Freakonomics: Chapter 3 - Why Do Drug Dealers Still Live with Their Moms?

1. What is “conventional wisdom?” What are some ways that “conventional wisdom” comes into being?

Conventional wisdom is an idea or explanation that is excepted by the public regardless of the truth in the statement. For example, advocates of women's rights, homeless, and politicians stretch the truth on statistics to encourage people to pay attention and get more support. 

2. Explain why challenging the “conventional wisdom” with regard to a sticky social issue may be difficult to do.

When there is a chance no one will question conventional wisdom it due to the nature of a topic, why not? However, when someone exaggerates their arguments and are confronted with facts it creates a problem. The topic that a person lied about is not bad (i.e. the homeless, woman's rights) but the false information that has been given hinders the good that they are trying to do.

3. Considering this chapter’s analysis of the transformation of Listerine from an antiseptic to a cure for halitosis, what can one conclude about the effect of advertising on market demand for a good or service?

Listerine was sold as anything from a floor clearer to a antiseptic so why would people want to use it as mouthwash (something that didn't exist back then.) The advertsing completely sold the product showing a couple not so happy because of one of them had bad breath. Until then bad breath wasn't considered a problem but Listerine made it seem like one and made $8 million dollars off of it.

4. Explain how the incentives of police departments and the public media gave rise to explanations of the rising crime rate in the 1980s that were totally wrong.

In run for the 1996 Olympics, the Atlanta Police Department would throw away nearly 2000 police reports to lower crime rate. However, it didn't matter because the crime rate still rose. The media also told the story of crack cocaine and how it was a powering industry and had a lot of money in it but the people selling the drug still lived in the projects where they started selling it.

5. Describe, in general terms, the organizational structure of the Black Disciples street gang. How is it similar to the organizational structure of most business?

The Black Disciples were set up like almost any business. The top men were called "board of directors" then in individual cities/districts their were bosses with three men under him and "enforcer" for safety, a "treasurer" to manage the gang's liquid assests, and a "runner" for transporting the drugs from the supplier. Under these four men are "foot soldiers" which sell the drugs but want to one day be the boss of their individual city/district. However, there are also many more unpayed sellers in hopes of even becoming a foot soldier. This business model (although not completely the same) is very simlar to how many legal legit businesses run.

6. Explain how four years of financial records of the Black Disciples street gang found their way into the hands of a University of Chicago graduate student. 

With the gang under indictment, one of the gang's inner members (the one who was being blamed for the new legal interest) gaave the financial records of the gang to Venkatesh in hopes that it could maybe do some good because of his fear of death that would most likely occur of the gang's backlash.

7. How did J.T., a branch leader of a Black Disciples street gang, acquire and maintain a regional monopoly over crack cocaine within the territorial domain of the gang?

How any gang would survive, out of violence and takeoff of rival gangs. J.T. was also a college graduate and a business major. He knew what he was doing in the managing and organizing his portion of the crack cocaine business.

8. What are monthly costs incurred by J.T.’s unit of the Black Disciples? Which costs would be considered fixed costs? Which would be considered variable costs?

The money that J.T.'s unit brought in was around $25,000 in drug sales.

Variable Costs

• Weapons (the gang would have deals with local businesses for services)
• Mercenary fighters (hired short-term to fight turf wars)

Fixed Costs

• Money needing to be payed to the board of directors
• Dues
• Extortionary taxes

9. Explain how a “tournament” or “winner take all” labor market works.Why would a street-level drug dealer be willing to accept low pay and poor working conditions?

Young aspiring workers in to start out at the bottom to get to the more glamous high-paying jobs for little pay and great devotion. A drug dealer has the same outlook. He wants to be one the top bosses but he has to be a "foot soldier," first. That incentive would drive anyone to do a job for low pay.

10. Give your own examples of a “tournament” type of labor market.

In Hollywood, becoming a movie star or singer is almost a dream that will never come true. Taking extra jobs or even finding a job is where you have to start. Most of the big name actors and actresses didn't start off in the blockbuster hits.

11. How do the incentives of the street-level drug salesman differ from those of the gang leader/franchise owner? Are they both attempting to maximize the profits of the gang? Why or why not?

Both the street-level drug salesman and the gang leader/franchise owner are both somewhat looking out only for themselves. With the leader pocketing a lot of the profit and the salesman just trying to get by on any money he can get. However, the leader is also systematically distrubutes the money for the better of the gang keeping it in business and growing.

12. How did the invention of crack cocaine transform the urban street gang?

Urban street gangs before crack cocaine were more on creating mayhem and not money. But as street gangs were introduced to the new booming business of crack they started to make more and more money.

13.According to the data cited in this chapter, civil rights laws and a shift in the attitudes in the United States regarding race helped to improve the status of black society. How did crack cocaine alter that progress?

The addiction to crack and the high that it gave was only temporary and and user would come back for more. That and the fact that the invention of crack was so cheap it could easily be sold in poorer neighborhoods by urban gangs.

14. Based on the examples in this chapter, what does the invention of better and cheaper production methods do to the price and sales of a good or service?

Price is everything. In the example of cocaine it was something only rich people could afford but after the invention of crack it was much cheaper and more people could afford to buy it.