Freakonomics: A Rogue Economist Explores the Hidden Side of Everything
By Steven D. Levitt and Stephen J. Dubner
     
Morality, it could be argued, represents the way that people would like the world to work- whereas economics
represents how it actually does work.  Economics is above all else a science of measurement.  It comprises an
extraordinarily powerful and flexible set of tools that can reliably assess a thicket of information to determine the
effect of any one factor, or even the whole effect.  Incentives are the cornerstone of modern life and are the key
to solving just about any riddle.  Quite often the conventional wisdom is wrong, but people continue to hold it up
as truth.  Evaluating the incentives involved can allow one to get at the real truth.  Sometimes very subtle causes
will have distant, dramatic effects and can only be seen clearly through the honest eyes of economics.  The real
key to successfully using economics as a tool is knowing what to measure and how to measure it.  Once you can
do that, the complicated world becomes much less so.
     
It is worth remembering that Adam Smith, the founder of classical economics, was first and foremost a
philosopher.  He strove to be a moralist and, in doing so, became an economist.  Smith was entranced by the
sweeping changes brought about by the new force that was modern capitalism.  But it wasn’t only the numbers
that fascinated him; it was the human effect, the fact that economic forces were vastly changing the way a person
thought and behaved in a given situation.  In Smith’s era, cause and effect had begun to wildly accelerate;
incentives were magnified tenfold.  The gravity and shock of these changes were as overwhelming to the citizens
of his time as the gravity and shock of modern life seems to us today.  Smith’s true subject was the friction
between individual desire and societal norms.
     
Conventional wisdom must be simple, convenient, comfortable, and comforting- though not necessarily true.  It
would be silly to argue that conventional wisdom is never true.  But noticing where the conventional wisdom may
be false- noticing, perhaps, the contrails of sloppy or self-interested thinking- is a nice place to start asking
questions.

Journalists and experts are the architects of much conventional wisdom.  Advertising too is a brilliant tool for
creating conventional wisdom.  Listerine, for instance, was invented in the nineteenth century as a powerful
surgical antiseptic.  It was later sold, in distilled form, as a floor cleaner and a cure for gonorrhea.  But it wasn't a
runaway success until the 1920s, when it was pitched as a solution for 'chronic halitosis'- a then obscure medical
term for bad breath.  Until that time, bad breath was not conventionally considered such a catastrophe.  But
Listerine changed that.  As the advertising scholar James B. Twitchell writes, “Listerine did not make mouthwash
as much as it made halitosis.”  In just seven years, the company's revenues rose from $115,000 to more than $8
million.
      
The approved story-line of President Bush, for example, is that he’s a bluff, honest, plainspoken guy, and
anecdotes that fit that story get reported.  But if conventional wisdom were instead that he’s a phony, a silver-
spoon baby who pretends to be a cowboy, journalists would have plenty of material to work with too.       
     
Women’s rights advocates, for instance, have hyped the incidence of sexual assault, claiming that one in three
American women will in their lifetime be a victim of rape or attempted rape.  The actual figure is more like one in
eight- but advocates know it would take a callous person to dispute their claims.  Advocates working for the cures
for various diseases regularly do the same.  Why not?  A little creative lying can draw attention, indignation, and-
perhaps most important- the money and political capital to address the actual problem.
     
An expert’s incentive may shift 180 degrees depending on the situation.  Consider the police.  A recent audit
discovered that the police in Atlanta were radically underreporting crime since the early 1990s.  The practice
apparently began when Atlanta was working to land the 1996 Olympics.  The city needed to shed its violent
image, and fast.  So each year, thousands of crime reports were either downgraded from violent to nonviolent or
simply thrown away.  Police in other cities, meanwhile, were spinning a different story during the 1990s.  The
sudden, violent appearance of crack cocaine had police departments across the country scrapping for
resources.  They made it known that it wasn’t a fair fight: the drug dealers were armed with state-of-the-art
weapons and a bottomless supply of cash.  This emphasis on illicit cash proved to be a winning effort.   
     
Incentives are everything in economics.  We all learn to respond to incentives, negative and positive, from the
outset of life.  If you toddle over and touch the hot stove, you burn a finger.  But if you bring home straight A’s
from school, you get a new bike.  An incentive is simply a means of urging people to do more of a good thing and
less of a bad thing.  But most incentives don’t come about organically.  Someone- an economist or a politician or
a parent- has to invent them.  There are three basic flavors of incentive: economic, social, and moral.  Very often
a single incentive scheme will include all three varieties.  Think about the anti-smoking campaign of recent years.  
The addition of a $3-per-pack ‘sin tax’ is a strong economic incentive against buying cigarettes.  The banning of
smoking in restaurants and bars is a powerful social incentive.  And when the US government asserts that
terrorists raise money by selling black-market cigarettes it acts as a rather jarring moral incentive.
     
Consider the common question- why is there so much crime in modern society?- and stand it on its head: why isn’t
there more crime?  After all, every one of us regularly passes up opportunities to maim, steal, and defraud.  The
chance of going to jail- thereby losing your job, your house, and your freedom, all of which are essentially
economic penalties- is certainly a strong incentive.  But when it comes to crime, people also respond to moral
incentives (they don’t want to do something they consider wrong) and social incentives (they don’t want to be
seen by others as doing something wrong).  For certain types of misbehavior, social incentives are terribly
powerful.  Many American cities now fight prostitution with a ‘shaming’ offensive, posting pictures of convicted
johns (and prostitutes) on websites or on local-access television.  Which is a more horrifying deterrent: a $500
fine for soliciting a prostitute or the thought of your friends and family ogling you on www.HookersAndJohns.com?  
So through a complicated, haphazard, and constantly readjusted web of economic, social, and moral incentives,
modern society does its best to militate against crime.
     
In the 1970s, researchers conducted a study that pitted a moral incentive against an economic incentive.  In this
case, they wanted to learn about the motivation behind blood donations.  Their discovery: when people are given
a small stipend for donating blood rather than simply being praised for their altruism, they tend to donate less
blood.  The stipend turned a noble act of charity into a painful way to make a few dollars, and it wasn’t worth it.
     
For every clever person who goes to the trouble of creating an incentive scheme, there is an army of people,
clever and otherwise, who will spend even more time trying to beat it.  Cheating is a primordial economic act:
getting more for less.  Consider what happened on a spring evening at midnight in 1987: seven million American
children disappeared.  The worst kidnapping in history?  Hardly.  It was the night of April 15, and the Internal
Revenue Service had just changed a rule.  Instead of merely listing each dependent child, tax filers were now
required to provide a Social Security number for each child.  Suddenly, seven million children- children who had
existed only as phantom exemptions on the previous year’s 1040 forms- vanished, representing about one in ten
of all dependent children in the United States.
     

     Teacher Cheating

The most volatile current debate among American school administrators, teachers, parents, and students is
concerning ‘high-stakes’ testing.  The stakes are considered high because instead of simply testing students to
measure their progress, schools are increasingly held accountable for the results.  The Chicago Public School
system embraced high-stakes testing in 1996.  Under the new policy, a school with low scores would be placed on
probation and face the threat of being shut down, its staff to be dismissed or reassigned.  The CPS also did away
with what is known as social promotion.  In the past, only a dramatically inept or difficult student was held back a
grade.  Now, in order to be promoted, every student in third, sixth, and eighth grade had to manage a minimum
score on the standardized, multiple-choice exam known as the Iowa Test of Basic Skills.
     
High-stakes testing has so radically changed the incentives for teachers that they too now have added reason to
cheat.  A teacher whose students test poorly can be censured or passed over for a raise or promotion.  If the
entire school does poorly, federal funding can be withheld; if the school is put on probation, the teacher stands to
be fired.  High-stakes testing also presents teachers with some positive incentives.  Good test results can be
rewarded with praise, promotion, and even money: the state of California at one point introduced bonuses of
$25,000 for teachers who produced big test-score gains.  There is also one final incentive: teacher cheating is
rarely looked for, hardly ever detected, and just about never punished.
     
A teacher can simply give students extra time to complete the test.  If she obtains a copy of the exam early- that
is, illegitimately- she can prepare them for specific questions.  More broadly, she can ‘teach the test’, basing her
lesson plans on questions from past years’ exams, which isn’t considered cheating but certainly violates the spirit
of the test.  Since these tests all have multiple choice answers, with no penalty for wrong guesses, a teacher
might instruct her students to randomly fill in each blank as the clock is winding down.  She might even fill in the
blanks for them after they’ve left the room.  But if a teacher really wanted to cheat- and make it worth her while-
she might collect her students’ answer sheets and, in the hour or so before turning them over to be read by an
electronic scanner, erase the wrong answers and fill in the correct ones.
     
To catch a cheater, it helps to think like one.  You probably wouldn’t want to change too many wrong answers.  
That would clearly be a tip-off.  You probably wouldn’t even want to change answers on every student’ tests-
another tip-off.  Nor, in all likelihood, would you have enough time.  So what you might do is select a string of eight
or ten consecutive questions and fill in the correct answers for, say, one-half or two-thirds of your students.  You
could easily memorize a short pattern of correct answers, and it would be a lot faster to erase and change that
pattern than to go through each student’s answer sheet individually.  You might even think to focus your activity
towards the end of the test, where the questions tend to be harder than the earlier questions.  In that way, you’d
be most likely to substitute correct answers for wrong ones.
     
The Chicago Public School system made available a database of the test answers for every CPS student from
third grade through seventh grade from 1993 to 2000.  An algorithm was created to try and catch teacher
cheating.  The first thing it searched for were blocks of identical answers.  If ten very intelligent students (as
indicated by past and future test scores) gave correct answers to the exam’s first five questions (typically the
easiest ones), such an identical block wouldn’t be considered suspicious.  But if ten poor students gave correct
answers to the last five questions on the exam (the hardest ones), that would be worth looking into.  Another red
flag would be a strange pattern within any one student’s exam- such as getting the hard questions right while
missing the easy ones.  Furthermore, the algorithm would seek out a classroom full of students who performed far
better than their past scores would have predicted and who then went on to score significantly lower the following
year.
     
An analysis of the entire Chicago data reveals evidence of teacher cheating in more than two hundred
classrooms per year, roughly 5 percent of the total.  This is a conservative estimate, since the algorithm was able
to identify only the most egregious forms of cheating- in which teachers systematically changed students’
answers- and not the many subtler ways a teacher might cheat.  In a recent study among North Carolina
schoolteachers, some 35 percent of the respondents said they had witnessed their colleagues cheating in some
fashion, whether by giving students extra time, suggesting answers, or manually changing students’ answers.
     
