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The Economics Of Crack Dealing

By John Clarke

I’m cur­rently reading Freako­nom­ics, a great book about all sorts of inter­est­ing things. There’s no single theme or thread to tie it all together, but each chapter takes a look at some weird ques­tion or other. Examples include “What do the Klu Klux Klan and estate agents have in common?”, “How can your name affect how well you do in life?” and “Why do crack dealers live with their mothers?”

I’ve just fin­ished the chapter on crack, so I thought I’d put that up here for y’all to read. It’s quite long, but worth it:

***

Freakonomics

The sudden, violent appear­ance of crack cocaine had police depart­ments across the country scrap­ping for resources. They made it known that it wasn’t a fair fight: the drug dealers were armed with state-of-the-art weapons and a bot­tom­less supply of cash. This emphasis on illicit cash proved to be a winning effort, for nothing infuri­ated the law-abiding popu­lace more than the image of the mil­lion­aire crack dealer. The media eagerly glommed on to this story, por­tray­ing crack dealing as one of the most prof­it­able jobs in America.

But if you were to have spent a little time around the housing pro­jects where crack was so often sold, you might have noticed some­thing strange: not only did most of the crack dealers still live in the pro­jects, but most of them still lived at home with their moms. And then you may have scratched your head and said, “Why is that?”

The answer lies in finding the right data, and the secret to finding the right data usually means finding the right person — more easily said than done. Drug dealers are rarely trained in eco­nom­ics, and eco­nom­ists rarely hang out with crack dealers. So the answer to this ques­tion begins with finding someone who did walk among the drug dealers and managed to walk away with the secrets of their trade.

Sudhir Ven­katesh — his boyhood friends called him Sid, but he has since rever­ted to Sudhir — was born in India, raised in the suburbs of upstate New York and south­ern Cali­for­nia, and gradu­ated from the Uni­ver­sity of Cali­for­nia at San Diego with a degree in math­em­at­ics. III 1989 he began to pursue his PhD in soci­ology at the Uni­ver­sity of Chicago. He was inter­ested in under­stand­ing how young people form their iden­tit­ies; to that end, he had just spent three months fol­low­ing the Grate­ful Dead around the country. What he was not inter­ested in was the gruelling field­work that typ­i­fies soci­ology.

But his gradu­ate advisor, the eminent poverty scholar William Julius Wilson, promptly sent Ven­katesh into the field. His assign­ment: to visit Chicago’s poorest black neigh­bor­hoods with a clip­board and a seventy-ques­tion, mul­tiple-choice survey. This was the first ques­tion on the survey:

How do you feel about being black and poor?

  1. Very bad
  2. Bad
  3. Neither bad nor good
  4. Some­what good
  5. Very good

One day Ven­katesh walked twenty blocks from the uni­ver­sity to a housing project on the shore of Lake Michigan to admin­is­ter his survey. The project com­prised three sixteen-story build­ings made of yellow-gray brick. Ven­katesh soon dis­covered that the names and addresses he had been given were badly out­dated. These build­ings were con­demned, prac­tic­ally aban­doned. Some fam­il­ies lived on the lower floors, pir­at­ing water and elec­tri­city, but the elev­at­ors didn’t work. Neither did the lights in the stair­well. It was late after­noon in early winter, nearly dark outside.

Ven­katesh, who is a thought­ful, hand­some, and well built but not aber­ra­tion­ally brave person, had made his way up to the sixth floor, frying to find someone willing to take his survey. Sud­denly, on the stair­well landing, he startled a group of teen­agers shoot­ing dice. They turned out to be a gang of junior-level crack dealers who oper­ated out of the build­ing, and they were not happy to see him.

“I’m a student at the Uni­ver­sity of Chicago,” Ven­katesh sputtered, stick­ing to his survey script, “and I am admin­is­ter­ing — ”

“Fuck you, nigger, what are you doing in our stair­well?”

There was an ongoing gang war in Chicago. Things had been violent lately, with shoot­ings nearly every day. This gang, a branch of the Black Gang­ster Dis­ciple Nation, was plainly on edge. They didn’t know what to make of Ven­katesh. He didn’t seem to be a member of a rival gang. But maybe he was some kind of spy? He cer­tainly wasn’t a cop. He wasn’t black, wasn’t white. He wasn’t exactly threat­en­ing — he was armed only with his clip­board — but he didn’t seem quite harm­less either. Thanks to his three months trail­ing the Grate­ful Dead, he still looked, as he would later put it, “like a genuine freak, with hair down to my ass,”

The gang members started arguing over what should be done with Ven­katesh. Let him go? But if he did tell the rival gang about this stair­well hangout, they’d be sus­cept­ible to a sur­prise attack. One jittery kid kept wagging some­thing back and forth in his hands — in the dimming light, Ven­katesh even­tu­ally real­ized it was a gun — and mut­ter­ing, “Let me have him, let me have him.” Ven­katesh was very, very scared.

