What We Can Learn from Gangsters
|June 22, 2005|
Steven Levitt’s Freakonomics started circulating in my office about a month ago, and last Friday it was finally my turn to read it while everyone else covered phones, coffee, and crises. The fact that it took a whole month to get to me represents its own economic analysis of my relative worth in the office; I’m also the last to know about left-over food from office lunches. And that’s just the point I want to make about Freakonomics: once you read this book, you’ll start wondering if everything in your life can be explained by economics.
If it hasn’t made the rounds in your office, there’s a website that’ll give you a summary, reviews, and about a jillion chances to buy the book. But basically, the premise of the book is that economics—and specifically the study of incentives and motivation—can explain almost everything. Levitt, the self-styled rogue economist, takes piles of data, asks lots of unlikely questions, throws everything into a kitchen aid, and then draws out at random two phenomena that he relates through statistics and economic analysis. I found myself skeptical of some of the assumptions he starts out from—he blurs the line between crunching numbers and interpreting people and society with the cockiness of some pro basketball players—but controversy is probably good economics for book sales too.
Some of his conclusions are the stuff of conspiracy theorists. He says that school teachers and sumo wrestlers are linked in the underworld of cheating, that Ku Klux Klan members and real estate agents manipulate information in the same way, and that abortion has led directly to lower crime rates. So basically, everything we thought was good is not so good, and everything we thought was bad is not so bad. Or not so different, at least.
One of the things I found most interesting, however, was the book’s take on morality. One of the reviews says, “if morality represents how we would like the world to work, then economics represents how it actually does work.” In other words, a moral view of the universe is in many respects self-deceived, and an economic view of the universe is the beginning of really understanding what’s going on around us. I’m open to that—although a little bit troubled, since some of the best people I know are moral people, and I hate to think they’re all self-deceived. But at the same time that Levitt dynamites traditional morality, he suggests that morality emerges of its own accord in other, more unlikely places.
Take gangsters, for example. Crack gangs, to be precise. One of Levitt’s chapters takes data obtained from infiltrating a Chicago crack gang and explains how this highly structured, meticulous world works. It starts with the basic question, why do crack dealers still live with their moms (which most of them do, come to find out), and shows that in many ways, crime really doesn’t pay. Crack dealers earn $3.30/hour; the thugs right above them earn $7/hour, and it’s only when you get into middle and upper management that you actually start earning in the six figures–$100K and $500K respectively. But there are only about 12 people that earn $500K—kind of like there are only about 12 people that earn that much in any corporation with a CEO, board, and business plan. And that’s the point of this chapter: crack gangs aren’t that different from the McDonalds corporation. Lots and lots of foot soldiers, and a few guys with college degrees earning bank up top (true about the college degrees, too—that third and top level are populated by bachelors and masters). There are a couple of things that result from this: crack gangs don’t want gang wars. In fact, gang warfare is the equivalent of a fire in the kitchen—it only costs $3/hour to maintain all these crack dealers, but if they get killed or injured, it costs a hell of a lot more to compensate the family, bury them, and replace them. And scrupulous business practices—like good book-keeping and regular board meetings—are also essential for running a successful crack gang. Maybe this makes crack gangs seem a whole lot more white bread; maybe this gives McDs a suddenly sinister air. But black market economics—except for the whole breaking the law part—really doesn’t look all that different from business models in MBA schools everywhere.
So bringing this all back to morality. Crack gangs, in the absence of the law, behave not too differently from fast food corporations functioning under the law. Black market economics is interesting because it posits a system in which traditional authority figures or authoritative bodies are absent (the government, the Department of Labor, Arthur Anderson—I mean, Deloitte and Touche), and it looks at what kinds of moral laws emerge naturally. Some of them are different, but some of them aren’t so different—like war is bad, record-keeping is good, education gets you to the top, and it sucks to have to live with your mom. So what effect does authority have on morality anyway? Is it necessary? Is morality just wishful thinking? And what happens when, like crack dealers, you get to choose the authority figures you place over you? Just a few questions from a rogue economist.