The Chicago data showed that male and female teachers are about equally prone to cheating.  A cheating
teacher tends to be younger and less qualified than average.  She is also more likely to cheat after her incentives
change.  Because the Chicago data ranged from 1993 to 2000, it bracketed the introduction of high-stakes
testing in 1996.  Sure enough, there was a pronounced spike in cheating in 1996.  Nor was the cheating random.  
It was teachers in the lowest-scoring classrooms who were most likely to cheat.  In addition to detecting cheaters,
the algorithm could also identify the best teachers in the school system.  A good teacher’s impact was nearly as
distinctive as a cheater’s.
     
Chicago decided to conduct a retest in the wake of the algorithm’s analysis.  A blend was settled upon for the
experiment.  More than half of the 120 retested classrooms were those suspected of having a cheating teacher.  
The remainder were divided between the supposedly excellent teachers (high scores but no suspicious answer
patterns) and, as a further control, classrooms with mediocre scores and no suspicious answers.  The retest was
given a few weeks after the original exam.  The children were not told the reason for the retest.  Neither were the
teachers.  Though they may have gotten the idea when it was announced that CPS officials, not the teachers,
would administer the test.
     
The results were as compelling as the cheating algorithm had predicted.  In the classrooms chosen as controls,
where no cheating was suspected, scores stayed about the same or even rose.  In contrast, the students with the
teachers identified as cheaters scored far worse, by an average of more than a full grade level.  As a result, the
Chicago Public School system began to fire its cheating teachers.  The final outcome of the Chicago study is a
further testament to the power of incentives: the following year, cheating by teachers fell more than 30 percent.
     
     
     Sumo Wrestling

It is true that sports and cheating go hand in hand.  That’s because cheating is more common in the face of a
bright-line incentive (the line between winning and losing, for instance).  Sumo is said to be less about competition
than about honor itself.  If cheating to lose is sport’s premier sin, and if sumo wrestling is the premier sport of a
great nation, cheating to lose in sumo couldn’t possibly exist, could it?  The incentive scheme that rules sumo is
intricate and extraordinarily powerful.  Each wrestler maintains a ranking that affects every slice of his life: how
much money he makes, how large an entourage he carries, how much he gets to eat, sleep, and otherwise take
advantage of his success.  So ranking is everything.
     
A wrestler’s ranking is based on his performance in the elite tournaments that are held six times a year.  Each
wrestler has fifteen bouts per tournament, one per day over fifteen consecutive days.  If he finishes the
tournament with a winning record (eight victories or better), his ranking will rise.  If he has a losing record, his
ranking falls.  If it falls far enough, he is booted from the elite rank entirely.  The eighth victory in any tournament
is therefore critical, the difference between promotion and demotion; it is roughly four times as valuable in the
rankings as the typical victory.  So a wrestler entering the final day of a tournament on the bubble, with a 7-7
record, has far more to gain from victory than an opponent with a record of 8-6 has to lose.  The predicted win
percentage of the wrestler on the bubble in this instance is 48.7 percent, but the actual win percentage is 79.6
percent.  And against a 9-5 opponent the 7-7 wrestler is predicted to win only 47.2 percent of the time, yet
actually wins 73.4 percent of the matches.  In the rematch between the two wrestlers, it turns out that the 7-7
wrestler’s win percentage gets cut in half.  How does one make sense of that?
     
It’s worth looking at the incentives a wrestler might have to throw a match.  Maybe he accepts a bribe.  Or perhaps
some other arrangement is made between the two wrestlers.  Keep in mind that the pool of elite sumo wrestlers is
extraordinarily tight-knit.  The most logical explanation is that the wrestlers made a quid pro quo agreement: you
let me win today when I really need the victory, and I’ll let you win next time (such an arrangement wouldn’t
necessarily preclude a cash bribe).  It’s especially interesting to note that in the wrestlers’ second subsequent
meeting, the win percentages revert to the expected level of about 50 percent, suggesting that the collusion
spans only two matches.  The collective records of various sumo stables are similarly aberrational.  When one
stable’s wrestlers fare well on the bubble against wrestlers from a second stable, they tend to do especially poorly
when the second stable’s wrestlers are on the bubble.  This suggests that some match rigging may be
choreographed at the highest level of the sport.  
     
No formal disciplinary action has ever been taken against a Japanese sumo wrestler for match rigging.  People
tend to get defensive when the integrity of their national sport is impugned.  Still, allegations of match rigging do
occasionally find their way into the Japanese media.  The occasional media storms offer one more chance to
measure possible corruption in sumo.  Media scrutiny, after all, creates a powerful incentive: if two sumo wrestlers
or their stables have been match rigging, they might be leery to continue when a swarm of journalists and TV
cameras descend upon them.  The data shows that in the sumo tournaments held immediately after allegations of
match rigging, 7-7 wresters win only 50 percent of their final-day matches against 8-6 opponents instead of the
typical 80 percent.  This makes it all the more difficult to argue that sumo wrestling isn’t rigged.
     
Several years ago, two former sumo wrestlers came forward with extensive allegations of match rigging- and
more.  Aside from the crooked matches, they said that sumo was rife with drug use and sexcapades, bribes and
tax evasion, and had close ties to the yakuza, the Japanese mafia.  The two men received death threats, but still
they went forward with plans to hold a press conference at the Foreign Correspondents’ Club in Tokyo.  But
shortly beforehand, the two men died- hours apart, in the same hospital, of a similar respiratory ailment.  The
police declared that there had been no foul play and did not conduct an investigation.
     
     
     White-Collar Crime

The bagels had begun as a casual gesture: a boss treating his employees whenever they won a research
contract.  Then he made it a habit.  Every Friday, he would bring in some bagels.  When employees from
neighboring floors heard about the bagels, they wanted some too.  Eventually Paul Feldman was bringing in
fifteen dozen bagels a week.  In order to recoup his costs, he set out a cash basket and a sign with the suggested
price.  His collection rate was about 95 percent.
     
When he retired, he began to drive around the office parks that encircle Washington and solicited customers with
a simple pitch: early in the morning, he would deliver some bagels and a cash basket to a company’s snack room;
he would return before lunch to pick up the money and the leftovers.  It was an honor-system commerce scheme,
and it worked.  Within a few years, Feldman was delivering 8,400 bagels a week to 140 companies and earning as
much as he ever did as a research analyst.  From the beginning, Feldman kept rigorous data on his business.
     
It might seem ludicrous to address as large and intractable a problem as white-collar crime through the life of a
bagel man.  But often a small and simple question can help chisel away at the biggest problems.  There really are
no good data regarding white-collar crime.  We only hear about a very small fraction of people who are caught
cheating.  Most embezzlers lead quiet and theoretically happy lives; employees who steal company property are
rarely detected.
     
When Feldman started his business, he expected a 95 percent payment rate, based on the experience at his own
office.  But just as crime tends to be low on a street where a police car is parked, the 95 percent mark was
artificially high: Feldman’s presence had deterred theft.  Not only that, but those bagel eaters knew the provider
and had feelings (presumably good ones) about him.  A broad swath of psychological and economic research has
shown that people will pay different amounts for the same item depending on who is providing it: a thirsty
sunbather will pay $2.65 for a beer delivered from a resort hotel but only $1.50 for the same beer if it comes from
a shabby grocery store.  He came to consider a company ‘honest’ if its payment rate was above 90 percent.  He
considered a rate between 80 and 90 percent ‘annoying but tolerable’.  Anything lower and Feldman would leave
hectoring notes.
     
The data show that smaller offices are more honest than big ones.  An office with a few dozen employees
generally out pays by 3 to 5 percent an office with a few hundred employees.  This is probably because a smaller
community tends to exert greater social incentives against crime, the main one being shame.  Unseasonably
pleasant weather inspires people to pay at a higher rate.  Unseasonably cold weather makes people cheat
prolifically; so do heavy rain and wind.  Worst are holidays.  The week of Christmas produces a 2 percent drop in
payment rates- a 15 percent increase in theft.  Thanksgiving is nearly as bad; the week of Valentine’s Day is also
lousy, as is the week straddling April 15.  There are however, a few good holidays: the weeks that include the
Fourth of July, Labor Day, and Columbus Day.  The low-cheating holidays represent little more than an extra day
off from work.  The high-cheating holidays are fraught with miscellaneous anxieties and the high expectations of
loved ones.  Feldman has also come to believe that morale is a big factor- that an office is more honest when the
employees like their boss and their work.  He also believes that employees further up the corporate ladder cheat
more than those down below.  It may be that executives cheat out of an overdeveloped sense of entitlement, or,
just possibly, that they got to be executives by cheating.
     
     
     The Ku Klux Klan
     
It was founded in the immediate aftermath of the Civil War by six former Confederate soldiers in Pulaski,
Tennessee.  The six young men, four of whom were budding lawyers, saw themselves as merely a circle of like-
minded friends- thus the name they chose, ‘kuklux’, a slight mangling of kuklos, the Greek word for ‘circle’.  They
added ‘klan’ because they were all of Scotch-Irish descent.  But soon the Klan evolved into a multi-state terrorist
organization designed to frighten and kill emancipated slaves.  Among its regional leaders were five former
Confederate generals; its staunchest supporters were the plantation owners for whom Reconstruction posed an
economic and political nightmare.  Within barely a decade, however, the Klan had been extinguished, largely by
legal and military interventions out of Washington, DC.  But if the Klan itself was defeated, its aims had largely
been achieved through the establishment of Jim Crow laws.  Congress, which during Reconstruction had been
quick to enact measures of legal, social, and economic freedom for blacks, just as quickly began to roll them
back.  The federal government agreed to withdrawal it occupation troops from the South, allowing the restoration
of white rule.  In Plessy v. Ferguson, the US Supreme Court gave the go-ahead to full-scale racial segregation.
     
The KKK lay largely dormant until 1915, when D.W. Griffith’s film The Birth of a Nation- originally titled The
Clansman- helped spark its rebirth.  Griffith presented the Klan as crusaders for white civilization itself, and as
one of the noblest forces in American history.  By the 1920s, a revived Klan claimed eight million members,
including President Warren G. Harding, who reportedly took his Klan oath in the Green Room of the White
House.  This time around, the KKK concerned itself not only with blacks but also with Catholics, Jews, communists,
unionists, immigrants, agitators, and other disruptors of the status quo.  The onset of WW2 and a number of
internal scandals once again laid the Klan low.  Public sentiment turned against the Klan as the unity of a country
at war trumped its message of separatism.  
     