The crowd grew, bigger and louder. Then an older gang member appeared. He snatched the clip­board from Venkatesh’s hands and, when he saw that it was a written ques­tion­naire, looked puzzled.

“I can’t read any of this shit,” he said.

“That’s because you can’t read” said one of the teen­agers, and every­one laughed at the older gang­ster.

He told Ven­katesh to go ahead and ask him a ques­tion from the survey. Ven­katesh led with the how-does-it-feel-to-be-black-and-poor ques­tion. It was met with a round of guffaws, some angrier than others. As Ven­katesh would later tell his uni­ver­sity col­leagues, he real­ized that the mul­tiple-choice answers A through E were insuf­fi­cient. In reality, he now knew, the answers should have looked like this:

  1. Very bad
  2. Bad
  3. Neither bad nor good
  4. Some­what good
  5. Very good
  6. Fuck you

Just as things were looking their bleak­est for Ven­katesh, another man appeared. This was J. T., the gang’s leader. J. T. wanted to know what was going on. Then he told Ven­katesh to read him the survey ques­tion. He listened but then said he couldn’t answer the ques­tion because he wasn’t black.

“Well then,” Ven­katesh said, “how does it feel to be African Amer­ican and poor?”

“I ain’t no African Amer­ican either, you idiot. I’m a nigger” J. T then admin­istered a lively though not unfriendly taxo­nom­ical lesson in “nigger” versus “African Amer­ican” versus “black.” When he was through, there was an awkward silence. Still nobody seemed to know what to do with Ven­katesh. J. T, who was in his late twen­ties, had cooled down his sub­or­din­ates, but he didn’t seem to want to inter­fere dir­ectly with their catch. Dark­ness fell and J. T. left. “People don’t come out of here alive,” the jittery teen­ager with the gun told Ven­katesh. “You know that, don’t you?”

As night deepened, his captors eased up. They gave Ven­katesh one of their beers, and then another and another. When he had to pee, he went where they went — on the stair­well landing one floor up. J. T stopped by a few times during the night but didn’t have much to say. Day­break came and then noon. Ven­katesh would occa­sion­ally try to discuss his survey, but the young crack dealers just laughed and told him how stupid his ques­tions were. Finally, nearly twenty-four hours after Ven­katesh stumbled upon them, they set him free.

He went home and took a shower. He was relieved but he was also curious. It struck Ven­katesh that most people, includ­ing him sell; had never given much thought to the daily life of ghetto crim­in­als. He was now eager to learn how the Black Dis­ciples worked, from top to bottom.

After a few hours, he decided to walk back to the housing project. By now he had thought of some better ques­tions to ask.

Crack

Mmmm. Deli­cious Crack.

Having seen first hand that the con­ven­tional method of data gath­er­ing was in this case absurd, Ven­katesh vowed to scrap his ques­tion­naire and embed himself with the gang. He tracked down J. T. and sketched out his pro­posal. J. T. thought Ven­katesh was crazy, lit­er­ally — a uni­ver­sity student wanting to cozy up to a crack gang? But he also admired what Ven­katesh was after. As it happened, J. T. was a college gradu­ate himself, a busi­ness major. After college, he had taken a job in the Loop, working in the mar­ket­ing depart­ment of a company that sold office equip­ment. But he felt so out of place there — like a white man working at Afro Sheen headquar­ters, he liked to say — that he quit. Still, he never forgot what he learned. He knew the import­ance of col­lect­ing data and finding new markets; he was always on the lookout for better man­age­ment strategies. It was no coin­cid­ence, in other words, that J. T. was the leader of this crack gang. He was bred to be a boss.

After some wrangling, J. T. prom­ised Ven­katesh unfettered access to the gangs oper­a­tions as long as J. T. retained veto power over any inform­a­tion that, if pub­lished, might prove harmful.

