California must reduce its inmate population by 30,000 because its over-filled prisons amount to cruelty, the Supreme Court ruled Monday. In a dissent, Justice Samuel Alito likened the ruling to turning loose three Army divisions of criminals.

Why not simply build more prisons? The state is out of money. That raises a troubling question. A nationwide plunge in crime in recent decades is closely linked to a sharp rise in both imprisonment and corrections spending. Will a prison drawdown have the opposite effect?

California's case is an extreme one. Its tax-payer-supported debt, current deficit and pension shortfall together amount to more than $11,000 for each of its households. Municipal-to-Treasury bond yield spreads suggest California's debt is the riskiest in the nation save for that of Illinois. California voters aren't keen on taking on more debt to build prisons.

In the past, the state used a sleight of hand to get around this, issuing so-called revenue bonds, which don't need voter approval and are meant to be used for self-funding projects like toll roads. Prisons don't have paying customers, of course, so California leased its prisons to itself, both paying and collecting the rent. Voters have caught wise to the fiction.

California isn't alone in having to turn prisoners loose. In 2009, America's state inmate population shrank for the first time in nearly four decades. As the Wall Street Journal reported Thursday, 40 states cut prison spending in 2009 and 2010. More cuts will be needed. Alabama prisons are at 190% of capacity.

States say they're releasing only low-risk offenders -- shoplifters and such. They're trying, at least. Last year California released hundreds of potentially violent criminals because of a "faulty computerized risk-assessment program," California's independent prison inspector said Wednesday.

So far there's no crime wave. In fact, violent crimes plunged 5.5% last year after a similar decline in 2009, the FBI said Monday. So rapid has been America's crime drop in recent decades that it has caused criminologists to rethink the link between money and crime. Crimes fell in 2009 and 2010 even as unemployment raged. The poverty rate is higher now than it was in 1980, but the chances of being murdered, raped, robbed or assaulted is lower by nearly two-thirds.

One financial link stands above all others in explaining the crime drop, however. It's the money America has spent to build and fill prisons. Spending on corrections grew fourfold over the past two decades. The number of inmates per 10,000 inhabitants increased from 22 in 1980 to a peak of 76 in 2007. "We went through an era of not only being willing to jail more people but also having the capacity to do so," says Allen Beck, senior statistical advisor to the Bureau of Justice Statistics.

The prison build-up worked. In a 2004 paper published in the Journal of Economic Perspectives, economist Steven Levitt, author of Freakonomics, examined theories behind the stunning crime decline between 1991 and 2001. Homicides fell 43%, violent crime in general dropped 34% and property crime dropped 29%. Levitt found little or even contradictory evidence on theories crediting the economy, demographics, the death penalty, gun control and police tactics. The sheer number of cops explained 10% to 20% of the observed crime decline, reckoned Levitt. According to a 2002 Bureau of Justice Statistics report, the number of sworn personnel per capita rose 7% during the 1990s. (The FBI says sworn officers per 1,000 inhabitants fell to 2.4 in 2009 from 2.5 in 2008, but that's too small of a decline to read into until 2010 numbers are released.) The biggest contributor? The rise in the prison population, according to Levitt, explained fully one-third of the 1990s crime decline.

There is a point of diminishing returns, of course. As Levitt wrote, "the two-millionth criminal imprisoned is likely to impose a much smaller crime burden on society than the first prisoner." Beck says it's premature to assume that a decline in the prison population will halt or reverse the progress made in reducing crime. Whatever the effect, it might not be immediate. The prison population rose throughout the 1980s, but crime didn't begin a meaningful decline until the 1990s (see chart).

There are good reasons to send prisoners home early, including true rehabilitation. But running out of money to build jails is not among them.

Locking Up Criminals, Lowering Crime

Department of Justice, FBI, Census Bureau