Steven Levitt Analyzes Crack Economics

Steven Levitt

"Steven Levitt Analyzes Crack Economics"

In this talk, Steven Levitt discusses what he found out when an associate of his did research with a crack-dealing street gang. He begins with the history of the crack epidemic starting in the early '80s. Crack was a drug that generated a lot of revenue due to its unique high, and a stereotype has emerged of crack dealing being lucrative and making people rich. Levitt then shows that the hierarchy of a gang is similar to a chain of McDonalds. The area leader can make hundreds of thousands of dollars, while a dealer on the lowest level (known as a foot soldier) only makes an average of 3.50 per hour. Unlike a McDonalds, dealers on the lowest level don't get promoted to higher levels, and the gang leaders stay as the gang leaders, leaving no room for other dealers to rise. Levitt also points out that crack dealing has a seven percent probability of dying rate per each year a dealer is in a gang. Levitt then concludes his talk by comparing and contrasting some scholarly economic theories with some of the observations the gang members made about their economics, all in colorful street language; for example, taking financial losses is more frowned upon than in legitimate business, as the dealer doesn't want to look "weak as shit".

I was really impressed with this talk. I have had experiences with drug dealers in the past, and I noticed most of them brag about making money more than they can actually flaunt the money they made. In the talk, Levitt mentions about how the drug leaders can manipulate future gang members by leasing the fancy cars they drive instead of being able to own them; drug dealers are often extremely manipulative, who can convince others they can make a lot of money, when they really intend to make sure they never get bigger than them. This is a good wake-up call for anyone who thinks joining a gang and selling drugs is lucrative; it's not.

Freakonomics website

An official site for Steven Levitt's book Freakonomics, which is about using economic theories unconventionally to explain real-world problems and events.

Steven Levitt Wikipedia page

The Wikipedia page about Steven Levitt, summarizing his life and career, including his statistical analyzing of crime in America.

Gangs or Us article, "Crips, Bloods, and Crack"

A brief history of the rise of crack cocaine in the early '80s and the wars between the competing Bloods and Crips gangs.