When the yellow-gray build­ings on the lake­front were demol­ished, shortly after Venkatesh’s first visit, the gang relo­cated to another housing project even deeper in Chicago’s south side. For the next six years, Ven­katesh prac­tic­ally lived there. Under J. T.‘s pro­tec­tion he watched the gang members up close, at work and at home. He asked endless ques­tions. Some­times the gang­sters were annoyed by his curi­os­ity, more often they took advant­age of his will­ing­ness to listen. “It’s a war out here, man,” one dealer told him. “I mean, every day people strug­gling to survive, so you know, we just do what we can. We ain’t got no choice, and if that means getting killed, well shit, it’s what niggers do around here to feed their family.”

Ven­katesh would move from one family to the next, washing their dinner dishes and sleep­ing on the floor. He bought toys for their chil­dren; he once watched a woman use her baby’s bib to sop up the blood of a teenage drug dealer who was shot to death in front of Ven­katesh. William Julius Wilson, back at the U. of C, was having regular night­mares on Venkatesh’s behalf.

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., 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 first Ven­katesh didn’t even want the note­books. What if the Feds found out he had them — perhaps he’d be indicted too? Besides, what was he sup­posed to do with the data? Despite his math back­ground, he had long ago stopped think­ing in numbers.

Upon com­plet­ing his gradu­ate work at the Uni­ver­sity of Chicago, Ven­katesh was awarded a three-year stay at Harvard’s Society of Fellows. Its envir­on­ment of sharp think­ing and bon­homie — the walnut pan­el­ling, the sherry cart once owned by Oliver Wendell Holmes— delighted Ven­katesh. He went so tar as to become the society’s wine steward. And yet he reg­u­larly left Cam­bridge, return­ing again and again to the crack gang in Chicago. This street-level research made Ven­katesh some­thing of an anomaly. Most of the other young Fellows were dyed-in-the-tweed intel­lec­tu­als who liked to pun in Greek.

One of the society’s aims was to bring together schol­ars from various fields who might not oth­er­wise have occa­sion to meet. Ven­katesh soon encountered another anom­al­ous young Fellow, one who also failed the society ste­reo­type. This one happened to be an eco­nom­ist who, instead of think­ing grand macro thoughts, favored his own list of offbeat micro curi­os­it­ies. At the very top of his list was crime. And so, within ten minutes of their meeting, Sudhir Ven­katesh told Steven Levitt about the spiral note­books from Chicago and they decided to col­lab­or­ate on a paper. It would be the first time that such price­less fin­an­cial data had fallen into an economist’s hands, afford­ing an ana­lysis of a here­to­fore uncharted crim­inal enter­prise.

So how did the gang work? An awful lot like most Amer­ican busi­nesses, actu­ally, though perhaps none more so than McDonald’s. In fact, if you were to hold a McDonald’s organ­iz­a­tional chart and a Black Dis­ciples org chart side by side, you could hardly tell the dif­fer­ence.

The gang that Ven­katesh had fallen in with was one of about a hundred branches — fran­chises, really — of a larger Black Dis­ciples organ­iz­a­tion. J. T, the college-edu­cated leader of his fran­chise, repor­ted to a central lead­er­ship of about twenty men that was called, without irony, the board of dir­ect­ors. (At the same time that white sub­urb­an­ites were stu­di­ously mim­ick­ing black rappers’ ghetto culture, black ghetto crim­in­als were stu­di­ously mim­ick­ing the sub­urb­an­ites’ dads’ corp-think.) J. T paid the board of dir­ect­ors nearly 20 percent of his rev­en­ues for the right to sell crack in a des­ig­nated twelve-square-block area. The rest of the money was his to dis­trib­ute as he saw fit.

Three officers repor­ted dir­ectly to J. T: an enfor­cer (who ensured die gang members’ safety), a treas­urer (who watched over the gang’s liquid assets), and a runner (who trans­por­ted large quant­it­ies of drugs and money to and from the sup­plier). Beneath the officers were the street-level sales­men known as foot sol­diers. The goal of a foot soldier was to someday become an officer. J. T. might have had any­where from twenty-five to seventy-five foot sol­diers on his payroll at any given time, depend­ing on the time of year (autumn was the best crack selling season; summer and Christ­mas­time were slow) and the size of the gang’s ter­rit­ory (which doubled at one point when the Black Dis­ciples engin­eered a hostile takeover of a rival gang’s turf). At the very bottom of J. T.‘s organ­iz­a­tion were as many as two hundred members known as the rank and file. They were not employ­ees at all. They did, however, pay dues to the gang — some for pro­tec­tion from rival gangs, others for the chance to even­tu­ally earn a job as a foot soldier.

