09/29/05 - the illegal drug business

In today's excerpt - the economics of the illegal drug business. Here we see a gang that has been infiltrated by an individual named Venkatesh, was indicted, and as an outcome of that we see one of its members - Booty - turning over detailed information on the financial dealings of the gang's drug trade:

"Over the years, the gang endured bloody turf wars and, eventually, a federal indictment. A member named Booty, who was one rank beneath J.T. (the leader), came to Venkatesh with a story. Booty was being blamed by the rest of the gang for bringing about the indictment, he told Venkatesh, and therefore suspected that he would soon be killed. (He was right.) But first Booty wanted to do a little atoning. For all the gang's talk about how crack dealing didn't do any harm—they even liked to brag that it kept black money in the black community—Booty was feeling guilty. He wanted to leave behind something that might somehow benefit the next generation. He handed Venkatesh a stack of well-worn spiral notebooks—blue and black, the gang's colors. They represented a complete record of four years' worth of the gang's financial transactions. At J.T.'s direction, the ledgers had been rigorously compiled: sales, wages, dues, even the death benefits paid out to the families of murdered members ...

"At $8,500 per month, J.T.'s annual salary was about $100,000—tax-free, of course, and not including the various off-the-books money he pocketed. ...

"So J.T. paid his employees $9,500 (total), a combined monthly salary that was only $1,000 more than his own official salary. J.T.'s hourly wage was $66. His three officers, meanwhile, each took home $700 a month, which works out to be $7 an hour. And the foot soldiers earned just $3.30 an hour, less than the minimum wage. So the answer to the original question—if drug dealers make so much money, why are they still living with their mothers?—is that, except for the top cats, they don't make much money. They had no choice but to live with their mothers. For every big earner, there were hundreds more just scraping along. The top 120 men in the Black Disciples gang represented just 2.2 percent of the full-fledged gang membership but took home well more than half the money. ...

"Using the gang's financial documents and the rest of Venkatesh's research, it is possible to construct an adverse-events index of J.T.'s gang during the four years in question. The results are astonishingly bleak. If you were a member of J.T.'s gang for all four years, here is the typical fate you would have faced during that period:

Number of times arrested: 5.9

Number of nonfatal wounds or injuries:  2.4
(not including injuries meted out by the gang itself for rules violations)

Chance of being killed: 1 in 4


"So if crack dealing is the most dangerous job in America, and if the salary is only $3.30 an hour, why on earth would anyone take such a job?

"Well, for the same reason that a pretty Wisconsin farm girl moves to Hollywood. For the same reason that a high-school quarterback wakes up at 5 a.m. to lift weights. They all want to succeed in an extremely competitive field in which, if you reach the top, you are paid a fortune (to say nothing of the attendant glory and power) ...

"To the kids growing up in a housing project on Chicago's south side, crack dealing was a glamour profession. For many of them, the job of gang boss—highly visible and highly lucrative—was easily the best job they thought they had access to. Had they grown up under different circumstances, they might have thought about becoming economists or writers. But in the neighborhood where J.T.'s gang operated, the path to a decent legitimate job was practically invisible."


Steven D. Levitt & Stephen J. Dubner


Freakonomics: A Rogue Economist Explores the Hidden Side of Everything


Harper Perennial


Copyright 2005, 2006, 2009 by Steven D. Levitt


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