war, as well as other conflicts, including in Lebanon, Grenada, Panama, Somalia and Haiti.
[ii] Mass shooting being defined by the FBI as any incident where at least four persons are killed with a firearm in a random act with little or no premeditation.
Following the result of the US Presidential Election, Finance Monthly reached to Dun & Bradstreet asking them to discuss the economic impact of the result.
Dun & Bradstreet has held its Country Risk Rating for the US at DB2a following the election of Donald Trump as the next president. The company has also reaffirmed their near-term growth forecasts, as the fundamentals of the US economy remain strong enough to absorb the increased uncertainty triggered by the election result; their proprietary micro-level data supports their forecast that the economy is on track to end 2016 with 1.6% growth.
DOMESTIC IMPLICATIONS
Expansionary fiscal policy is expected to take centre stage under the new president. The US economic expansion of the last few years has been characterised by an over-reliance on monetary policy, and we have been arguing for a more active fiscal policy boost to growth. Infrastructure spending is likely to be one of the biggest and most visible elements of the new government’s fiscal policy. The Trump campaign had proposed an aggressive infrastructure plan in the lead-up to the election. We still need to see more details of how Trump proposes to fund spending on the nation’s highways, bridges and tunnels, and of what that implies for the longer-term budget deficit and public debt burden. Nevertheless, some form of infrastructure spending is a certainty, and the construction vertical will benefit from that.
Tax reform will also be high on the new government's agenda; the extent and the nature of the reforms, including implications for the Foreign Account Tax Compliance Act (FATCA) are, again, uncertain at this point. However, it is almost guaranteed that the new tax policy will involve a reduction in tax rates for both businesses and individuals to jumpstart spending. This will also be one of the areas in which we expect to see extended discussions in Congress. Repealing Obamacare, or the Affordable Care Act (ACA), was one of Trump’s high-profile campaign promises. Since his election, however, Trump has toned down his opposition to this legislation, indicating that some parts of Obamacare are likely to survive. Once again, we need more details on which parts of the ACA will be removed and what sort of policies we can expect in their place. A jump in the prices of healthcare stocks was one of the immediate reactions to the news of Trump’s victory, as investors expect less regulation for health insurers. But other sections of the healthcare vertical, like medical devices, could see a negative impact.
Regulation, in general, is expected to wane under the new government. This will be most significant for the financial services vertical, where a reduction in regulations is expected based on the Trump campaign’s opposition to the Dodd-Frank Act. Parts of the Act are expected to be retained, while the government will try to dismantle the rest of the provisions. More clarity is needed on the new rules that will replace the discarded provisions, but equity prices for customers in the financial services vertical are likely to see increases in the near term.
The key point to note is that most of the President-elect’s proposed and expected policy measures are designed to be reflationary, and work on the assumption that they will stimulate demand and inflation in the US economy. Again, the devil is in the details, which will determine how successful these policies eventually are. We advise our customers to be cognizant of the variations in the data below the topline and to adjust their business strategy based on their specific exposure to certain verticals and how they may be impacted by potential policy shifts.
GLOBAL IMPLICATIONS
The Trump administration’s policies will also have significant implications for the global economy. The Trump campaign ran on an anti-globalisation stance, promising to redefine US trade relations with the rest of the world; as such, we expect a more restrictive trade policy under the new regime.
Campaign promises included a repeal of the existing North American Free-Trade Agreement (NAFTA) between the US, Canada, and Mexico, and stiff opposition to new multilateral trade agreements like the Trans Pacific Partnership (TPP) and the Transatlantic Trade and Investment Partnership (T-TIP). We believe TPP and T-TIP will not go through, as both Congress and the new government will oppose them. The president will likely try to renegotiate the terms of NAFTA, and, if he is unsuccessful in obtaining greater concessions for US exporters, could invoke Article 2205 to leave NAFTA; the president does not require Congressional approval to do so. If the US leavesNAFTA, Canada and Mexico can still be part of it.
The bigger question is over the tone of US trade policy in the next few years, particularly with China. During the campaign Trump promised to impose 45% tariffs on imports from China. However unfeasible such a course of action is in practice, a retaliatory increase in tariffs from China could turn into a trade war that would have adverse impacts on international trade flows and global growth. Moreover, US companies are believed to have invested over USD200bn in China in the past 25 years, potentially making US-owned companies’ supply chains – such as Apple’s –vulnerable to the vagaries of a breakdown in the economic relationship.
Moreover, note that the global impact of the US election result goes far beyond trade relations: significant geopolitical considerations include the new government’s relations with Iran, its policies towards radical Islamist groups such as Islamic State, and its involvement in NATO. Finally, Trump’s success is likely to generate support for the populist leaders who have emerged recently in many European countries. This would reflect a strengthening of a shift towards a more protectionist world, with less support for free trade and globalisation.