Freakonomics: A Rogue Economist Explores the Hidden Side of Everything

In learning how people make decisions, it’s important to ask good questions. One way is to examine conventional wisdom, the “simple, convenient, comfortable, and comforting” ideas we prefer, and inspect it for “the contrails of sloppy or self-interested thinking” (86).

During the 1980s, homeless advocate Mitch Snyder claimed that 3 million Americans were homeless and that 45 die each second. People accepted these numbers until someone pointed out that such a death rate would lead to 1.4 billion deaths. Snyder admitted he’d made up the number of homeless people because the press hounded him for statistics.

The media needs shocking reports to attract readers; politicians and advocates need stunning numbers to galvanize their followers. Pundits championed the idea that Iraq in 2003 possessed major weapons of mass destruction; women’s rights leaders argued that one in three American women is assaulted or raped (it’s one in eight); many diseases are presented as worse than they are and thereby get more research funding. One of America’s most violent cities, Atlanta, hid police crime reports to win the right to host the 1996 Olympic Games, and in 2002 the city was still hiding crime reports, 22,000 in that year alone.

Meanwhile, police in many cities, fighting an upsurge in crime connected to the crack cocaine market, portrayed drug dealers as massively beweaponed millionaires. Instead, most crack sellers lived in housing projects with their mothers.

Sudhir Venkatesh, in 1989 a sociology PhD student at the University of Chicago, ventured into a poor Black neighborhood with survey questions about their lives. He encountered members of a drug gang, a unit of the Black Disciples, who almost shot him but instead allowed him to study their operations. Venkatesh lived with them for six years under the eye of local gang boss JT. The researcher witnessed members being shot to death. He also obtained a set of their account books.

With his PhD, Venkatesh won appointment to the Harvard Society of Fellows, but he kept returning to Chicago to visit his gangland acquaintances. At Harvard, he met Steven Levitt and collaborated with him on a paper about the gang, based on the notebooks Venkatesh possessed. They realized that the Black Disciples was organized similarly to McDonald’s, with a chain of command and a board of directors. JT controlled a 12-block area, aided by three lieutenants and 25 to 75 “foot soldiers” who did the selling. At the bottom of the organizational chart were 200 “rank and file” who paid dues and hoped to join the foot soldiers (97).

The account books were filled in at the height of the crack boom, and local revenue was solid, averaging $32,000 per month and peaking at $64,000. Subtracting costs—drugs, board of directors fee, legal fees, mercenaries, weapons, “community events,” funerals, family stipends, and the like—the local gang netted $14,000 a month; JT kept $8,500, or about $100,000 a year. Board members netted $500,000, though a third of them were in jail at any one time. Foot soldiers earned barely $3.30 an hour; this is why most drug dealers lived with their moms. On top of that, street sales were dangerous; in the four-year period covered by the notebooks, soldiers had a one-in-four chance of dying violently.

The drug gang path seemed glamorous when compared with the rest of the community, where two-thirds of men were unemployed, only 5% had college degrees, and a high-paying job was work as a janitor. Four factors determine a wage: the number of people competing for a given job, the amount of skill the job requires, how unpleasant it is, and how in-demand it is. Drug dealing, a low-skill job with a line of applicants, is low-paying work.

Most jobs are worked as if part of a tournament: Beginners labor at grunt jobs for low wages in hope of rising to lucrative top positions. This applies equally to editorial assistants and crack dealers.

A gang turf war sprang up, and JT had to increase pay to foot soldiers even while sales suffered. JT didn’t want any of this, but some of his foot soldiers, motivated to make a name for themselves as fearless warriors, got involved in shootouts. Eventually, JT calmed things down, and profits soared under his highly organized system. At age 34, JT was promoted to the Disciples board of directors. Shortly thereafter, a federal indictment shut down the Black Disciples, and JT went to prison.

The main drug the gang sold, crack cocaine, was developed as a cheap alternative to the much more costly powdered cocaine used by celebrities and the wealthy. In the late 1970s, a Nicaraguan, Oscar Danilo Blandon, began importing crack to America, where it quickly grew into a major social and legal problem. Drug gangs flourished and communities suffered. Courts got tough on drug crime and sent dealers to prisons, where they met Colombian drug importers and forged new relationships. Back on the street, those gangsters redoubled sales of a drug that was easy to sell and highly addictive.

Black communities progressed greatly after World War II, improving their employment, education, and health. Crack cocaine, addictive and crime-promoting, did great damage, reversing those good trends by as much as 10 years. During the crack craze, the murder rate for big-city Black youth quadrupled.

Then the crime rate suddenly began to fall.