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The root of his error is right there in his defense: "If you have a neighborhood where there's a high level of gang activity, the way to prevent it is you increase the law enforcement presence there and you target the gang members to get them off the streets."
This is not some radical right-wing Trump-esque sentiment. It is the status quo of law enforcement in this country, and has been for decades. (You may even personally remember California's 1988 STEP act -- an eerily prescient precursor to the USA-PATRIOT act's acronym idiocy that stood for Street Terrorism Enforcement and Prevention Act. STEP made gang participation illegal and massively increased sentences for members---and even for people who just looked like members, by raising the prospect of a gang-related indictment, leading to harsher plea-bargain agreements).
Targeting gangs like this is pretty widely accepted, and the few who push back face toxic accusations of wanting to protect criminals. That's how escalating anti-gang and anti-crime rhetoric (think "super-predators") swept everyone in its path in the 1990s. All Cruz did here was swap out "Muslims" for "gangs".
As you say, that proved a step too far, and now he's trying to walk it back to "radical Muslims". But what's so fascinating to me, as a gang researcher, is the reason folks like the NYPD and O'Reilly (!!) -- who surely approve of anti-gang laws -- object to Cruz's idea: they see that it will backfire, that persecuting non-radicalized Muslims will ultimate push them toward radicalization.
They are right. But this is precisely what is wrong with excessive anti-gang laws! They essentially make being a male adolescent of certain ethnicities a motive for arrest and likely incarceration. If the criminal justice system already sees you and treats you as a gang member, you might as well become one -- at least you'll get some protection, especially inside prison, where gangs rule the roost. And for parents, spouses, and children, targeting is more likely to inspire a sense of injustice than a desire to cooperate with law enforcement.
Just like targeting whole Muslim communities would ultimately empower radical Islamic leaders, targeting "anyone who looks like a gang member" ultimately empowers gang leaders -- who often rely on such targeting to operate extensive criminal networks from behind bars.
We're finally beginning to acknowledge the counterproductive nature of mass incarceration policies. But walking back over-zealous targeting laws is still a hard sell, especially among law-and-order, conservative types. Yet it is obvious to them that the same policy applied to Muslims is idiocy.