But within a few years, there were already signs of a massive revival.  As wartime anxiety gave way to postwar
uncertainty, Klan membership flourished.  Atlanta had by now become Klan headquarters.  The Klan held great
sway with key Georgia politicians, and its Georgia chapters included many policemen and sheriff’s deputies.  The
public was frightened and felt powerless against the Klan.  And the few anti-hate groups that existed at the time
had little leverage or even information about the Klan.  So Stetson Kennedy decided to change that.  He decided
to go undercover and join the Ku Klux Klan.  There was a $10 initiation fee- the Klan’s sales pitch was “Do You
Hate Niggers?  Do You Hate Jews? Do You Have Ten Dollars?- that had been reduced to $8.  Then there was
another $10 in annual dues, and $15 for a hooded robe.  He learned the identities of the Klan’s local and regional
leaders and deciphered the Klan’s hierarchy, rituals, and language.  It was Klan custom to affix a ‘Kl’ to many
words; thus would two Klansmen hold a Klonversation in the local Klavern.  Many of the customs struck Kennedy
as almost laughably childish.  The secret Klan handshake, for instance, was a left-handed, limp-wristed fish
wiggle.  When a traveling Klansman wanted to locate brethren in a strange town, he would ask for ‘Mr. Ayak’-
‘Ayak’ being code for ‘Are You a Klansman?’  He would hope to hear, ‘Yes, and I also know ‘Mr. Akai’- code for ‘A
Klansman Am I’.
     
Before long, Kennedy was invited to join the Klavaliers, the Klan’s secret police and ‘flog squad’.  For this
privilege, his wrist was slit with a jackknife so that he could take a blood oath.  As a Klavalier, Kennedy worried
that he would someday be expected to inflict violence.  But he soon discovered a central fact of life in the Klan-
and of terrorism in general: most of the threatened violence never goes beyond the threat stage.  Consider
lynching, the Klan’s hallmark sign of violence.  In looking at decade-by-decade statistics of total lynchings
(including those not committed by the Klan), at least three noteworthy facts are revealed.  The first is an obvious
decrease in lynchings over time.  The second is an absence of a correlation between lynchings and Klan
membership: there were actually more lynchings of blacks between 1900 and 1909, when the Klan was dormant,
than during the 1920s, when the Klan had millions of members- which suggests that the Ku Klux Klan carried out
far fewer lynchings than is generally thought.  And third, relative to the size of the black population, lynchings
were exceedingly rare.  In the 1920s, about 20,000 children died each year as a result of malnutrition,
pneumonia, diarrhea, and other illnesses.  In the whole decade only 281 people were lynched.
     
The most compelling explanation for these lynching statistics is that all those early lynchings worked.  White
racists- whether or not they belonged to the Ku Klux Klan- had through their actions and through their rhetoric
developed a strong incentive scheme that was terribly clear and terribly frightening.  If a black person violated the
accepted code of behavior he knew he might be punished, perhaps even by death.  So by the mid-1940s, when
Stetson Kennedy joined up, the Klan didn’t really need to use much violence.  One or two lynchings went a long
way toward inducing docility among even a large group of people, for people respond strongly to strong
incentives.  And there are few incentives more powerful than the fear of random violence- which, in essence, is
why terrorism is so effective.
     
The Klan that Stetson Kennedy found was in fact a sorry fraternity of men, most of them poorly educated and with
poor prospects, who needed a place to vent- and an excuse for occasionally staying out all night.  Kennedy also
found the Klan to be a slick money-making operation, at least for those near the top of the organization.  Klan
leaders had any number of revenue sources: thousands of dues-paying rank-and-file members; business owners
who hired the Klan to scare off the unions or who paid the Klan protection money; Klan rallies that generated
huge cash donations; even the occasional gunrunning or moonshine operation.  Then there were rackets like the
Klan’s Death Benefit Association, which sold insurance policies to Klan members and accepted only cash or
personal checks made out to the Grand Dragon himself.
     
Kennedy thought of the ideal outlet for this mission: the Adventures of Superman radio show, broadcast each
night at dinnertime to millions of listeners nationwide.  He contacted the show’s producers and asked if they would
like to write some episodes about the Ku Klux Klan.  The producers were enthusiastic.  Superman had spent
years fighting Hitler and Mussolini and Hirohito, but with the war over, he was in need of fresh villains.  Kennedy
told them about the Klan’s bible, which was called the Kloran (he never did learn why a white Christian
supremacist organization would give it bible essentially the same name as the most holy book of Islam).  He
explained the role of the Klan officers in any local Klavern: the Klaliff (vice president), Klokard (lecturer), Kludd
(chaplain), Kligrapp (secretary), Klabee (treasurer), Kladd (conductor), Klarogo (inner guard), Klexter (outer
guard), the Klokann ( a five-man investigative committee), and the Klavaliers (the strong-arm group to which
Kennedy himself belonged, and whose captain was called Chief Ass Tearer).
     
The radio producers began to write four weeks’ worth of programs in which Superman would wipe out the Ku Klux
Klan.  Kennedy couldn’t wait for the first Klan meeting after the show had hit the air.  “When I came home from
work the other night,” one of them complained, “there was my kid and a bunch of others, some with towels tied
around their necks like capes and some with pillowcases over their heads.  The ones with capes was chasing the
ones with pillowcases all over the lot.  When I asked them what they were doing, they said they were playing a
new kind of cops and robbers called Superman against the Klan.  Gangbusting, they called it!  Knew all our secret
passwords and everything.  I never felt so ridiculous in all my life!  Suppose my own kid finds my Klan robe some
day?”  
     
“Our sacred ritual being profaned by a bunch of kids on the radio!” said the Kladd.  The Dragon suggested they
change their password immediately, from ‘red-blooded’ to ‘death to traitors’.  After that nights meeting, Kennedy
phoned in the new password to the Superman producers, who promised to write it in to the next show.  At the
following week’s Klan meeting, the room was nearly empty; applications for new membership had fallen to zero.  
Kennedy’s plan had the precise effect he had hoped: turning the Klan’s secrecy against itself, converting precious
knowledge into ammunition for mockery.  In The Fiery Cross: The Ku Klux Klan in America, the historian Wyn
Craig Wade calls Stetson Kennedy “the single most important factor in preventing a postwar revival of the Ku Klux
Klan.”  It was all made possible because Kennedy understood the raw power of information.        
     
     
     Experts
  
We accept as a verity of capitalism that someone (usually an expert) knows more than someone else (usually a
consumer).  But information asymmetries everywhere have in fact been mortally wounded by the Internet.  
Information is the currency of the Internet.  The Internet has proven particularly fruitful for situations in which a
face-to-face encounter with an expert might actually exacerbate the problem of asymmetrical information-
situations in which an expert uses his informational advantage to make us feel stupid or rushed or cheap or
ignoble.
     
The Internet though, powerful as it is, has hardly slain the beast of information asymmetry.  Consider the so-called
corporate scandals of the early 2000s.  Though extraordinarily diverse, these crimes all had a common trait: they
were sins of information.  Most of them involved an expert, or a gang of experts, promoting false information or
hiding true information; in each case the experts were trying to keep the information asymmetry as asymmetrical
as possible.  One characteristic of information crimes is that very few of them are detected.  Unlike street crimes,
they do not leave behind a corpse or a broken window.  
     
Information is a beacon, a cudgel, an olive branch, a deterrent, depending on who wields it and how.  Information
is so powerful that the assumption of information, even if the information doesn’t actually exist, can have a
sobering effect.  Consider car sales.  The day that a car is driven off the lot is the worst day of its life, for it
instantaneously loses as much as a quarter of its value.  This is because the only person who might logically want
to resell a brand-new car is someone who found the car to be a lemon.  So even if the car isn’t a lemon, a
potential buyer assumes that it is.  He assumes that the seller has some information about the car that he, the
buyer, does not have- and the seller is punished for this assumed information.  If the car is in fact a lemon, the
seller would do well to wait a year to sell it.  By then, the suspicion of lemonness will have faded; by then, some
people will be selling their perfectly good year-old cars, and the lemon can blend in with them, likely selling for
more than it is truly worth.
     
In the late 1990s, the price of term life insurance fell dramatically.  This posed something of a mystery, for the
decline had no obvious cause.  Other types of insurance were certainly not falling in price.  Nor had there been
any radical changes among insurance companies, insurance brokers, or the people who buy term life insurance.  
The factor that came in and changed things was the Internet.  In the spring of 1996, Quotesmith.com became the
first of several websites that enabled a customer to compare, within several seconds, the price of term life
insurance sold by dozens of different companies.  Unlike other forms of insurance- including whole life insurance,
which is a far more complicated financial instrument- term life policies are fairly homogenous, so the only real
difference between two policies is the price.  With customers able to instantaneously find the cheapest policy, the
more expensive companies had no choice but to lower their prices.  Suddenly customers were paying $1 billion
less per year for term life insurance.  Insurance policies didn’t so much have secret information than they had a
set of facts dispensed in a way that made comparisons difficult.  
     
If you were to assume that many experts use their information to your detriment, you’d be right.  Experts depend
on the fact that you don’t have the information that they do.  Or that you are so befuddled by the complexity of
their operation that you wouldn’t know what to do with the information if you had it.  Or that you are so in awe of
their expertise that you wouldn’t dare challenge them.  Armed with information, experts can exert a gigantic, if
unspoken, leverage: fear.  Fear that your children will find you dead on the bathroom floor of a heart attack if you
don’t have angioplasty surgery.  Fear that a cheap casket will expose you grandmother to a terrible underground
fate.  Fear that a $25,000 car will crumple like a toy in an accident, whereas a $50,000 car will wrap your loved
ones in a cocoon of impregnable steel.  The fear created by commercial experts may not quite rival the fear
created by terrorists like the Ku Klux Klan, but the principle is the same.
     
Selling your house is typically the largest financial transaction in a person’s life, and most people have scant
experience in real estate, and many people have an enormous emotional attachment to their house, which all lead
to two pressing fears: that you will sell the house for far less than it’s worth and that you will not be able to sell it at
all.  It is the job of the real-estate agent to find the golden mean.  She is the one with all of the information: the
inventory of similar houses, the recent sales trend, the tremors of the mortgage market, perhaps even a lead of
an interested buyer.  You feel fortunate to have such a knowledgeable expert as an ally in this most confounding
enterprise.  But the real-estate agent may not have incentives that line up directly with you.  Most real-estate
agents, when all is said and done, receive only 1.5 percent of the price of sale.  So, on a $300,000 house they
get $4,500, which isn’t too bad.  But if they use their expertise, time, money and effort to get you an extra
$10,000, you will get over $9,000 more, while they get only an extra $150.  It makes sense for the agent to focus
on quickly getting any reasonable deal done that lies within the ballpark of the house’s value.  Indeed, a recent
set of data covering the sales of nearly 100,000 homes in suburban Chicago shows that more than 3,000 of those
homes were owned by agents.  It turns out that a real-estate agent keeps her home on the market an average of
ten days longer and sells it for an extra 3-plus percent, or $10,000 on a $300,000 house.  When the agent sells
her own house, she holds out for the best offer; when she sells yours, she pushes you to take the first decent
offer that comes along.
     
