Archive for April 30, 2014

AN ECONOMIC ANALYSIS OF A DRUG-SELLING GANG’S FINANCES: Section III: Data and Analysis 2

April 30, 2014

The data contain monthly breakdowns of the major sources of revenues and expenditures for the gang. Table 2 presents monthly averages for each of the four years covered. Of the 48 months spanned by our sample, six months of data are missing.10 Averages are calculated based only on those months for which data is available. All dollar values are converted into 1995 dollars using the GDP deflator. Revenues are broken down into three sources: proceeds from drug sales (almost exclusively crack cocaine), dues from gang members, and “street taxes,” i.e. money extorted from individuals (and occasionally companies) conducting business on the gang’s turf. Examples of those required to pay street taxes would include grocery store owners, gypsy cabs, people selling stolen goods, and those providing services such as auto or plumbing repair.

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AN ECONOMIC ANALYSIS OF A DRUG-SELLING GANG’S FINANCES: Section III: Data and Analysis

April 28, 2014

The data set contains detailed financial information on the activities of the gang described above on a monthly basis for a recent four-year period. The data were originally maintained by the leader in control of the gang and were updated each month by the enforcer. The data was compiled by hand. The data ends abruptly with the arrest of the gang leader and other officers. Shortly thereafter, the gang, weakened by these arrests and beset by infighting, was overpowered by rivals, its turf divided between a number of enemy gangs. The gang we study is no longer in operation. Most of the former gang members have since abandoned drug dealing. The person who supplied us the data is a former gang member with ties to the gang that tracked the data (although he was not necessarily directly affiliated with this particular group). Our informant, after serving a prison sentence, now holds a full-time job in the legitimate sector. For obvious reasons, we have accommodated his request to remain anonymous.

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AN ECONOMIC ANALYSIS OF A DRUG-SELLING GANG’S FINANCES: Section II – 3

April 26, 2014

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That gang is overseen by a gang leader, and has one enforcer, one treasurer, and one runner at any given point of time. The number of foot-soldiers ranges between 25 and 75 over the period examined, and there are 60 to 200 rank and file.

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AN ECONOMIC ANALYSIS OF A DRUG-SELLING GANG’S FINANCES: Section II – 2

April 24, 2014

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A striking feature of the mobility patterns among neighborhood residents is the rarity with which outsiders move into the neighborhood. Although there is movement within the county, less than three percent of the 1990 residents lived outside of the county in 1985. For the United States as a whole, residents were seven times more likely to have moved to their current home from outside of the county. There was a substantial de-population of the neighborhood between 1960 and 1990. According to the 1990 census, approximately 15 percent of the housing units are boarded up. The officially reported sex ratio is substantially skewed towards women, but it is unclear to what extent this captures a real phenomenon, or is simply under-reporting due to the requirement that males be absent in order to qualify for public housing.

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AN ECONOMIC ANALYSIS OF A DRUG-SELLING GANG’S FINANCES: Section II

April 22, 2014

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The gang for which we have data is located in an inner-city neighborhood in a large, industrial American city.4 Table 1 provides social and economic data from the 1990 Census of Population and Housing for two census tracts representative of those in which the gang operates, as well as nationwide averages for purposes of comparison.5 Residents of the area are almost exclusively African-American (over 99 percent), as are all of the gang members. The labor market experiences of the residents, particularly males, are far worse than the United States as a whole. Less than 40 percent of males sixteen or older in the neighborhood are employed, compared to roughly 70 percent of American males. Unemployment rates for males are four times higher than the national average; labor force participation is also lower. Female residents also fare worse in the labor market, but not nearly so poorly relative to the rest of the nation as males.

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AN ECONOMIC ANALYSIS OF A DRUG-SELLING GANG’S FINANCES: Section I: Review of the Existing Literature

April 20, 2014

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The seminal text, and to this day the most comprehensive study of street gang activity in one city, is Thrasher (1927). Thrasher observed the practices and organization of over 1,000 street gangs in Chicago, concluding that the gang was an adaptive mechanism for newly arrived immigrants and their settlement communities. For example, the street gang could provide protection to residents by defending their community against predatory forces that arose from a neighboring community of different ethnic or racial makeup. Thrasher’s writings set the tone for the street gang scholarship in the mid-twentieth century. Of paramount concern was the role of the gang in the social life of the community– e.g., its relations with politicians and residents, the social control mechanisms in place (or not) to control juvenile delinquency– as well as an interest in the motivations among youth to join a gang. In later research (Ohlin and Cloward 1963, Short and Strodtbeck 1965), the focus turned to questions of the roles and functions served by street gang members, how gang participation shaped individual identities, and how gangs differed from other subcultures.

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AN ECONOMIC ANALYSIS OF A DRUG-SELLING GANG’S FINANCES: Introduction 3

April 18, 2014

A number of insights emerge from the paper. First, not surprisingly, we observe an enormous expansion in the revenue generated by drug dealing associated with the expanding market for crack over the four year period examined. The average wages and profits of the gang roughly double. Second, wages in the gang are extremely skewed — probably far more so than in corporate America. Thus, one must view gang involvement as a form of tournament (Lazear and Rosen 1982) in order to make economic sense of the decision to participate in a gang. Even incorporating the tournament aspects of the returns to gang involvement, drug dealing does not appear to be particularly lucrative. By the end of our sample, the average wage in the organization is estimated to be $11 per hour.
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AN ECONOMIC ANALYSIS OF A DRUG-SELLING GANG’S FINANCES: Introduction 2

April 16, 2014

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Although there has been a great deal of academic work on street gangs (e.g. Thrasher 1927, Taylor 1993, Padilla 1992, Jankowski 1993, Spergel 1995, Venkatesh 1997), their economic and financial activities have gone largely un-examined. This lack of focus is perhaps partly attributable to the fact that few economists have been involved in the study of gangs.1 More fundamentally, there is an absence of reliable data. The illicit nature of the gang activities and the lack of formal accounting procedures makes it extremely difficult to obtain financial data.

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AN ECONOMIC ANALYSIS OF A DRUG-SELLING GANG’S FINANCES: Introduction

April 14, 2014

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Street gangs have a long history in American cities (Thrasher 1927). Until recently, gangs were organized primarily as social peer groups. Any economic activities were of secondary importance (Suttles 1968, Klein 1995). The last two decades, however, have given rise to a dramatic transformation in street gangs, or what Taylor (1990) terms their “corporatization.” When crack became widely available in the mid-1980s, sold in small quantities in fragmented street-corner markets, street gangs became the logical distributors. The potential profit in drug dealing dwarfed that previously available to gangs through other criminal channels. As a consequence, the economic activity of drug distribution quickly emerged as the focus around which many gangs are organized.

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