Freakonomics: Chapter 3 Summary & Analysis

When economists try to answer complex questions about the world, they often contradict the “conventional wisdom.” The phrase “conventional wisdom” was coined by the economist John Kenneth Galbraith. Galbraith considered “conventional wisdom” to be the enemy of truth. It is too easy, Galbraith argued, to believe something simply because one’s peers believe it, too. Thus, conventional wisdom is often simple and convenient—but not necessarily true.

Advertising is a powerful way to create conventional wisdom. Listerine advertisers were responsible for popularizing a little-known medical term halitosis (bad breath). They successfully convinced millions of Americans that having bad breath was a disease, for which Listerine was the only cure.

One interesting challenge to the conventional wisdom was the statistic that the majority of crack dealers in the 1990s lived with their mothers. In the late 1980s, at the height of the so-called “Crack epidemic,” a sociology Ph.D. candidate named Sudhir Venkatesh decided to research poverty in poor neighborhoods of Chicago. Sudhir visited apartment buildings on Chicago’s South Side, many of them very dangerous. On one occasion, he encountered gangs who threatened to kill him. Sudhir met a gang leader named J.T., a college graduate who’d briefly worked as a manager. J.T. agreed to let Sudhir study how he ran his gang. Sudhir got to interview gang members and even record gang meetings. One of Sudhir’s most important interviewees was a gang member named Booty. Booty gave Sudhir some priceless information: four notebooks full of the gang’s financial records: drug sales, business strategies, death benefits for dead gang members’ families, etc.

Later, Sudhir went to study at Harvard. It was there that he met Steven Levitt (one of this book’s authors). Levitt was fascinated with Sudhir’s research, and particularly the business records the Chicago drug gangs kept. The organization methods that Chicago gangs appeared to use were almost indistinguishable from the organization methods of a McDonald’s franchise. Much like a McDonald’s franchise, J.T. ran one branch of the Black Disciples gang. J.T. was a manager, who reported to a centralized “board of directors.” J.T. paid his board 20 percent of his gang’s revenues, in return for the right to sell crack in his territory. J.T. had different employees, including enforcers, foot soldiers, and runners. J.T had to compensate his employees and pay his board a monthly fee—but after these payments, he enjoyed an annual salary of about 100,000 dollars.

J.T. made a good living as the head of his gang. But his employees didn’t do so well. The lowest level employees, foot soldiers, were responsible for doing business with crack users. Many foot soldiers made such small amounts of money that they had to live at home with their mothers (answering the question posed in this chapter’s title). At times, foot soldiers had to fight to protect their supplies of drugs, and they often went to jail. Sudhir calculated that foot soldiers had a one in four chance of being murdered.

Why would anyone take a job that offered a one in four chance of being murdered? For the same reason that people move to Hollywood or wake up early to lift weights: because they want to succeed and “make it to the top.” Furthermore, many of the people who became foot soldiers in Chicago had no clear alternatives—they couldn’t get an education or find a safe, well-paying job. So the problem with crack dealing is the problem with so many other professions: a lot of people vie for a small number of “prizes.” One consequence of this feature of the crack business is that being a foot soldier doesn’t pay very well—because the demand to be a foot soldier is so high, wages are low. Many of J.T.’s foot soldiers left the job after they realized they weren’t going to be promoted—but more foot soldiers would always replace them.

At one point, J.T.’s gang got into a drug war with a rival gang. During this war, J.T. saw many of his foot soldiers leave the drug world altogether, since their chances of being killed were much higher. J.T. also saw his profits going down, since people were frightened of buying drugs (since they could get caught in the middle of a gunfight between the two gangs). In the end, J.T. managed to avert a full-scale drug war by ordering his foot soldiers to use force as sparingly as possible. In this way, he increased his profits, and, by “leading by example,” he convinced the rival drug gang to limit its use of force as well. At the age of 34, J.T. was promoted to be a member of the Black Disciples’ board of directors. But soon afterwards, he was sent to prison for dealing drugs.

What, the authors ask, does crack cocaine have to do with nylon stockings? In 1939, nylon stockings were becoming trendy in the U.S. They were affordable, attractive, and long lasting. Most importantly, they looked almost the same as classier silk stockings: thus, they were marketed as an affordable alternative to silk. By the same token, in the late 1970s and early 1980s, crack cocaine was “marketed” to Los Angeles drug users as an affordable alternative to cocaine, the most glamorous and expensive drug in the United States.

In the 1980s, crack cocaine had become a hugely popular drug in the U.S. In response to the drug epidemic, the courts modified the criminal code to allow for harsher sentences for drug dealers. In a bitter irony, however, the growing number of drug dealers who went to prison established new contacts with their fellow inmates, including Colombian drug dealers, so that when the drug dealers were released from prison, they returned to selling crack with greater sophistication. The crack epidemic strengthened gangs throughout the United States, because it became increasingly profitable to become a gangster. Before the crack epidemic, gangs would often break apart as gangsters started to raise families: it was impossible to be a gangster and make enough money to support a wife and children. But following the rise of the crack epidemic, gangs began making enough money to support families, and they sold so much crack that it devastated entire neighborhoods. The crack epidemic probably increased the “gap” between white and black Americans: greater numbers of black people went to prison, the achievement gap between black and white schoolchildren grew, etc.

Many criminologists predicted that the crack epidemic of the 1980s would continue to cause major violence in American cities in the 1990s. But in fact, this did not happen: the crime rate began to decrease in the 90s. This was because “another remarkably powerful ripple effect—this one moving in the opposite direction—had just come into play.”