In effect, her job is to convince you that the $300,000 offer is in fact a good one, even a generous one, and that
only a fool would refuse it.  This can be tricky.  The agent doesn’t want to come right out and call you a fool.  So
she merely implies it- perhaps by telling you about the much bigger, nicer, newer house down the block that has
sat unsold for six months.  Here is the agent’s main weapon: the conversion of information into fear.  The flip side
of persuading the seller to sell for low is letting the potential buyers know that a house can be bought for less than
the listing price.  This will make it so deals are done more quickly and the agent can thus make more sales over
the course of a given amount of time.  To be sure, there are more subtle means of communicating to a buyer to
bid low than simply coming out and telling them.  Real-estate agents can reveal information in the way they set up
the ads that they write.  A phrase like ‘well maintained’, for instance, means that a house is old but not quite falling
down.  A savvy buyer will know this, but to the sixty-five-year-old retiree who is selling his house, ‘well maintained’
might sound like a compliment, which is just what the agent intends.
     
An analysis of the language used in real-estate ads shows that certain words are powerfully correlated with the
final sale price of a house.  Physical descriptions- such as granite, Corian, and maple- correlate well to higher
sale prices.  As information goes, these terms are fairly straightforward.  If you like granite, you might like the
house; but even if you don’t, ‘granite’ certainly doesn’t connote a fixer-upper.  Adjectives like ‘fantastic’ and
‘charming’ on the other hand are dangerously ambiguous.  Both these words in real-estate agent code mean that
the house doesn’t have any specific attributes worth describing.  And an exclamation point in a real-estate ad is
bad news for sure, a bid to paper over real shortcomings with false enthusiasm.  If you study the words in the ad
for a real-estate agent’s own home, you will find that she indeed will emphasize more descriptive terms and avoid
empty adjectives.
     
     
     The Weakest Link
     
This television show provides a unique laboratory to study discrimination.  By measuring a contestant’s actual
votes against the votes that would best serve his self-interest, it’s possible to tell if discrimination is at play.  The
voting strategy changes as the game progresses.  In the first several rounds, it makes sense to eliminate bad
players since the jackpot grows only when correct answers are given.  In later rounds, the strategic incentives are
flipped.  The value of building the jackpot is now outweighed by each contestant’s desire to win the jackpot.  Keep
in mind that all of this is happening on camera, so many people may try to avoid appearing discriminatory.  So
who gets discriminated against on The Weakest Link?
     
Not, as it turns out, blacks.  An analysis of more than 160 episodes reveals that black contestants, in both early
and late rounds of the game, are eliminated at a rate commensurate with their trivia-answering abilities.  The
same is true for females.  Two of the most potent social campaigns of the past half-century were the civil rights
movement and the feminist movement, which demonized discrimination against blacks and women, respectively.  It
has become so unfashionable to discriminate against certain groups that all but the most insensitive people take
pains to at least appear fair-minded, at least in public.  This hardly means that discrimination itself has ended-
only that people are embarrassed to show it.  
     
There are two kinds of contestants who are consistently discriminated against on The Weakest Link: the elderly
and Hispanics.  Among economists, there are two leading theories of discrimination.  The first type is called taste-
based discrimination, which means that one person discriminates simply because he prefers not to interact with a
particular type of other person.  In the second type, known as information-based discrimination, one person
believes that another type of person has poor skills, and acts accordingly.  Other contestants seem to view
Hispanics as poor players, even when they are not.  This perception translates into Hispanics being eliminated in
the early rounds even when they are doing well and not being eliminated in the later rounds, when other
contestants want to keep Hispanics around to weaken the field.  Elderly players, meanwhile, are victims of taste-
based discrimination: in the early rounds and late rounds, they are eliminated far out of proportion to their skills.  
It seems that the other players- who have an average age of thirty-four- simply don’t want the older players
around.
     
         
     Internet Dating
     
In a given year, some forty million Americans swap intimate truths about themselves with complete strangers.  It all
happens on Internet dating sites.  Dating websites are the most successful subscription-based business on the
Internet.  There are two massive layers of data to be mined through here: the information that people include in
their ads and the level of response gleaned by any particular ad.
     
It turns out that Internet daters are a lot richer, taller, skinnier, and better-looking than average.  That, at least, is
what they wrote about themselves.  More than 4 percent of online daters claimed to earn more than $200,000 a
year, whereas less than 1 percent of typical Internet users actually earn that much.  Both male and female users
typically reported that they are about an inch taller than the national average.  As for weight, the men were in line
with the national average, but the women typically said that they weighed about twenty pounds less than the
national average.  70 percent of the women claimed ‘above average’ looks, including 24 percent claiming ‘very
good looks’.  The online men too were gorgeous: 67 percent calling themselves ‘above average’, including 21
percent with ‘very good looks’.  This leaves only about 30 percent of the users with ‘average’ looks, including a
paltry 1 percent with ‘less than average’ looks- which suggests that the typical online dater is either a fabulist, a
narcissist, or simply resistant to the meaning of ‘average’.  28 percent of the women said they were blond, a
number far beyond the national average, which indicates a lot of dyeing, or lying, or both.  8 percent of men-
about 1 in every 12- conceded that they were married, with half of these reporting that they were ‘happily
married’.  Of the 258 ‘happily married’ men in the sample, only 9 chose to post a picture of themselves.
     
A man who does not include his photo gets only one-fourth the volume of email response of a man who does; a
woman who doesn’t include her photo gets only one-sixth the response.  A low-income, poorly educated,
unhappily employed, not-very-attractive, slightly overweight, and balding man who posts his picture stands a
better chance of gleaning some emails that a man who says he makes $200,000 and is deadly handsome but
doesn’t post his photo.  Prospective customers simply assume that there is something seriously wrong under the
hood.  57 percent of men who post ads don’t receive even one e-mail; 23 percent of the women don’t get a single
response.  Men who say they want a long-term relationship do much better than men looking for an occasional
lover.  But women looking for an occasional lover do great.  For men, a woman’s looks are of paramount
importance.  For women, a man’s income is terribly important.  The richer a man is, the more e-mails he receives.  
But a woman’s income is a bell-shaped curve: men do not want to date low-earning women, but once a woman
starts earning too much they seem to be scared off.  Men want to date students, artists, musicians, veterinarians,
and celebrities (while avoiding secretaries, retirees, and women in the military and law enforcement).  Women do
want to date military men, policemen, and firemen, along with lawyers and financial executives.  Women avoid
laborers, actors, students, and men who work in food services or hospitality.  For men, being short is a big
disadvantage, but weight doesn’t much matter.  For women, being overweight is deadly.  For a man, having red
hair or curly hair is a downer, as is baldness- but a shaved head is okay.  For a woman, salt-and-pepper hair is
bad, while blond hair is very good.
     
Roughly half of the white women and 80 percent of the white men declared that race didn’t matter to them.  But
the response data tell a different story.  The white men who said that race didn’t matter sent 90 percent of their e-
mail queries to white women.  The white women who said race didn’t matter to them sent 97 percent of their e-mail
queries to white men.  This indicates that online daters merely wanted to come across as open-minded.  The
information we publicly proclaim and the information we know to be true is often vast.  In New York City’s 1989
mayoral race between David Dinkins (a black candidate) and Rudolph Giuliani (who is white), Dinkins won by only
a few points.  Although Dinkins became the city’s first black mayor, his slender margin of victory came as a
surprise, for pre-election poles showed Dinkins winning by nearly 15 points.  When the white supremacist David
Duke ran for the US Senate in 1990, he garnered nearly 20 percent more of the vote than pre-election polls had
projected, an indication that thousands of Louisiana voters did not want to admit their preference for a candidate
with racist views.
     

     Crack

For black Americans, the four decades between WW2 and the crack boom had been marked by steady and often
dramatic improvement.  Particularly since the civil rights legislation of the mid-1960s, the telltale signs of societal
progress had finally taken root among black Americans.  The black-white income gap was shrinking.  So was the
gap between black children’s test scores and those of white children.  By the 1980s, virtually every facet of life
was improving for black Americans, and the progress showed no sign of stopping.  Then came crack.  

After decades of decline, black infant mortality rate began to soar in the 1980s, as did the rate of low-birth-weight
babies and parent abandonment.  The gap between black and white schoolchildren widened.  The number of
blacks sent to prison tripled.  The group’s postwar progress was not only stopped cold but was often knocked as
much as ten years backward.  Black Americans were hurt more by crack cocaine than by any other single cause
since Jim Crow.  And then there was crime.  Within a five-year period, the homicide rate among young urban
blacks quadrupled.  Suddenly it was just as dangerous to live in parts of Chicago or St. Louis or Los Angeles as it
was to live in Bogotá.  

The 1960s and 1970s were, in retrospect, a great time to be a street criminal in most American cities.  The
likelihood of punishment was so low- this was the heyday of a liberal justice system and the criminal rights
movement- that it simply didn’t cost very much to commit a crime.  By the 1980s, however, the courts had begun
to radically reverse that trend.  Criminal rights were curtailed and stricter sentencing guidelines put in place.  More
and more of Chicago’s black gangsters were getting sent to federal prisons.  By happy coincidence, some of their
fellow inmates were Mexican gang members with close ties to Colombian drug dealers.  In the past, the black
gangsters had bought their drugs from a middleman, the Mafia.  But by the time crack came to Chicago, the black
gangsters had made the connections to buy their cocaine directly from Colombian dealers.

Beloved by rock stars and movie stars, ballplayers and even the occasional politician, cocaine was a drug of
power and panache.  It was clean, it was white, and it was pretty.  Heroin was droopy and pot was foggy but
cocaine provided a beautiful high.  It was also very expensive.  During the late 1970s, the wholesale price of
cocaine in the United States fell dramatically, even as its purity was rising.  One man, a Nicaraguan émigré named
Oscar Danilo Blandon, was suspected of importing far more Colombian cocaine than anyone else.  Blandon did
so much business with the budding crack dealers of South Central Los Angeles that he came to be known as the
Johnny Appleseed of Crack.  Blandon would later claim that he was selling cocaine to raise money for the CIA-
sponsored Contras back home in Nicaragua.  He liked to say that the CIA was in turn watching his back in the
United States, allowing him to sell cocaine with impunity.  This claim would spark a belief that still seethes to this
day, especially among urban blacks, that the CIA itself was the chief sponsor of the American crack trade.  
Verifying that claim is beyond the scope of this book.  What is demonstrably true though is that Oscar Danilo
Blandon helped establish a link- between Colombian cocaine cartels and inner-city crack merchants- that would
alter American history.