The four years recor­ded in the gang’s note­books coin­cided with the peak years of the crack boom, and busi­ness was excel­lent. J. T’s fran­chise quad­rupled its rev­en­ues during this period. In the first year. it took in an average of S18,500 each month; by the final year, it was col­lect­ing 568,400 a month. Here’s a look at the monthly rev­en­ues in die third year:

Crackhead

Pic­tured: “The Crack Boom”

Drug sales$24,800
Dues$5,100
Extor­tion­ary taxes$2,100
Total monthly rev­en­ues$32,000

“Drug sales” rep­res­ents only the money from dealing crack cocaine. The gang did allow some rank-and-file members to sell heroin on its turf but accep­ted a fixed licens­ing fee in lieu of a share of profits. (This was off-the-books money and went straight into J. T.‘s pocket; he prob­ably skimmed from other sources as well.) The $5,100 in dues came from rank-and-file members only, since full gang members didn’t pay dues. The extor­tion­ary taxes were paid by other busi­nesses that oper­ated on the gang’s turf, includ­ing grocery stores, gypsy cabs, pimps, and people selling stolen goods or repair­ing cars on the street.

Now, here’s what it cost J. T., exclud­ing wages, to bring in that $532,000 per month:

Whole­sale cost of drugs$5,000
Board of dir­ect­ors fee$5,000
Mer­cen­ary fight­ers$1,300
Weapons$300
Mis­cel­laneous$2,400
Total monthly nonwage costs$$14,000

Mer­cen­ary fight­ers were non­mem­bers hired on short-term con­tracts to help the gang fight turf wars. The cost of weapons is small here because the Black Dis­ciples had a side deal with local gun­run­ners, helping them nav­ig­ate the neigh­bor­hood in exchange for free or steeply dis­coun­ted guns. The mis­cel­laneous expenses include legal fees, parties, bribes, and gang-sponsored “com­munity events.” (The Black Dis­ciples worked hard to be seen as a pillar rather than a scourge of the housing-project com­munity.) The mis­cel­laneous expenses also include the costs asso­ci­ated with a gang member’s murder. The gang not only paid for the funeral but often gave a stipend of up to three years’ wages to the victim’s family. Ven­katesh had once asked why the gang was so gen­er­ous in this regard. “That’s a fucking stupid ques­tion,” he was told, “’cause as long as you been with us, you still don’t under­stand that their fam­il­ies is our fam­il­ies. We can’t just leave ‘em out. We been knowing these folks our whole lives, man, so we grieve when they grieve. You got to respect the family.” There was another reason for the death bene­fits: the gang feared com­munity back­lash (its enter­prise was plainly a destruct­ive one) and figured it could buy some good­will for a few hundred dollars here and there. The rest of the money the gang took in went to its members, start­ing with J. T. Here is the single line item in the gang’s budget that made J. T. the hap­pi­est:

Net monthly profit accru­ing to leader $8,500

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. This was a lot more than he earned at his short­lived office job in the Loop. And J. T was just one of roughly 100 leaders at this level within the Black Dis­ciples network. So there were indeed some drug dealers who could afford to live large, or — in the case of the gang’s board of dir­ect­ors — extremely large. Each of those top 20 bosses stood to earn about $500,000 a year. (A third of them, however, were typ­ic­ally imprisoned at any time, a sig­ni­fic­ant down­side of an up pos­i­tion in an illicit industry.)

So the top 120 men on the Black Dis­ciples’ pyramid were paid very well. But the pyramid they sat atop was gigantic. Using J. T.‘s fran­chise as a yard­stick — 3 officers and roughly 50 foot sol­diers— there were some 5,300 other men working for those 120 bosses. Then there were another 20,000 unpaid rank-and-file members, many of whom wanted nothing more than an oppor­tun­ity to become a foot soldier. They were even willing to pay gang dues to have their chance.

And how well did that dream job pay? Here are the monthly totals for the wages that J. T paid his gang members:

Com­bined wages paid to all three officers$2,100
Com­bined wages paid to all foot sol­diers$7,400
Total monthly gang wages (exclud­ing leader)$9,500

So J. T. paid his employ­ees $9,500, 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 cook home $700 a month, which works out to about $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.

