Freakonomics Revised and Expanded Edition

by Steven D. Levitt

  However created, the conventional wisdom can be hard to budge. The economist Paul Krugman, a New York Times columnist and devout critic of George W. Bush, bemoaned this fact as the President’s reelection campaign got under way in early 2004: “The approved story line about Mr. Bush is that he’s a bluff, honest, plainspoken guy, and anecdotes that fit that story get reported. But if the conventional wisdom were instead that he’s a phony, a silver-spoon baby who pretends to be a cowboy, journalists would have plenty of material to work with.”

  In the months leading up to the U.S. invasion of Iraq in 2003, dueling experts floated diametrically opposite forecasts about Iraq’s weapons of mass destruction. But more often, as with Mitch Snyder’s homeless “statistics,” one side wins the war of conventional wisdom. Women’s rights advocates, for instance, have hyped the incidence of sexual assault, claiming that one in three American women will in her lifetime be a victim of rape or attempted rape. (The actual figure is more like one in eight—but the advocates know it would take a callous person to publicly dispute their claims.) Advocates working for the cures of various tragic diseases regularly do the same. Why not? A little creative lying can draw attention, indignation, and—perhaps most important—the money and political capital to address the actual problem.

  Of course an expert, whether a women’s health advocate or a political advisor or an advertising executive, tends to have different incentives than the rest of us. And an expert’s incentives may shift 180 degrees, depending on the situation.

  Consider the police. A recent audit discovered that the police in Atlanta were radically underreporting crime since the early 1990s. The practice apparently began when Atlanta was working to land the 1996 Olympics. The city needed to shed its violent image, and fast. So each year thousands of crime reports were either downgraded from violent to nonviolent or simply thrown away. (Despite these continuing efforts—there were more than 22,000 missing police reports in 2002 alone—Atlanta regularly ranks among the most violent American cities.)

  Police in other cities, meanwhile, were spinning a different story during the 1990s. 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—which is 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 live 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. In 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 grueling 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?

  a. Very bad

  b. Bad

  c. Neither bad nor good

  d. Somewhat good

  e. 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, trying 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:

  a. Very bad

  b. Bad

  c. Neither bad nor good

  d. Somewhat good

  e. Very good

  f. 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 himself, 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.

  Having seen firsthand 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 gang’s 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 teenaged 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 paneling, the sherry cart once owned by Oliver Wendell Holmes—delighted Venkatesh. He went so far 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 the 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. 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 $18,500 each month; by the final year, it was collecting $68,400 a month. Here’s a look at the monthly revenues in the third year:

  “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 $32,000 per month:

  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.