Crack was ideal for a low-income, street-level customer.  This sparked the transformation of the urban street gang
from a club for wayward teenagers into a true commercial enterprise.  The new gangs also presented an
opportunity for long-term employment.  Before crack, it was just about impossible to earn a living in a street gang.  
When it was time for a gangster to start supporting a family, he would have to quit.  In the past, a semi-skilled
black man in Chicago could earn a decent wage working in a factory.  With that option narrowing, crack dealing
looked even better.

The media eagerly glommed on the portrayal of the millionaire crack dealer.  They said it was one of the most
profitable jobs in America.  Strangely though, not only did most of the crack dealers still live in the projects, but
most of them still lived at home with their moms.  A PhD from the University of Chicago, Sudhir Venkatesh, thought
this seemed strange so he did some investigating.

He tracked down a crack gang leader named J.T. who thought Venkatesh was crazy, literally- a university student
wanting to cozy up to a crack gang?  But he also admired what Venkatesh was after.  As it happened, J.T. was a
college graduate himself, a business major.  After college, he had taken a job in the Loop, working in the
marketing department of a company that sold office equipment.  But he felt so out of place there- like a white man
working at Afro Sheen headquarters, he liked to say- that he quit.  Still, he never forgot what he learned.  He knew
the importance of collecting data and finding new markets; he was always on the lookout for better management
strategies.  It was no coincidence, in other words, that J.T. was the leader of this crack gang.  He was bred to be a
boss.  After some wrangling, J.T. promised Venkatesh unfettered access to the gang’s operations as long as J.T.
retained veto power over any information that, if published, might prove harmful.

For the next six years, Venkatesh practically lived in the housing project which was located deep in Chicago’s
south side.  Under J.T.’s protection he watched the gang members up close, at work and at home.  He asked
endless questions.  Sometimes the gangsters were annoyed by his curiosity; more often they took advantage of
his willingness to listen.  Venkatesh would move from one family to the next, washing their dinner dishes and
sleeping on the floor.  He bought toys for their children; he once watched a woman use her baby’s bib to sop up
the blood of a teenaged drug dealer who was shot to death in front of Venkatesh.

Over the years the gang endured bloody turf wars and, eventually, a federal indictment.  A member named Booty,
who was one rank below J.T. came to Venkatesh with a story.  Booty was being blamed by the rest of the gang for
bringing about the indictment, he told Venkatesh, and therefore he suspected that he would soon be killed (he
was right).  But first Booty wanted to do a little atoning.  He wanted to leave behind something that might somehow
benefit the next generation.  He handed Venkatesh a stack of well-worn spiral notebooks.  They represented a
complete record of four years’ worth of the gang’s financial transactions.  At J.T.’s direction, the ledgers had been
rigorously compiled: sales, wages, dues, even death benefits paid out to the families of murdered members.  
Venkatesh brought the notebooks to Steven Levitt and they decided to collaborate on a paper.  It would be the
first time that such priceless financial data had fallen into an economist’s hands, affording an analysis of a
heretofore uncharted criminal enterprise.

The gang worked a lot like McDonald’s.  The particular gang that Venkatesh had fallen in with was one of about a
hundred branches- franchises really- of a larger Black Disciples organization.  J.T. was the leader of his franchise
and he reported to a central leadership of about twenty men that was called, without irony, the board of directors.  
J.T. paid the board of directors nearly 20 percent of his revenues for the right to sell crack in a designated twelve-
square-block area.  The rest of the money was his to distribute as he saw fit. Three officers reported directly to J.
T.: an enforcer (who ensured the gang members’ safety), a treasurer (who watched over the gang’s liquid
assets), and a runner (who transported large quantities of drugs and money to and from supplier).  Beneath the
officers were the street-level salesmen known as foot soldiers.  The goal of a foot soldier was to someday become
an officer.  There might have been anywhere from twenty-five to seventy-five foot soldiers on his payroll at any
given time, depending on the time of the year (autumn was the best crack-selling season; summer and
Christmastime were slow) and the size of the gang’s territory (which doubled at one point when the Black Disciples
engineered a hostile takeover of a rival gang’s turf).  At the very bottom of J.T.’s organization were as many as
two hundred members who were known as rank and file.  They were not employees at all.  They did, however, pay
dues to the gang- some for protection from rival gangs, others for the chance to eventually earn a job as a foot
soldier.

The gang records show three sources of revenues- drug sales, dues, and extortionary taxes.  ‘Drug sales’
represents only money from dealing crack cocaine.  The gang did allow some rank-and-file members to sell
heroin on its turf but accepted a fixed licensing fee in lieu of a share of profits.  (This was off-the-books money
and went straight into J.T.’s pocket; he probably skimmed from other sources as well.)  The extortionary taxes
were paid by other businesses that operated on the gang’s turf, including grocery stores, gypsy cabs, pimps, and
people selling stolen goods or repairing cars on the street.  In the third year, average monthly revenues for the
gang were $32,000.  Of that $5,000 went towards the wholesale cost of drugs, $5,000 went to the board of
directors, $1,300 went to mercenary fighters (non-members who were hired on short-term contracts to help the
gang fight turf wars), $300 to weapons (this figure is low because the Black Disciples had a side deal with local
gunrunners), and $2,400 for miscellaneous expenses (includes legal fees, parties, bribes, and gang-sponsored
‘community events’; they also included the cost of the funeral for a murdered member, as well as a stipend of up
to three years’ wages to the victim’s family).  The rest of the money, $18,000, went to the gang members
themselves.  J.T. took $8,500 per month, which meant an annual tax-free income of $100,000- not including the
various off-the-books money that he pocketed.  And J.T. was one of roughly one hundred leaders at this level
within the Black Disciples network.  So there were indeed some drug dealers who could afford to live large, or- in
the case of the gang’s board of directors- extremely large.  Each of those top 20 bosses stood to earn about
$500,000 a year.

J.T. paid his employees a total of $9,500 combined.  His three officers each took home $700 a month, which
works out to be about $7 an hour.  And the foot soldiers earned just $3.30 an hour, less than minimum wage.  For
every big earner, there were hundreds more just scraping along.  The top 120 men in the Black Disciples gang
represented just 2.2 percent of the full-fledged gang membership but took home well over half of the money.  The
gang’s wages are about as skewed as wages in corporate America.  A foot soldier has plenty in common with a
McDonald’s burger flipper or a Wal-Mart shelf stocker.  In fact, most of J.T.’s foot soldiers also held minimum-wage
jobs in the legitimate sector to supplement their skimpy illicit earnings.  Along with the bad pay, the foot soldiers
faced terrible job conditions.  For starters, they had to stand on the corner all day and do business with
crackheads.  (The gang members were strongly advised against using the product themselves, advice that was
enforced by beatings if necessary.)  Foot soldiers also risked arrest and, more worrisome, violence.  If you were in
J.T.’s gang for all four years, the typical fate would not have been appealing: arrested 5.9 times, 2.4 non-fatal
wounds, and a 1 in 4 chance of being killed.  Compare these odds to being a timber cutter, which the Bureau of
Labor Statistics calls the most dangerous job in the United States.  Over four years’ time, a timber cutter would
stand only a 1-in-200 chance of being killed.  In 2003, Texas put to death twenty-four inmates- or just 5 percent of
the nearly 500 inmates on its death row at the time.  Which means that you stand a much greater chance of dying
while dealing crack in a Chicago housing project than you do while sitting on death row in Texas.

Why on earth would anyone take such a job?  For the same reason that a pretty Wisconsin farm girl moves to
Hollywood.  For the same reason that a high-school quarterback wakes up at 5 am to lift weights.  They all want to
succeed in an extremely competitive field in which, if you reach the top, you are paid a fortune (to say nothing
about the attendant glory and power).  For many of the gang members, the job of gang boss- highly visible and
highly lucrative- was easily the best job they thought they had access to.  In the neighborhood where J.T.’s gang
operated, the path to a decent legitimate job was practically invisible.  56 percent of the neighborhood’s children
lived below the poverty line.  78 percent came from single-parent homes.  Fewer than 5 percent of the
neighborhood’s adults had college degrees; barely one in three adult men worked at all.  The neighborhood’s
median income was around $15,000 per year, well less than half the US average.  The problem with crack dealing
is the same as in every other glamour profession: a lot of people are competing for very few prizes.  But criminals,
like everyone else, respond to incentives.  So if the prize is big enough, they will form a line down the block just
hoping for a chance.  On the south side of Chicago, people wanting to sell crack vastly outnumbered the available
street corners.

When there are a lot of people willing and able to do a job, that job generally doesn’t pay well.  This is one of four
meaningful factors that determine a wage.  The others are the specialized skills a job requires, the
unpleasantness of a job, and the demand for services that the job fulfills.  Even in second-tier glamour industries
like publishing, advertising, and media, swarms of bright young people throw themselves at grunt jobs that pay
poorly and demand unstinting devotion.  An editorial assistant earning $22,000 at a Manhattan publishing house,
an un-paid high school quarterback, and a teenage crack dealer earning $3.30 an hour are all playing the same
game, a game that is best viewed as a tournament.  You must start at the bottom to have a shot at the top.  You
must be willing to work long and hard at substandard wages.  In order to advance in the tournament, you must
prove yourself not merely above average but spectacular.  And finally, once you come to the sad realization that
you will never make it to the top, you will quit the tournament.  (Some people hang on longer than others.)

Until the gang war, J.T.’s foot soldiers had been willing to balance the risky, low-paying job with the reward of
possible advancement.  J.T. hadn’t wanted this war.  For one thing, he was forced to pay his foot soldiers higher
wages because of the added risk.  Far worse, gang warfare was bad for business.  So why did he start the war?  
As a matter of fact, he didn’t.  It was his foot soldiers who started it.  They had different incentives than him.  One
of the few ways that a foot soldier could distinguish himself- and advance in the tournament- was by proving his
mettle for violence.  A killer was respected, feared, talked about.  A foot soldier’s incentive was to make a name
for himself; J.T.’s incentive was, in effect, to keep the foot soldiers from doing so.

In the end, J.T. prevailed.  He oversaw the gang’s expansion and ushered in a new era of prosperity and relative
peace.  J.T. was a winner.  He was paid well because so few people could do what he did.  He was a tall, good-
looking, smart, tough man who knew how to motivate people.  He was shrewd too, never tempting arrest by
carrying guns or cash.  While the rest of his gang lived in poverty with their mothers, J.T. had several homes,
several women, and several cars.  He also had his business education, of course.  He constantly worked to
extend his advantage.  That was why he ordered the corporate-style bookkeeping.  No other franchise leader had
ever done such a thing.  J.T. once showed his ledgers to the board of directors to prove, as if proof were needed,
the extent of his business acumen.  And it worked.  After six years of running his local gang, J.T. was promoted to
the board of directors.  He was now thirty-four years old.  He had won the tournament.  Not long after he made the
board of directors, the Black Disciples were essentially shut down by a federal indictment- the same indictment
that led the gangster named Booty to turn over his notebooks to Venkatesh- and J.T. was sent to prison.  