In other words, a crack gang works pretty much like the stand­ard cap­it­al­ist enter­prise: you have to be near the top of the pyramid to make a big wage. Not­with­stand­ing the leadership’s rhet­oric about the family nature of the busi­ness, the gang’s wages are about as skewed as wages in cor­por­ate America. A foot soldier had plenty in common with a McDonald’s burger flipper or a Wal-Mart shelf stocker. In fact, most of J. T.‘s foot sol­diers also held minimum-wage jobs in the legit­im­ate sector to sup­ple­ment their skimpy illicit earn­ings. The leader of another crack gang once told Ven­katesh that he could easily afford to pay his foot sol­diers more, but it wouldn’t be prudent. “You got all these niggers below you who want your job, you dig?” he said. “So, you know, you try to take care of them, but you know, you also have to show them you the boss. You always have to get yours first, or else you really ain’t no leader. If you start taking losses, they see you as weak and shit.”

Along with the bad pay the foot sol­diers faced ter­rible job con­di­tions. For starters, they had to stand on a street corner all day and do busi­ness with crack­heads. (The gang members were strongly advised against using the product them­selves, advice that was enforced by beat­ings if neces­sary.) Foot sol­diers also risked arrest and, more wor­ri­some, viol­ence. 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 arres­ted5 – 9
Number of non­fatal wounds or injur­ies2.4
Chance of being killed1 in 4

A l-in-4 chance of being killed! Compare these odds to being a timber cutter, which the Bureau of Labor Stat­ist­ics calls the most dan­ger­ous job in the United States. Over four years’ time, a timber cutter would stand only a 1 in 200 chance of being killed. Or compare the crack dealer’s odds to those of a death row inmate in Texas, which executes more pris­on­ers than any other state. In 2003, Texas put to death twenty-four inmates — or just 5 percent of the nearly 500 inmates on its death row during that time. Which means that you stand a greater chance of dying while dealing crack in a Chicago housing project than you do while sitting on death row in Texas.

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. Fifty-six percent of the neighborhood’s chil­dren lived below the poverty line (com­pared to a national average of 18 percent). Seventy eight percent came from single-parent homes. Fewer than 5 percent of the neighborhood’s adults had a college degree; barely one in three adult men worked at all. The neighborhood’s median income was about $5,000 a year, well less than half the U.S. average. During the years that Ven­katesh lived with J. T.‘s gang, foot sol­diers often asked his help in landing what they called “a good job”: working as a janitor at the Uni­ver­sity of Chicago.

The problem with crack dealing is the same as in every other glamour pro­fes­sion: a lot of people are com­pet­ing for a very few prizes. Earning big money in the crack gang wasn’t much more likely than the Wis­con­sin farm girl becom­ing a movie star or the high-school quar­ter­back playing in the NFL. But crim­in­als, like every­one else, respond to incent­ives. So if the prize is big enough, the}‘will form a line down the block just hoping for a chance. On the south side of Chicago, people wanting to sell crack vastly out­numbered the avail­able street corners.

These budding drug lords bumped up against an immut­able law of labor: when there are a lot of people willing and able to do a job, that job gen­er­ally doesn’t pay well. This is one of four mean­ing­ful factors that determ­ine a wage. The others are the spe­cial­ized skills a job requires, the unpleas­ant­ness of a job, and the demand for ser­vices that the job ful­fills.

The del­ic­ate balance between these factors helps explain why, for instance, the typical pros­ti­tute earns more than the typical archi­tect. It may not seem as though she should. The archi­tect would appear to be more skilled (as the word is usually defined) and better edu­cated (again, as usually defined). But little girls don’t grow up dream­ing of becom­ing pros­ti­tutes, so the supply of poten­tial pros­ti­tutes is rel­at­ively small. Their skills, while not neces­sar­ily “spe­cial­ized,” are prac­tised in a very spe­cial­ized context. The fob is unpleas­ant and for­bid­ding in at least two sig­ni­fic­ant ways: the like­li­hood of viol­ence and the lost oppor­tun­ity of having a stable family life. As for demand? Let’s just say that an archi­tect is more likely to hire a pros­ti­tute than vice versa.

