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Sunday, February 21, 2010

Crack Economics


Steven Levitt Analyzes Crack Economics

-An informative, eye-opening video that explains how drug gangs are financed

Speaker Steven Levitt explains how a drug gang in Chicago follows some business aspects. First, the drug gang has a hierarchy structure similar to McDonald's. Both the McDonald’s workers and “foot soldiers” are paid low wages. McDonald's pays minimum wages but the “foot soldiers” are paid $3.50 per hour. Both the drug gang and McDonald's have franchises and the franchisee has the right to use the name and sell stuff.

The possible reasons as to why people join gangs as Steven Levitt points out are it is a rite of passage, it is a family business and Marketing & Trickery. Many men who join this gang feel it is a way to prove themselves that they are worthy of something. Also, the drug business becomes a family business. The younger generations get sucked into continuing the business of their forefathers. The biggest reason is Marketing & Trickery. The gangs know how to market themselves. They convince new members that they will get rich by selling drugs. The people currently in the business show off their gold chain and new cars. The new recruits never realize until it is too late that all these are rare to come by. The gold chains are not real gold and the new cars are leased because it cannot be afforded. There are more at stake than what is advertised.

Towards the latter part of the speech, Speaker Steven Levitt talks about how some economic theories can be applied to these gangs. The second one Steven Levitt talks about is ‘“Every two-person game has a natural equilibrium”’. Basically this is the game theory principle. But a gang member stated that no one is willing to apply this theory in fear of getting killed.

Steven Levitt fails to express some of the underlying conditions as to why some of these people turn to selling drugs as a means to support themselves instead of pursuing education. As discussed in the group, some possible reasons could be that financially the students are unable to pursue higher education. Also, many doors might be closed because of the student’s location. Sometimes, the students are in pursuit of making money fast and the only way to do that is by selling drugs.

-Arunna Raj

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