     Fall of Crime

In the late 1980s and early 1990s, crime had reached its peak in the United States.  In the previous fifteen years,
violent crime had risen 80 percent.  When the crime rate began falling in the early 1990s, it did so with such
speed and suddenness that it surprised everyone.  It took some experts many years to even realize that crime
was falling, so confident had they been in its continuing rise.  And it wouldn’t stop until the crime rate had fallen
back to the levels of forty years earlier.

A great many newspaper articles would be written on this subject.  Their conclusions often hinged on which expert
had most recently spoken to which reporter.  The explanations, from most frequently mentioned to least, were: 1)
Innovative policing strategies, 2) Increased reliance on prisons, 3) Changes in crack and other drug markets, 4)
Aging of the population, 5) Tougher gun control laws, 6) Strong economy, 7) Increased number of police, 8) All
other explanations (increased use of capital punishment, concealed-weapons laws, gun buybacks, and others).  
Of the seven major explanations on this list, only three can be shown to have contributed to the drop in crime.  
The others are, for the most part, figments of someone’s imagination, self-interest, or wishful thinking.  And one of
the greatest measurable causes of the crime drop does not appear on the list at all, for it didn’t receive a single
newspaper mention.  To sort through the explanations, it helps to look at the situation a little differently than
normal.  Instead of wondering what made crime fall, think about this: why had it risen so dramatically in the first
place?

Homicide fell at a greater rate during the 1990s than any other sort of crime, and a number of reliable studies
have shown virtually no link between the economy and violent crime.  This weak link is made even weaker by
glancing back to a recent decade, the 1960s, when the economy went on a wild growth spurt- as did violent
crime.  So while a strong 1990s economy might have seemed, on the surface, a likely explanation for the drop in
crime, it almost certainly didn’t affect criminal behavior in any significant way.

During the first half of the twentieth century, the incidence of violent crime in the United States was, for the most
part, fairly steady.  But in the early 1960s, it began to climb.  In retrospect, it is clear that one of the major factors
pushing this trend was a more lenient justice system.  Conviction rates declined during the 1960s, and criminals
who were convicted served shorter sentences.  This trend was driven in part by an expansion in the rights of
people accused of crimes- a long overdue expansion, some would argue.  So if you were the kind of person who
might want to commit a crime, the incentives were lining up in your favor: a slimmer likelihood of being convicted
and, if convicted, a shorter prison term.  Because criminals respond to incentives as readily as anyone, the result
was a surge in crime.  Between 1980 an 2000, there was a fifteenfold increase in the number of people sent to
prison on drug charges.  Many other sentences, especially for violent crimes, were lengthened.  The total effect
was dramatic.  By 2000, more than two million people were in prison, roughly four times the number as of 1972.  
Fully half of that increase took place during the 1990s.  The evidence linking increased punishment with lower
crime rates is very strong.  Harsh prison terms have been shown to act as both a deterrent (for the would-be
criminal on the street) and a prophylactic (for the would-be criminal who is already locked up).  Logical as this may
sound, some criminologists have fought that logic.

Not everyone is pleased that such a significant fraction of Americans, especially black Americans, live behind
bars.  Nor does prison even begin to address the root causes of crime, which are diverse and complex.  Lastly,
prison is hardly a cheap solution: it costs about $25,000 a year to keep someone incarcerated.  But if the goal
here is to explain the drop in crime in the 1990s, imprisonment is certainly one of the key answers.  It accounts for
roughly one-third of the drop in crime.

As for the death penalty, the negative incentive of capital punishment simply isn’t serious enough for a criminal to
change his behavior, as it is so rarely used.  Also, because the death penalty is so rarely given for crimes other
than homicide, its deterrent effect cannot account for a speck of decline in other violent crimes.  It is extremely
unlikely, therefore, that the death penalty, as currently practiced in the United States, exerts any real influence on
crime rates.

It has been shown that additional police does substantially lower the crime rate.  Again, it may help to look
backward and see why crime had risen so much in the first place.  From 1960 to 1985, the number of police
officers fell more than 50 percent relative to the number of crimes.  This 50 percent decline in police translated
into a roughly equal decline in the probability that a given criminal would be caught.  Coupled with the above-cited
leniency in the other half of the criminal justice system, the courtrooms, this decrease in policing created a strong
positive incentive for criminals.  By the 1990s, philosophies- and necessities- had changed.  The policing trend
was put in reverse, with wide-scale hiring in cities across the country.  Not only did all those police act as a
deterrent, but they also provided the manpower to imprison criminals who might have otherwise gone uncaught.  
The hiring of additional police accounted for roughly 10 percent of the 1990s crime drop.

There was perhaps no more attractive theory than the belief that smart policing stops crime.  This theory rapidly
became an article of faith because it appealed to the factors that most contribute to the formation of conventional
wisdom: the ease with which an idea may be understood and the degree to which it affects our personal well-
being.  The broken window theory argues that minor nuisances, if left unchecked, turn into major nuisances: that
is, if someone breaks a window and sees it isn’t fixed immediately, he gets the signal that it’s all right to break the
rest of the windows and maybe set the building afire too.

So with murder raging all around, New York City cops began to police the sort of deeds that used to go unpoliced:
jumping a subway turnstile, panhandling too aggressively, urinating in the streets, and swabbing a filthy squeegee
across a car’s windshield unless the driver made an appropriate ‘donation’.  As violent crime began to fall
dramatically, New Yorkers were more than happy to heap laurels on their operatic, Brooklyn-bred mayor and his
hatchet-faced police chief with the big Boston accent, Bill Bratton.  But he and Mayor Rudy Giuliani were both
strong-willed men and were not very good at sharing the glory.  Soon after the city’s turnaround landed Bratton-
and not Giuliani- on the cover of Time, Bratton was pushed to resign.  He had been police commissioner for just
twenty-seven months.

New York City was a clear innovator in police strategies during the 1990s crime drop, and it also enjoyed the
greatest decline in crime of any large American city.  Homicide rates fell from 30.7 per 100,000 people in 1990 to
8.4 per 100,000 people in 2000, a change of 73.6 percent.  But a careful analysis of the facts shows that the
innovative policing strategies probably had little effect on this huge decline.  First, the drop in crime in New York
began in 1990.  By the end of 1993, the rate of property crime and violent crime, including homicides, had already
fallen nearly 20 percent.  Rudolph Giuliani, however, did not become mayor- and install Bratton- until early 1994.  
Crime was well on its way down before either man arrived.  And it would continue to fall long after Bratton was
bumped from office.

Between 1991 and 2001, the NYPD grew by 45 percent, more than three times the national average.  As argued
above, an increase in the number of police, regardless of new strategies, has been proven to reduce crime.  By a
conservative calculation, this huge expansion of New York’s police force would be expected to reduce crime in
New York by 18 percent relative to the national average.  If you subtract that 18 percent from New York’s homicide
reduction, thereby discounting the effect of the police-hiring surge, New York no longer leads the nation with its
73.6 percent drop; it goes straight to the middle of the pack.  Most damaging to the claim that New York’s police
innovations radically lowered crime is one simple and often overlooked fact; crime went down everywhere during
the 1990s, not only in New York.  Even in Los Angeles, a city notorious for bad policing, crime fell at about the
same rate as it did in New York once the growth in New York’s police force is accounted for.

Another argument credits tougher gun control laws.  It might be worthwhile to take a step back and ask a
rudimentary question: what is a gun?  It’s a tool that can be used to kill someone, of course, but more significantly,
a gun is a great disruptor of the natural order.  There are enough guns in the United States that if you gave one
to every adult, you would run out of adults before you ran out of guns.  Nearly two-thirds of US homicides involve
a gun, a far greater fraction than in other industrialized countries.  Our homicide rate is also much higher than in
those countries.  It would therefore seem likely that our homicide rate is so high in part because guns are so
easily available.  Research indeed shows this to be true.  But guns aren’t the whole story.  In Switzerland, every
adult male is issued an assault rifle for militia duty and is allowed to keep the gun at home.  On a per capita basis,
Switzerland has more firearms than just about any other country, and yet it is one of the safest places in the
world.  In other words, guns do not cause crime.  That said, the established US methods of keeping guns away
from the people who do cause crime are, at best, feeble.  And since a gun- unlike a bag of cocaine or a car or a
pair of pants- lasts pretty much forever, even turning off the spigot of new guns still leaves an ocean of available
ones.

The most famous gun-control law is the Brady Act, passed in 1993, which requires a criminal check and a waiting
period before a person can purchase a handgun.  But regulation of a legal market is bound to fail when a healthy
black market exists for the same product.  The Brady Act, accordingly, has proven to be practically impotent in
lowering crime.  Washington D.C. and Chicago both instituted handgun bans well before crime began to fall
across the country in the 1990s, and yet those two cities were laggards, not leaders, in the national reduction in
crime.  One deterrent that has proven moderately effective is a stiff increase in prison time for anyone caught in
possession of an illegal gun.  But there is plenty of room for improvement.  Not that this is likely, but if the death
penalty were assessed to anyone carrying an illegal gun, and if the penalty were actually enforced, gun crimes
would surely plunge.

Then there is the bursting of the crack bubble.  The typical crack murder involved one crack dealer shooting
another.  The result was a huge increase in violent crime.  One study found that more than 25 percent of the
homicides in New York City in 1988 were crack-related.  The violence associated with crack began to ebb in about
1991.  This has led many people to think that crack itself went away.  It didn’t.  Smoking crack remains much more
popular today than most people realize.  Nearly 5 percent of all arrests in the United States are still related to
cocaine (as against 6 percent at crack’s peak); nor have emergency room visits for crack users diminished all that
much.

What did go away were the huge profits for selling crack.  The tournament lost its allure.  It became no longer
worth killing someone to steal their crack turf, and certainly not worth being killed.  From 1991 to 2001, the
homicide rate among young black men- who were disproportionately represented among crack dealers- fell 48
percent, compared to 30 percent for older black men and older white men.  All told, the crash of the crack market
accounted for roughly 15 percent of the crime drop in the 1990s- a substantial factor, to be sure, though it should
be noted that crack was responsible for far more than 15 percent of the crime increase of the 1980s.