The rules of a tour­na­ment are straight­for­ward. You must start at the bottom to have a shot at the top. (Just as a Major League shortstop prob­ably played Little League and just as a Grand Dragon of the Ku Klux Klan prob­ably started out as a lowly spear-carrier, a drug lord typ­ic­ally began by selling drugs on a street corner.) You must be willing to work long and hard at sub­stand­ard wages. In order to advance in the tour­na­ment, you must prove your­self not merely above average but spec­tac­u­lar. (The way to dis­tin­guish your­self differs from pro­fes­sion to pro­fes­sion, of course; while J. T. cer­tainly mon­itored his foot sol­diers’ sales per­form­ance, it was their force of per­son­al­ity that really counted — more than it would for, say, a shortstop.) And finally, once you come to the sad real­iz­a­tion that you will never make it to the top, you will quit the tour­na­ment. (Some people hang on longer than others — witness the graying “actors” who wait tables in New York— but people gen­er­ally get the message quite early.)

Most of J. T.‘s foot sol­diers were unwill­ing to stay foot sol­diers for long after they real­ized they weren’t advan­cing. Espe­cially once the shoot­ing started. After several rel­at­ively peace­ful years, J. T.‘s gang got involved in a turf war with a neigh­bor­ing gang. Drive-by shoot­ings became a daily event. For a foot soldier — the gang’s man on the street — this devel­op­ment was par­tic­u­larly dan­ger­ous. The nature of the busi­ness deman­ded that cus­tom­ers be able to find him easily and quickly, if he hid from the other gang, he couldn’t sell his crack.

Until the gang war, J. T.‘s foot sol­diers had been willing to balance the risky, low-paying job with the reward of advance­ment. But as one foot soldier told Ven­katesh, he now wanted to be com­pensated for the added risk: “Would you stand around here when all this shit is going on? No, right? So if I gonna be asked to put my life on the line, then front me the cash, man. Pay me more ’cause it ain’t worth my time to be here when they’re warring.”

J.T. hadn’t wanted this war. For one thing, he was forced to pay his foot sol­diers higher wages because of the added risk. Far worse, gang warfare was bad for busi­ness. If Burger King and McDonald’s launch a price war to gain market share, they partly make up in volume what they lose in price. (Nor is anyone getting shot.) But with a gang war, sales plummet because cus­tom­ers are so scared of the viol­ence that they wont come out in the open to buy their crack. In every­way, war was expens­ive for J. T.

So why did he start the war? As a matter of fact, he didn’t. It was his foot sol­diers who started it. It turns out that a crack boss didn’t have as much control over his sub­or­din­ates as he would have liked. That’s because they had dif­fer­ent incent­ives.

For J. T., viol­ence was a dis­trac­tion from the busi­ness at hand; he would have pre­ferred that his members never fired a single gunshot. For a foot soldier, however, viol­ence served a purpose. One of the few ways that a foot soldier could dis­tin­guish himself — and advance in the tour­na­ment — was by proving his mettle for viol­ence. A killer was respec­ted, feared, talked about. A foot soldier’s incent­ive was to make a name for himself, J. T.‘s incent­ive was, in effect, to keep the foot sol­diers from doing so. “We try to tell these shorties that they belong to a serious organ­iz­a­tion,” he once told Ven­katesh. “It ain’t all about killing. They see these movies and shit, they think it’s all about running around tearing shit up. But it’s not. You’ve got to learn to be part of an organ­iz­a­tion; you can’t be fight­ing all the time. It’s bad for busi­ness.”

Gang Violence

Bad Fo’ Bizniz.

In the end, J. T. pre­vailed. He oversaw the gang’s expan­sion and ushered in a new era of prosper­ity and rel­at­ive peace. J. T. was a winner. He was paid well because so few people could do what he did. He was a tall, good-looking, smart, tough man who knew how to motiv­ate people. He was shrewd too, never tempt­ing arrest by car­ry­ing guns or cash. While the rest of his gang lived in poverty with their mothers, J. T. had several homes, several women, several cars. He also had his busi­ness edu­ca­tion, of course. He con­stantly worked to extend this advant­age. That was why he ordered the cor­por­ate-style book­keep­ing that even­tu­ally found its way into Sudhir Venkatesh’s hands. No other fran­chise leader had ever done such a thing. J. T once showed his ledgers to the board of dir­ect­ors to prove, as if proof were needed, the extent of his busi­ness acumen.

And it worked. After six years running his local gang, J. T. was pro­moted to the board of dir­ect­ors. He was now thirty-four years old. He had won the tour­na­ment. But this tour­na­ment had a catch that pub­lish­ing and pro sports and even Hol­ly­wood don’t have. Selling drugs, after all, is illegal. Not long after he made the board of dir­ect­ors, the Black Dis­ciples were essen­tially shut down by a federal indict­ment— the same indict­ment that led the gang­ster named Booty to turn over his note­books to Ven­katesh — and J. T. was sent to prison.

