Suppose you’ve imposed a (non-trivial) burden upon someone else without their consent. What is the right course for society to take in response? One option is to force you to fully compensate your victim. Requiring sufficient compensation would completely transfer the cost you’ve imposed upon the rest of society back to you. Knowing this ex ante, your individual cost-benefit calculation becomes identical to society’s cost-benefit calculation, for you expect not only to enjoy every social benefit, but also to suffer every social cost, flowing from your decision.
What ought to happen, then, if you do not have the funds to fully compensate your victim? The government may well seize your physical assets, selling what they can to make up for the shortfall. If even that is not enough to repay your debt to society, the government may have to take ownership of a more intimate asset: you. As with a bankrupt firm, the government may lend you the money you require to fully compensate your victim in a timely manner, but must take temporary ownership of you while you repay your debt in exchange. You would, in effect, be offering to collateralize such a risky loan with the only valuable you have left: your future stream of income.
Here’s my proposal: when a crime is committed (ignoring so-called victimless crimes for the time being), the government produces a transparent, predictable estimate of the crime’s social cost. If the criminal is able to fully pay the price, possibly by liquidating her portfolio, she may do so. If she is not able to pay the price, she goes to prison. Instead of serving a prison term, however, her mandate is to pay down her debt to society in full. In prison, she can produce whatever goods and services it is feasible for her to produce in that setting, which the government will sell to the general public, collecting most of the proceeds. With her small share of the proceeds, she may purchase a better standard of living in prison, or she may contribute extra funds towards paying down her debt, thereby shortening her stay in prison.
The signal such a policy would send is clear: if you commit a crime, be prepared to pay the price. If you’re not so prepared, you will be partially enslaved by the government (i.e., the government will have a controlling equity stake in you) until you have paid the price. Moreover, the higher the quantity and quality of the goods and services you produce for the general public’s consumption, the better your standard of living in prison, the sooner you exit prison, or perhaps both. Your incentive before you commit the crime is to carry out society’s cost-benefit calculation for yourself, and even if you go through with it, your incentive is to be as productive as possible for the benefit of your society, much as it would be outside of prison. Fewer people would be in prison, most would have shorter and less miserable stays, and much less human capital would be wasting away behind bars. All while reducing crime rates. What’s not to love (besides the optics of slavery 2.0…)?