Freakonomics

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 ru

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:   $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 $32,000 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 gunru

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 a

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 took 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.