***

Be sure to check out their blog, buy a copy of Freako­nom­ics and their latest book, Super­freako­nom­ics..

11 Responses to The Economics Of Crack Dealing

  1. Joe Buxton says:

    Great read! Def­in­itely going to check out that book. The saddest part of all this is that pro­hib­i­tion and the lack of ability for redress. Second saddest thing is that it’s prob­ably rogue ele­ments of the CIA doing the smug­gling (def­in­itely in the 80s, prob­ably through the 90s and even today, espe­cially the poppies out of Afgh­anistan).
    http://​www​.pris​on​planet​.com/​f​r​e​e​w​a​y​-​r​i​c​k​y​-​r​o​s​s​-​o​n​-​a​l​e​x​-​j​o​n​e​s​-​t​v​-​h​o​w​-​t​h​e​-​c​i​a​-​s​u​p​p​l​y​-​c​o​n​t​r​o​l​-​o​p​e​r​a​t​e​-​t​h​e​-​d​r​u​g​-​b​u​s​i​n​e​s​s​.​h​tml

  2. Slicedmind says:

    This is really odd, the day before I read this post I had psat in Water­stones on my lunch break and flicked through a copy of this book, and OF COURSE this was the chapter I chose to read. For some reason I had been sus­pi­cious of this book, but now I think I may have to very subtly hint that I may like to borrow it at some point 😉

  3. Adam says:

    I want to bring up a couple of con­nec­tions to a popular con­spir­acy “theory” (it was once repor­ted in Time, I believe.)

    “On the south side of Chicago, people wanting to sell crack vastly out­numbered the avail­able street corners.”

    This is due in part to the illu­sion of crack being a worthy occu­pa­tion. It’s expens­ive, so there must be money in it, right?

    But the article starts by ref­er­en­cing the media’s near-con­stant por­trayal of crack dealing as a luc­rat­ive pro­fes­sion during the boom.
    So, you have the main­stream media at the time being respons­ible for the idea that dealers make a lot of money, which seems to make sense because the media wants to make us hate drugs, but it’s actu­ally trying to make drug dealers. Nat­ur­ally, someone involved should at least realize they are having that effect.

    I’ll repeat this line… “On the south side of Chicago, people wanting to sell crack vastly out­numbered the avail­able street corners.”

    I’m trying to say that the above is partly true because most of those wannabe-crack-dealers “learned about” the trade from the media outlets who are prac­tic­ally selling them on it, not from the dealers who are dying every day.

    Think about it; if there weren’t more poten­tial crack dealers than street corners to sell it on, would the “Board of Dir­ect­ors,” the 20 –laziest– thugs in the gang, be able to charge 20% just for the turf? Noooo way!

    And it’s not a case of black America imit­at­ing white America that lends the pyramid-struc­ture to this form of busi­ness, nor the terms used like “Board of Dir­ect­ors;” it’s because at the top these cartels are run indir­ectly by the CIA. I expect by now most of us who made it to Syn­chronium today don’t want me to explain that, but the CIA did and still does ship cocaine into the USA (recently, in fact, a CIA plane allegedly car­ry­ing ter­ror­ists to be tor­tured crashed in Miami with 4 tons of cocaine on board!)

    So I posit that the media are com­pli­cit in glor­i­fy­ing the trade, because those at the top of these gangs depend on them to expand their base.

    Finally look at the image. That’s not a rock sign, and it’s not a devil sign, it’s an ancient hand sign you can find photos of almost every current or recent world leader per­form­ing with various sub­tlety (and even blatancy) during their special func­tions. It belongs to the Tribe of the Bull, and yes, CIA dir­ect­ors have been pho­to­graphed passing the sign before, espe­cially George H.W. Bush.

    Some­times these people will do it at the wrong time and rush to cover it up or dis­guise it, like in a live music per­form­ance or polit­ical speech. Others pretend it is devil worship, if appro­pri­ate. The six kings of the Tribe of Dan (“VI KINGS” in Roman, which was a new alpha­bet at the time) emig­rated to Norway at one time, which is why we see musi­cians of Pagan descent using it the most. (Black metal, death metal.)

