Why Levitt’s Analysis is Awry Essays

Why Levitt’s Analysis is Awry Essays Why Levitt’s Analysis is Awry Essay Why Levitt’s Analysis is Awry Essay In chapter 3 of Freakonomics by Steven D. Levitt and Stephen J. Dubner, Levitt demonstrates how false predictions are often led by conventional wisdom and why drug dealers still live with their moms. I agree with the author that conventional wisdom is often wrong or plainly insufficient to answer many important questions.   Crime did not keep on soaring in the 1990s, money alone does not help politicians win elections, and drinking eight glasses of water a day has never actually been shown to do a thing for one’s health.   Conventional wisdom is often shoddily formed and devilishly difficult to see through as it is associated closely with confusion of association and causation and also fallacy of composition.   While it is true that a healthy person may drink eight glasses of water each day, it does not necessarily mean that drinking eight glasses of water a day is good for one’s health.   Association and causation are entirely different.   Just like smoking cigarettes does not necessarily cause cancer – simply because two events are associated (in time, for example), it does not necessarily follow that one is the cause and the other is the effect.à ‚   People often confuse association and causation become it is convenient to assume that the apparent, easy answers are the correct ones.   The erroneous view that what is good or true for the individual is necessarily good or true for the group is another example of conventional wisdom that cannot be explained by reality in all its manifestations.   All the same, it is very convenient for people to just accept conventional wisdom, especially while the media and advertisement are also enforcing it.   This is one of the reasons why most people in the world do not turn into scientists. Indeed, it is possible to analyze the truth or untruth of conventional wisdom by asking the right questions.   There even exists a basic procedure that is used in many scientific works to avoid conventional wisdom in building and testing theories.   The procedure follows a set of guidelines.   First, the researcher decides what it is that he or she wants to explain or predict.   Second, the researcher identifies the variables that he or she believes are important to what he or she would like to explain or predict.   Third, the assumptions of the theory must be stated.   Fourth, the hypothesis must be stated.   Fifth, the theory must be tested by comparing its predictions against real-world events.   Sixth, it is recognized that if the evidence supports the theory, no further action is necessary, although it is a good idea to continue to examine the theory closely.   Seventh, if the evidence rejects the theory, the researcher must either formulate a new theory or ame nd the old theory in terms of its variables, assumptions, and hypothesis.   As an example, a researcher may have predicted that the housing market would experience a boom in the coming years.   If this does not happen, he or she is required to change the old theory or create a new one altogether.   But it if happens, the researcher would be required to continue monitoring the conditions of the market to actually prove his or her hypothesis.   The fact that the housing market actually experiences a boom does not necessarily imply that the boom will create economic growth or not turn into a slump soon enough, thereby invalidating all growth processes expected for the boom period, and which had supported the boom theory of the researcher. Bearing in mind the various stages of scientific analysis, I disagree that the drug dealers still live with their moms – as Levitt proves in chapter 3 – because they have incentives other than making profits that compel them to work at lower than the minimum wage for such a high risk job.   I believe that the main motivation for countless people who are willing to do such risky jobs is high profits for sure.   Considering the costs and benefits, as Levitt demonstrated in chapter 3; the marginal benefits for the foot soldiers to sell drugs are much smaller than the marginal costs, if indeed the income of drug dealers is very low while drug dealing is a very high risk job.   There seems to be no incentive for the foot soldiers to perform a high risk job for low incomes.   Only those who are drug addicts already may accept the job because of their poor mental condition as well as the fact that they need the drugs to keeping entering their bodily systems.   Moreov er, the marginal costs continue to increase as the longer they sell drugs on the street the more chances there are for them to get caught or shot.   Marginal benefits, on the other hand, continue to decrease.   Seeing that the marginal benefits will never equal the marginal costs, there is definitely no efficiency in drug dealing.   If Levitt is correct to state that the drug dealers are working at lower than minimum wage, then no one would want to sell drugs as human beings are rational but selfish, and risk- and effort- averse. It is important to consider the four meaningful factors that determine a wage – which Levitt uses to explain why the typical prostitute earns more than the typical architect.   The factors help explain why the typical drug dealer actually earns a high wage.   Just as little girls do not typically grow up dreaming of becoming prostitutes, individuals cannot be expected to grow up dreaming of becoming drug dealers and ending up being imprisoned or killed.   The skills of the drug dealers, while not necessarily specialized, are practiced in a very specialized context.   The job is unpleasant because of the high chances faced by the drug dealers of being imprisoned and getting killed.   Yet, the demand for service that the job fulfills is extremely large.   