It is true that the population got older in the 1990s.  The average American had little to fear from the growing
horde of oldsters.  But demographic change is too slow and subtle a process- you don’t graduate from a teenage
hoodlum to a senior citizen in just a few years- to even begin to explain the suddenness of the crime decline.

And then there’s the one argument that went unmentioned: legalized abortion.  Research has shown that in
instances where a woman was denied an abortion, she often resented her baby and failed to provide it with a
good home.  Even when controlling for the income, age, education, and health of the mother, research has found
that these children too were more likely to become criminals.  

In the late 1960s, several states began to allow abortion under extreme circumstances: rape, incest, or danger to
the mother.  By 1970, five states had made abortion entirely legal and broadly available: New York, California,
Washington, Alaska, and Hawaii.  On January 22, 1973, legalized abortion was suddenly extended to the entire
country with the US Supreme Court’s ruling in Roe v. Wade.  In the first year after Roe v. Wade, some 750,000
women had abortions in the United States (representing one abortion for every 4 live births).  By 1980, the
number of abortions had reached 1.6 million (one for every 2.25 live births), where it leveled off.  

In a country of 225 million people, 1.6 million abortions per year- one for every 140 Americans- may not have
seemed so dramatic.  But still, one study has shown that the typical child who went unborn in the earliest years of
legalized abortion would have been 50 percent more likely than average to live in poverty; he would have also
been 60 percent more likely to grow up with just one parent.  These two factors- childhood poverty and a single-
parent household- are among the strongest predictors that a child will have a criminal future.  Growing up in a
single-parent household roughly doubles a child’s propensity to commit crime.  So does having a teenage
mother.  Another study has shown that low maternal education is the single most powerful factor leading to
criminality.

To be sure, the legalization of abortion in the United States had myriad consequences.  Infanticide fell
dramatically.  So did shotgun marriages, as well as the number of babies put up for adoption (which has led to the
boom in the adoption of foreign babies).  Conceptions rose by nearly 30 percent, but births actually fell by 6
percent, indicating that many women were using abortion as a method of birth control, a crude and drastic sort of
insurance policy.

In the early 1990s, just as the first cohort of children born after Roe v. Wade was hitting its late teen years- the
years during which young men enter their criminal prime- the rate of crime began to fall.  And the crime rate
continued to fall as an entire generation came of age minus the children whose mothers had not wanted to bring a
child into the world.

One way to test the effect of abortion on crime would be to measure crime data in the five states where abortion
was made legal before the Supreme Court extended abortion rights to the rest of the country.  In New York,
California, Washington, Alaska, and Hawaii, a woman had been able to obtain a legal abortion for at least two
years before Roe v. Wade.  And indeed, those early-legalizing states saw crime begin to fall earlier than the other
forty-five states and the District of Colombia.  Between 1988 and 1994, violent crime in the earlier-legalizing states
fell 13 percent compared to the other states; between 1994 and 1997, their murder rates fell 23 percent more
than those of the other states.  

One factor to look for would be a correlation between each state’s abortion rate and its crime rate.  Sure enough,
the states with the highest abortion rates in the 1970s experienced the greatest crime drops in the 1990s, while
states with low abortion rates experienced smaller crime drops.  (This correlation exists even when controlling for
a variety of factors that influence crime: a state’s level of incarceration, number of police, and its economic
situation.)  Since 1985, states with high abortion rates have experienced a roughly 30 percent drop in crime
relative to low-abortion states.  Moreover, there was no link between a given state’s abortion rate and its crime
rate before the late 1980s- when the first cohort affected by legalized abortion was reaching its criminal prime-
which is yet another indication that Roe v. Wade was indeed the event that tipped the crime scale.

In states with high abortion rates, the entire decline in crime was among the post-Roe cohort as opposed to older
criminals.  And the post-Roe cohort was not only missing thousands of young male criminals but also thousands
of single, teenage mothers- for many of the aborted baby girls would have been the children most likely to
replicate their own mothers’ tendencies.

What are we to make of the trade-off of more abortion for less crime?  Is it even possible to put a number on such
a complicated transaction?  What is the relative value between a fetus and a newborn?  For a person who is
either resolutely pro-life or resolutely pro-choice, this is a simple calculation.  The first, believing that life begins at
conception, would likely consider the value of a newborn versus the value of a fetus to be 1:1.  The second
person, believing that a woman’s right to an abortion trumps any other factor, would likely argue that no number
of fetuses can equal even one newborn.  But a third person might believe that the value ratio should fall
somewhere in between.  Let’s say that he is forced, for the sake of argument, to affix a relative value, and he
decides that 1 newborn is worth 100 fetuses.  1.5 million abortions would translate- dividing 1.5 million by 100-
into the equivalent of a loss of 15,000 human lives.  Fifteen thousand lives: that happens to be about the same
number of people who die in homicides in the United States every year.  And it is far more than the number of
homicides eliminated each year due to legalized abortion.  So even for someone who considers a fetus to be
worth only one-hundredth of a human being, the trade-off between higher abortion and lower crime is, by an
economist’s reckoning, terribly inefficient.


     Parenting

The typical parenting expert, like experts in other fields, is prone to sounding exceedingly sure of himself.  An
expert doesn’t so much argue the various sides of an issue as plant his flag firmly on one side.  An expert must be
bold if he hopes to alchemize his homespun theory into conventional wisdom.  His best chance of doing so is to
engage the public’s emotions, for emotion is the enemy of rational argument.  And as emotions go, one of them-
fear- is more potent than the rest.  And no one is more susceptible to an expert’s fear mongering than a parent.  It’
s natural for a parent to worry, but the problem is that they are often scared of the wrong things.  It’s not their
fault, really.  Separating facts from rumors is always hard work, especially for a busy parent.

In a given year, there is one drowning of a child for every 11,000 residential pools in the United States.  (In a
country with 6 million pools, this means that roughly 550 children under the age of ten drown each year.)  
Meanwhile, there is one child killed by a gun for every 1 million plus guns.  (In a country with an estimated 200
million guns, this means that roughly 175 children under ten die each year from guns.)  The likelihood of death by
pool is roughly 100 times greater than death by gun for a child.

An example of misappropriated fear is the comparison between mad-cow disease (a super scary but exceedingly
rare threat) and the spread of food-borne pathogens in the average home kitchen (exceedingly common but
somehow not very scary).  Risk expert Peter Sandman puts it this way: “Risks that you control are much less a
source of outrage than risks that are out of your control.”  Sandman’s control principle might explain why most
people are more scared of flying in an airplane than driving a car.  Their thinking goes like this: since I control the
car, I am the one keeping myself safe; since I have no control of the airplane, I am at the mercy of myriad external
factors.  

It’s the imminent possibility of death that drives the fear- which means that the most sensible way to calculate fear
of death would be to think about it on a per-hour basis.  It is true that many more people die in the United States
each year in motor vehicle accident (roughly forty thousand) than in airplane crashes (fewer than one thousand).  
But it’s also true that most people spend a lot more time in cars than in airplanes.  (More people die even in
boating accidents each year than in airplane crashes; as we saw with swimming pools versus guns, water is a lot
more dangerous than most people think.)  The per-hour death rate of driving versus flying, however, is about
equal.  The two contraptions are equally likely (or, in truth, unlikely) to lead to death.

In a world that is increasingly impatient with long-term processes, fear is a potent short-term play.  Imagine that
you are a government official charged with procuring the funds to fight one of two proven killers: terrorist attacks
and heart disease.  The likelihood of any given person being killed in a terrorist attack are infinitesimally smaller
than the likelihood that the same person will clog up his arteries with fatty food and die of heart disease.  But a
terrorist attack happens now; death by heart disease is some distant, quiet catastrophe.  Terrorist acts lie beyond
our control; french fries do not.  Just as important as the control factor is what Sandman refers to as the ‘dread
factor’.  Death by terrorist attack (or mad-cow disease) is considered wholly dreadful; death by heart disease is,
for some reason, not.  

Sandman has reduced his expertise into a tidy equation: Risk = hazard + outrage.  Sandman’s job is to address
the outrage but not the hazard itself.  He concedes that outrage and hazard do not carry equal weight in his risk
equation.  “When hazard is high and outrage is low, people underreact,” he says.  “And when hazard is low and
outrage is high, they overreact.”  So why is a swimming pool less frightening than a gun?  Swimming pools do not
inspire outrage.  This is due in part to a familiarity factor.  Most of us have a lot more experience swimming in
pools than shooting guns.  Also, it takes only about thirty seconds for a child to drown, and it often happens
noiselessly.  An infant can drown in water as shallow as a few inches.  The steps to prevent drowning, meanwhile,
are pretty straightforward: a watchful adult, a fence around the pool, a locked back door so a toddler doesn’t slip
outside unnoticed.  If every parent followed these precautions, the lives of perhaps four hundred young children
could be saved each year.  That would outnumber the lives saved by two of the most widely promoted inventions
in recent memory: safer cribs and child car seats.  

The data show that car seats are, at best, nominally helpful.  Many parents so magnify the benefits of a car seat
that they trek to the local police station or firehouse to have it installed just right.  Their’s is a gesture of love,
surely, but also a gesture of what might be called obsessive parenting.  Most innovations in the field of child
safety are affiliated with- shock of shocks- a new product to be marketed.  (Nearly five million car seats are sold
each year.)  These products are often a response to some growing scare in which the outrage outweighs the
hazard.  Compare the four hundred lives that a few swimming pool precautions might save to the number of lives
saved by far noisier crusades: child-resistant packaging (an estimated fifty lives a year), flame-retardant pajamas
(ten lives), keeping children away from airbags in cars (fewer than five young children a year have been killed by
airbags since their introduction), and safety drawstrings on children’s clothing (two lives).

The most radical shift of late in the conventional wisdom on parenting has been provoked by one simple question:
how much do parents really matter?  Clearly, bad parenting matters a great deal.  As the link between abortion
and crime makes clear, unwanted children- who are disproportionately subject to neglect and abuse- have worse
outcomes than children who were eagerly welcomed by their parents.  But how much can those eager parents
actually accomplish for their children’s sake?  A long line of studies, including research into twins who were
separated at birth, has shown that genes alone are responsible for perhaps 50 percent of a child’s personality
and abilities.  So what accounts for the other half?   It has been argued that the top-down influence of parents is
overwhelmed by the grassroots effect of peer pressure, the blunt force applied each day by friends and
schoolmates.  

Still, the question of how much parents matter is a good one.  It is also terribly complicated.  In determining a
parent’s influence, which dimension of the child are we measuring: his personality? his school grades? his moral
behavior? his creative abilities? his salary as an adult? And what weight should we assign each of the many
inputs that affect a child’s outcome: genes, family environment, socioeconomic level, schooling, discrimination,
luck, illness, and so on?  Certain facets of a child’s outcome- personality, for instance, or creativity- are not easily
measured by data.  But school performance is.  And since most parents would agree that education lies at the
core of a child’s formation, it would make sense to begin by examining a telling set of school data.