    This has nothing to do with the article any more, but the sign is used on talk shows to manip­u­late us. Colbert does it a lot… he flashed it when he told a can­did­ate for N.Y. Gov­ernor that he was “about to blow up.” The fol­low­ing night Elliot Spitzer flashed Colbert the sign when Stephen was berat­ing him, and Stephen just starts backing off and flat­ter­ing him. Last week I saw it at the end of the Anchor­man gag reel… “mess with me and the bull’s horns will get ya!”

    The point of all that bull ‘con­spir­acy’ stuff is that it becomes more obvious the CIA is leading the gang, when you see the gang itself using the sign of the CIA’s own leaders.

  4. Mike says:

    Adam, that sign is pos­sibly the most popular hand sign there is. I used it for years (at metal shows) without knowing it’s origin, or the con­spir­acy the­or­ies. Don’t you think that it’s pos­sible that 99% of people who make the sign are doing it inno­cently? Also what benefit is there to the CIA con­trolling this shit? And why would the lowly dealers pic­tured know or have any­thing to do with this appar­ent “con­spir­acy”?
    Have you not heard that the simplest answer is often the most likely?

  5. Joe Buxton says:

    the CIA doesn’t control the drug trade just like the US doesn’t control the world — doesn’t mean they wouldn’t like to. It’s a new source of black-ops income.

    here go: http://​www​.glob​alre​search​.ca/​i​n​d​e​x​.​p​h​p​?​c​o​n​t​e​x​t​=​v​a​&​a​i​d​=​1​8​522

  6. Adam says:

    ugh i should have been here to read those…

    I never should have gone off on the hand sign, they just reminded me about it.

    I always try to tell people to take note of it. it’s not import­ant when they do it, I agreed with Buxton in the first place — that there’s over a 99% chance they mean “rock”, “metal”, or some­thing random by it. They just reminded me, I was already in anti-con­spir­ator mode.

    I prob­ably shouldn’t have men­tioned any of the infin­ites­im­ally thin threads con­nect­ing the two con­spir­acies.

  7. Adam says:

    editing com­ments doesn’t work, fuck AJAX in the ass…

    Since I went off on a tangent in my big post…

    the main point of it was start­ing off to say that the Amer­ican media con­glom­er­ates are part of a ***delib­er­ate*** effort to increase the price of black market drugs. If you can tol­er­ate the way I was ram­bling you can go back and read the points I jux­ta­posed… I can almost prove they know they are doing it.

  8. Adam says:

    (Oh **** great **** AJAX, it deleted my older comment ANYWAY after can­celing an edit…)

    Aside from the main point I just reit­er­ated about the media’s role in sus­tain­ing the drug trade, I had a post there a second ago apo­lo­giz­ing for the rant on the hand sign.

    I already agreed with Buxton there, that it’s over 99% certain the gang members mean “rock”, “satan”, etc. I just saw the image as I fin­ished my comment and got reminded… and I always try to draw atten­tion to hand signs, because anyone near a T.V. or a magazine rack can find them.
    …not that I want people to start noti­cing the signs in the wrong con­texts. So, yeah, I guess I was trying to draw *infin­ites­im­ally thin* threads between two dif­fer­ent “con­spir­acies,” which aren’t con­nec­ted by any­thing in this story. I just noticed the pic with the signs toward the end of my post and got carried away… yes, I used the sign as a young metal fan, too. 🙁

    (ooh, look, editing changed the PHP date() func­tion format! Messy script, repeat­ing func­tion code ; -)

  9. Shaw says:

    That picture of the ‘crack­head’ is not a crack­head at all. I know who that is and he doesn’t do crack.

  10. Steve says:

    Great read! Def­in­itely going to check out that book. The saddest part of all this is that pro­hib­i­tion and the lack of ability for redress. Second saddest thing is that it’s prob­ably rogue ele­ments of the CIA doing the smug­gling (def­in­itely in the 80s, prob­ably through the 90s and even today, espe­cially the poppies out of Afgh­anistan).
    http://​www​.pris​on​planet​.com/​f​r​e​e​w​a​y​-​r​i​c​k​y​-​r​o​s​s​-​o​n​-​a​l​e​x​-​j​o​n​e​s​-​t​v​-​h​o​w​-​t​h​e​-​c​i​a​-​s​u​p​p​l​y​-​c​o​n​t​r​o​l​-​o​p​e​r​a​t​e​-​t​h​e​-​d​r​u​g​-​b​u​s​i​n​e​s​s​.​h​tml

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