If you believe the Justice Department, American streets are safer these days because George Hansen is back in prison. Hansen, 56, is the former seven-term conservative Republican congressman from Idaho convicted in 1984 for violating federal ethics laws. He failed to disclose some financial dealings.

Although a nonviolent first offender who broke an arbitrarily enforced law, Hansen was fined $40,000 (he sold his house to pay it) and locked up for six months in the Petersburg, Va., federal prison. He was paroled in December. By order of the U.S. Parole Commission earlier this month, Hansen has been returned to Petersburg. The commission considers him a public menace because he took a trip to Omaha -- not leaving Virginia was the rule -- and Hansen did not fill out financial-disclosure forms.

The latest victimization of Hansen came at the same time the Justice Department was reporting that the U.S. prison population increased 8.6 percent in 1986. Federal and state prisons are now crammed with 546,659 citizens. With an increase of more than 100 percent in the prison population in the past decade, as against a rise of less than 10 percent in the general population, America is on the way to becoming the world's largest penal colony.

The treatment of Hansen helps explain the surging inmate count. A majority of prisoners committed nonviolent crimes. Hansen, punished well in excess of his offense, was not a career criminal, didn't use a gun or drugs and endangered no one. Unless the political comeback of the century occurs and voters in Idaho send Hansen back to Congress, he won't be breaking the federal ethics law again. In all, here was a model choice for a non-prison alternative sentence.

The former congressman's misfortune was a punitive-minded public reacting to what it sees as wrist-slapper judges. It believes that the tougher the prison sentence, the less crime, and the more people locked up, the safer the streets. Neither of those is true. But with more people in prison than at any time in U.S. history, much of the public craves the illusion that here at least is one problem that's being solved.

A lower crime rate is one reason the illusion is hard to break. The current declines in such crimes as murder, rape and robbery, and the sharper drops predicted for the next 15 years, are not because of more prisoners but fewer criminals. American Demographics magazine reported that the fall in birthrates in recent years means that the high-crime age -- males 15 to 29 -- is smaller. That age group could decrease by half again and prisons would still be overcrowded. Some judges are ready to send away shoplifters.

Prisons now planned for construction -- including $2 billion worth of cell space in California's 10 new facilities and $500 million being spent for Texas -- won't ease overcrowding. And building the new big houses is only part of the cost. The Edna McConnell Clark Foundation estimates that ''the operating costs for 100,000 new prison beds would be $70 billion over the next 30 years -- not counting inflation.''

With the public fearing crime and politicians fearing public opinion about crime, the choice is between high cost and low cost. If the extravagance of vengeance were better known, the clamor for more and longer sentences might desist.

One solution is simple. Whenever a nonviolent criminal is packed off to jail by a slap-him-in-the-face-not-on-the-wrist judge, the public should be told how much the imprisonment will cost. Newspapers should report the full story: criminal X received five years at a cost of $103 a day, which comes to $187,975 for the full stretch. (The $103 sum is what the Minnesota Citizens Council on Crime and Justice calculates as the cost per prisoner in one of that state's facilities.)

The billions spent on punishing criminals are that much less available for hiring teachers or repairing bridges. In 1982, the Maryland legislature, in a building binge, devoted a third of its capital budget to prison construction. The year before, Abt Associates, in a report, ''American Prisons and Jails,'' said of the competition for money between prisons and education: ''For every person who goes to prison, two people don't go to college.''

Low-cost punishment -- probation, work-release centers, house arrest, community service -- was as available to George Hansen as it was to other nonviolent offenders who are well over half the current inmate population. Instead, Hansen and the public shared in his imprisonment: both paid well in excess of the crime.