School choice came early to the Chicago Public School system.  Despite desegregation laws, many black CPS
students continued to attend schools that were nearly all-black.  So in 1980, the US Department of Justice and the
Chicago Board of Education teamed up to try to better integrate the city’s schools.  It was decreed that incoming
freshmen could apply to virtually any high school in the district.  This offers a huge data set, as well as an
enormous amount of choice (more than sixty high schools) and flexibility.  Its take-up rates are accordingly very
high, with roughly half of the CPS students opting out of their neighborhood school.  In the interest of fairness, the
CPS resorted to a lottery.  For a researcher, this is a remarkable boon.  A behavioral scientist could hardly design
a better experiment in his laboratory.  Imagine two students, statistically identical, each of whom wants to attend a
new, better school.  Thanks to how the ball bounces in the hopper, one goes to the new school and the other
stays behind.  Now imagine multiplying those students by thousands.  The result is a natural experiment on a
grand scale.  The lottery offers a wonderful means of measuring just how much school choice- or, really, a better
school- truly matters.

So what do the data reveal?  School choice barely mattered at all.  The students who won the lottery and went to
a ‘better’ school did no better than equivalent students who lost the lottery and were left behind.  That is, a
student who opted out of his neighborhood school was more likely to graduate whether or not he actually won the
opportunity to go to a new school.  What this means is that the students- and parents- who choose to opt out tend
to be smarter and more academically motivated to begin with.  But statistically, they gained no academic benefit
by changing schools.  

There was, however, one group of students in Chicago who did see a dramatic change: those who entered a
technical school or career academy.  These students performed substantially better than they did in their old
academic settings and graduated at a much higher rate than their past performance would have predicted.  So
the CPS school-choice program did help prepare a small segment of otherwise struggling students for solid
careers by giving them practical skills.  But it doesn’t appear that it made anyone much smarter.

The problem may be that by high school it is too late to make much difference.  Richard P. Mills, the education
commissioner of New York State, noted recently, “There are too many students who arrive at high school not
prepared to do high school work.  Too many students arrive at high school reading, writing, and doing math at an
elementary level.  We have to correct the problem in the earlier grades.”  In examining the income gap between
black and white adults- it is well established that blacks earn significantly less- scholars have found that the gap is
virtually eradicated if the blacks’ lower eighth-grade test scores are taken into account.  In other words, the black-
white income gap is largely a product of a black-white education gap that could have been observed many years
earlier.  “Reducing the black-white test score gap,” wrote the authors of one study, “would do more to promote
racial equality than any other strategy that commands broad political support.”  

In the late 1990s, the US Department of Education undertook a monumental project called the Early Childhood
Longitudinal Study.  The ECLS sought to measure the academic progress of more than twenty thousand children
from kindergarten through fifth grade.  The subjects were chosen from across the country to represent an
accurate cross section of American schoolchildren.  

It has long been observed that black children, even before they set foot in a classroom, underperform their white
counterparts.  But this new data set tells a different story.  After controlling for just a few variables- including the
income and education level of the child’s parents and the mother’s age at the birth of her first child- the gap
between black and white children is virtually eliminated at the time the children enter school.  The data reveal that
black children who perform poorly in school do so not because they are black but because they tend to come
from low-income, low-education households.  A typical black child and white child from the same socioeconomic
background, however, have the same abilities in math and reading upon entering kindergarten.

Great news, right?  Well, not so fast.  First of all, because the average black child is more likely to come from a
low-income, low-education household, the gap is very real: on average, black children still are scoring worse.  
Worse yet, even when the parents’ income and education are controlled for, the black-white gap reappears within
just two years of a child’s entering school.  By the end of first grade, a black child is underperforming a statistically
equivalent white child.  And the gap steadily grows over the second and third grades.  Why does this happen?  
One answer may lie in the fact that the school attended by the typical black child is not the same school attended
by the typical white child, and the typical black child goes to a school that is simply… bad.  

Even fifty years after Brown v. Board, many American schools are virtually segregated.  The typical white child in
the ECLS study attends a school that is only 6 percent black; the typical black child, meanwhile, attends a school
that is about 60 percent black.  In terms of class size, teachers’ education, and computer-to-student ratio, the
schools attended by blacks and whites are similar.  But the typical black student’s school has a far higher rate of
troublesome indicators, such as gang problems, nonstudents loitering in front of the school, and lack of PTA
funding.  These schools offer an environment that is simply not conducive to learning.  White children in these
schools also perform poorly.  In fact, there is essentially no black-white test score gap within a bad school in the
early years once you control for students’ backgrounds.  But all students in a bad school, black and white, do lose
ground to students in good schools.  Perhaps educators and researchers are wrong to be so hung up on the
black-white test score gap; the bad school/good school gap may be the more salient issue.  ECLS data reveal
that black students in good schools don’t lose ground to their white counterparts, and black students in good
schools outperform whites in poor schools.

ECLS data also revealed that students from rural areas tend to do worse than average.  Suburban children,
meanwhile, are in the middle of the pack, while urban children tend to score higher than average.  (It may be that
cities attract a more educated workforce and, therefore, parents with smarter children.)  On average, girls test
higher than boys, and Asians test higher than whites- although blacks, as we have already established, test
similarly to whites from comparable backgrounds and in comparable schools.

The following factors are strongly correlated with higher test scores:

   1) The child has highly educated parents.    

• A family with a lot of schooling tends to value schooling.  Perhaps more important, parents with higher IQs
  tend to get more education, and IQ is strongly hereditary.
  

   
   2) The child’s parents have high socioeconomic status.

• Socioeconomic status is a strong indicator of success in general- it suggests a higher IQ and more
  education- and successful parents are more likely to have successful children.
  

   3) The child’s mother was thirty or older at the time of her first child’s birth.

• This mother tends to be a woman who wanted to get some advanced education or develop traction in her
  career.  She is also likely to want a child more than a teenage mother wants a child.  This doesn’t mean that
  an older first-time mother is necessarily a better mother, but she has put herself- and her children- in a
  more advantageous position.
  

   4) The child had low birthweight.

• It may be that being born prematurely is simply hurtful to a child’s overall well-being.  It may also be that low
  birthweight is a strong forecaster of poor parenting, since a mother who smokes or drinks or otherwise
  mistreats her baby in utero isn’t likely to turn things around just because the baby is born.  
  

   5) The child’s parents speak English in the home.

• As a group, Hispanic students test poorly; they are also disproportionately likely to have non-English-
  speaking parents.  (They do, however, tend to catch up with their peers in later grades.)
  

   6) Adopted children don’t perform as well as their peers.

• Studies have shown that a child’s academic abilities are far more influenced by the IQs of his biological
  parents than the IQs of his adoptive parents, and mothers who give up their children for adoption tend to
  have significantly lower IQs than the people who are doing the adopting.  Also, a woman who knows she will
  put her baby up for adoption may not take the same prenatal care as a woman who is keeping her baby.
  

   7) The child’s parents are involved in the PTA.

• Parents with a strong relationship to education get involved in the PTA, it’s not that their PTA involvement
  somehow makes their children smarter.
  

   8) The child has many books in his home.

And these factors aren’t:

   1) The child’s family is intact.

   2) The child’s parents recently moved into a better neighborhood.

• A nicer house doesn’t improve math or reading scores any more than nicer sneakers make you jump higher.
  

   3) The child’s mother didn’t work between birth and kindergarten.

   4) The child attended Head Start.

   5) The child’s parents regularly take him to museums.

   6) The child is regularly spanked.

• Conventionally speaking, spanking is considered an unenlightened practice.  This might indicate that
  parents who spank are unenlightened in other ways.  But that may not be the case at all.  The ECLS survey
  included direct interviews with the children’s parents.  So a parent would have to sit knee to knee with a
  government researcher and admit to spanking his child.  This would suggest that a parent who does so is
  either unenlightened or- more importantly- congenitally honest.  It may be that honesty is more important to
  good parenting than spanking is to bad parenting.
  

   7) The child frequently watches television.

• Watching television apparently does not turn a child’s brain to mush.  (In Finland, whose education system
  has been ranked the world’s best, most children do not begin school until age seven but have often learned
  to read on their own by watching American television with Finnish subtitles.)  
  

   8) The child’s parents read to him nearly every day.

• A child with many books in his home has indeed been found to do well on school tests, but regularly
  reading to a child doesn’t affect test scores.  The books are merely an indicator of the parents’ educational
  and socioeconomic status, they don’t actually cause the child to become smarter.
  

To overgeneralize a bit, the first list describes things that parents are; the second list describes things that
parents do.  Parents who are well-educated, successful, and healthy tend to have children who test well in school;
but it doesn’t seem to much matter whether a child is trotted off to museums or spanked or sent to Head Start or
frequently read to or plopped in front of the television.  The reality is that technique looks to be highly overrated.

But this isn’t to say that parents don’t matter.  Plainly, they matter a great deal.  Here is the conundrum: by the
time most people pick up a parenting book, it is far too late.  Most of the things that matter were decided long ago-
who you are, whom you married, what kind of life you lead.  If you are smart, hardworking, well educated, well
paid, and married to someone equally fortunate, then your children are more likely to succeed.  But it isn’t so
much a matter of what you do as a parent; it’s who you are.

It is worthwhile to look once more at adoption as a source of information regarding parental influence or impact.  
Parents who adopt children are typically smarter, better educated, and more highly paid than the baby’s biological
parents.  But the adoptive parents’ advantages have little bearing on the child’s school performances.  As also
seen in the ECLS data, adopted children test relatively poorly in school; any influence the adoptive parents might
exert is seemingly outweighed by the force of genetics.  But the parents weren’t powerless forever.  By the time
the adopted children became adults, they had veered sharply from the destiny that IQ alone might have
predicted.  Compared to similar children who were not put up for adoption, the adoptees were far more likely to
attend college, to have a well-paid job, and to wait until they were out of their teens before getting married.  It was
the influence of the adoptive parents that made the difference.


     Conclusion

Everyday application of the ideas presented in this book has to do with thinking sensibly about how people
behave in the real world.  All it requires is a novel way of looking, of discerning, of measuring.  You might become
more skeptical of the conventional wisdom; you may begin looking for hints as to how things aren’t quite what they
seem.  Some of the ideas you come up with may make you uncomfortable, or even unpopular, but the fact of the
matter is that Freakonomics-style thinking simply doesn’t traffic in morality.  As stated earlier, if morality
represents an ideal world, then economics represents the actual world.

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