Freakonomics
Stephen J. Dubner and Steven D. Levitt
Contributed by Marshall Raine

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Chapter 3
Summary

The chapter commences with yet another question, why do drug dealers still live with their moms? To respond to this question, Levitt and Dubner start by quoting economist J Kenneth Galbraith, “Conventional wisdom must be simple, convenient, comfortable, and comforting, though not necessarily true” (80). The writers continue their argument by revealing to readers the power of advertising in creating conventional wisdom. A good example was Listerine advertisers who were accountable for advertising about less known medical term “halitosis” or, more commonly, bad breath. The conventional wisdom at work magnified itself when the information about halitosis made millions of Americas view bad breath as an illness for which Listerine was the only remedy (81). The authors argue that although conventional wisdom is not often true, it is challenging and almost insurmountable to make people doubt it.

Levitt and Dubner assert that indeed conventional wisdom is wrong by refuting a precise point of conventional wisdom: crack cocaine trade is one of the most lucrative jobs. One interesting challenge to this notion was a survey conducted by Sudhir Venkatesh, a graduate from the University of Chicago, in 1989. Sudhir, after after a distressing encounter with a gang of drug dealers, befriended the gang leader J.T and interacted with the gang for six years practically living with them (87-88). During this period, Sudhir met Booty, a high-ranking gang member who after facing accusations and facing death threats left Venkatesh with a pile of old notebooks showing the gang’s complete financial records of four years. At first, the books were invaluable to Venkatesh until he met Stephen Levitt who together analyzed the criminals’ enterprise financial operations (88-89).

The authors realized that economic rules of incentives not only apply to the corporate world but also to a crack gang. The Black Disciples gang’s organizational chart was indistinguishable from any other American business. The Black Disciples was a large organization with about 100 franchises. J.T managed the Black Disciples branch and reported to the board of directors who he paid about 20% of the total amount collected. Below J.T were three officers (enforces, treasurer, and a runner). Underneath J.T’s officers were foot soldiers and the at the bottom of the organization were 200 members referred as file or rank who aspired to join the gang (90).

To challenge the conventional wisdom that drug-dealing business is among the profitable, the authors provide a detailed financial breakdown of the Black Disciples. Apparently, the board of directors earned about $500,000 annually while J.T earned $8,500 per month, which approximated to $100,000 yearly excluding bonuses (92). J.T’s three officers earned $700 a month approximating to a total of $7 per hour while foot soldiers earned $3.30 per hour, which is obviously below the minimum wage. Therefore, Levitt and Dubner pose the same question, why do drug dealers still live with their moms?, and respond, “except for the top cats, they don’t make much money” (93). The drug dealing enterprise works much like the capitalist organization, for a person to earn a big wage, one has to be on the top of the pyramid, or else living with one's mom becomes the only option. In fact, most of the foot soldiers had searched for legal minimum wage jobs to supplement their illegal earnings (93). The high aspirations of joining the group and increasing the wages made foot soldiers risk their lives, arrests, and violence. Thus, Levitt and Dubner answer their own question using an economic perspective. The authors state that like all wage earners, delinquents respond to incentives (95).

Analysis

The primary idea of this chapter is to inform readers that indeed conventional wisdom is not necessarily true. Levitt and Dubner use Venkatesh research to unmask the truth behind crack dealers’ financial distributions, which acts as a powerful supportive evidence to their assertion that drug dealing is a profitable business to only a few. Arguably, Americans believe the conventional wisdom that drug dealer makes a large profit from their business. However, resulting from lack of information, experts’ information blinds them and fails to realize that most drug dealers actually live with their mothers. With a few privileged people at the top of the pyramid, the gang members receive less than the minimum wage and this forces them to live with their mothers. Thus, based on the evidence one can conclude that Levitt and Dubner are indeed right to argue that conventional wisdom is not always truthful. 

Levitt and Dubner use the similarity between the capitalist organization and crack enterprise to expand readers’ minds about the reality of drug dealers. Just like an organization where the top leaders earn the highest salary while the staffs share whatever amount remains from the revenue; it is the same case for drug dealing organizations. Accordingly, Levitt and Dubner reveal to the readers the power of incentives using the story of the Black Disciples. The foot soldiers were motivated to remain in the business by receiving promises of both social and economic gains. However, the same incentives make leaders like J.T strategize ways of preventing war so that he can remain in power as well as continue receiving his high profits. Indeed, this chapter demonstrates how individuals get what they need or want particularly when others necessitate the same thing. Incentives are fundamental in modern life as evidenced by the foot soldiers who were ready to endure poverty with the hope of earning more money in the drug dealing business.

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