The office of national drug control policy has estimated that Americans spent $140 billion on illegal drugs in 1990 and about 1 in 15 Americans aged 12 and over currently uses drugs.   The estimates for worldwide drug use may also be considered to get a clearer picture of the demand situation for drugs.   After all, drug supply around the world is part of a global business with innumerable links. The incentives for the street drug dealers that Levitt demonstrated in chapter 3 do not apply to the majority of drug dealers in the United States.   The examples of drug dealers that he used are only the poor black people who have grown up in a housing project on Chicago’s south side.   To them the path to a decent legitimate job was practically invisible and crack dealing was a glamour profession.   If the same sampling bias is used on the prostitutes, they would be impossibly earning more than the architect.   Just as the typical prostitute earns more than the typical architect, the typical drug dealer earns more than most people sitting behind office desks.   Many teenage drug dealers have managed to earn well enough to be able to afford private art schools and nice cars.   Furthermore, many of the drug dealers are able to lead lives of luxury.   It is the type of neighborhood that they sell drugs in that makes the biggest difference in their lifestyles.   In other words, it is the business environment and the income of the consumers in their immediate market that actually determines whether drug dealers would live with their moms or in their personal mansions.   After all, the drug dealer who sells drugs to the rock stars and movie stars in Hollywood is not expected to live with his or her mom, while the drug dealer who deals in the tenderloin in San Francisco probably would. Levitt also compared the crack dealing business with the entertainment business in the sense that a lot of people are competing for a very few prizes in these businesses.   Criminals, like everyone else, would like to believe that maybe one day they would become the leaders of the crack cocaine dealing business and afford to lead lives of luxury.   This coincides with my belief that the monetary factor is what actually drives the drug dealers.   Levitt explained that crack dealing is similar to the glamour professions, whether they concern the movies or sports, although there is a different dynamic at play.   Swarms of bright young people throw themselves at grunt jobs that pay poorly and demand unstinting devotion as they all have to play the same game viewed as a tournament.   In the entertainment industry, like all other highly competitive industries, the workers at the bottom are poorly paid.   At the same time, however, people are usually willing to work long and har d so that they can move up and eventually get paid more.   The high-school quarterback, infamous actors and actresses, as well as musicians and designers may earn lower than the minimum wage before hitting big.   Thus, before the drug dealer or the entertainer is made famous, he or she must be poorly paid. Drug dealing is the opposite of many competitive industries in a variety of ways, despite the fact that it shares important business principles with them, e.g. the quest to maximize profits.   There is no dearth of jobs in the drug business, as the demand is extremely huge.   Additionally, there is very high risk attached to the job, while the job itself does not make the drug dealers proud.   Needless to say, people are not expected to be attracted to drug dealing as a job unless they are drug addicts who do not mind the risks.   Hence, it is important to consider the labor supply of the market for drugs.   As the demand is extremely large and inelastic because cocaine and crack are very addictive, the prices of the drugs are higher then the equilibrium price.   Levitt mentioned that cocaine is, indeed, very expensive.   It is but commonsense that the selling of cocaine must yield high profits.   Indeed, this is the very incentive for which the labor supply increases . This is also the strong incentive that causes the drug business to expand.   After all, the drug business is virtually uncontrollable and constantly expanding throughout the world.   Oscar Danilo Blandon helped to establish a link between Colombian cocaine cartels and inner-city crack merchants.   According to his explanation, the supply curve shifted outwards as the price of relevant resources decreased because there was no middle man.   Thus, the invention of crack as the invention of a new technology resulted in increased supply.   The drug dealers around the globe are making bigger profits than the technology experts perhaps.   People continue to be more driven to sell drugs. Drugs dealers do, indeed, make a lot of money. They still live with their moms because the nature of this business involves high risks.   Thus, it is very unstable.   Because of the high chances of getting caught or shot for drug dealing, many dealers quit before they have made enough money to support themselves for the rest of their lives.   Even so, there are drug dealers in America who make a huge amount of money selling to the rich and famous.   Indeed, the income of a drug dealer is dependent on the socioeconomic status of his or her customers.   The business is unregulated in most parts of the world, so therefore its prices are unregulated.   Moreover, the expanding drug business around the world proves that drug dealing must be highly profitable for numberless people.   The drug business must also have its role to play in global economic growth.   If it is underground, it does not necessarily mean that the business does not help the economy grow.   Thus, conv entional wisdom must always be questioned for the researchers to find the best possible answers to our burning questions.   Settling for less, that is, inappropriate albeit simplistic answers, is not sufficient for the level of intelligence that is conducive to high economic growth.