An Economic Analysis of a Drug-Selling Gang's Finances*

Abstract

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. In concert with declining legitimate labor market opportunities and increasing concentrations of poverty in inner cities (Wilson 1987), the new economic underpinning of street gangs has led to a dramatic increase in gang involvement. Landre. Miller, and Porter (1997) estimate that the number of individuals associated with street gangs in California alone is projected to reach 250,000 by the year 2000, although this number includes not only hardcore gang members involved directly in drug distribution, but also those on the periphery. The timing of the rise in gang activity corresponds to a period of rising inner-city youth violence. Between 1985 and 1995, the homicide arrest rate among those aged 13 to 17 doubled (Blumstein 1995, Cook and Laub 1997). Increases among African-American youths were particularly great, more than tripling (to a level five times higher than whites). In stark contrast, the adult homicide arrest rate fell over this period. Inner-city communities have also seen a divergence in male and female performance along a number of other dimensions (Wilson 1987). Whether the rise in gangs play a causal role in these trends, or are perhaps caused by these

Mentors and Criminal Achievement*

“…The impact of mentors on achievement may be particularly salient for criminal careers relative to conventional ones. Most offenders earn little money from their crimes and only a small set of illegal activities provide noticeable economic returns (Levitt and Venkatesh, 2000;Williams, 1989). Individuals hoping to prosper from crime must thus gain access to the small set of human and social criminal capital associated with illegal achievement (McCarthy and Hagan, 2001).…”

Putting a price on drugs: An economic sociological study of price formation in illegal drug markets

“…Furthermore, street culture promotes aggressive competition. Violent dealers increase competitors' costs and can drive less violent dealers from the market (Levitt & Venkatesh, 2000;Papachristos, 2009). In this way, street culture contributes to the high-risk premium on illicit drugs.…”

Might Fundamental Tax Reform Increase Criminal Activity?

“…Criminal activity appears to be significantly more labour-intensive than legitimate economic activity, though there is some indication that it is less labour-intensive than non-criminal underground activity. 13 Levitt and Venkatesh (2000) provide a financial picture of a drug-selling gang that uses very little capital, even working capital that includes stocks of drugs, relative to its labour inputs. Strumpf (2003) analyses illegal bookmaking, which is likely to be one of the most capital-intensive of illegal activities, since bookmakers must hold significant cash reserves; none the less, he reports that only a small fraction of the returns are attributable to capital invested.…”