So, what do you want to know about crime, economics, and Baltimore? Ask your questions in the comments section to this post, and I will pass them on to Mr. Basu. While I won't guarantee that all of your questions will be answered, I'm genuinely excited to see what questions you all come up with.
Thursday, May 1, 2008
Baltimore Crime interview
Given the distinctly economic bent of several recent comment threads, I've asked economist Anirban Basu to participate in the first ever Baltimore Crime interview. Mr. Basu has graciously agreed to share his vast knowledge about both Baltimore and economics, and will be interviewed next week.
So, what do you want to know about crime, economics, and Baltimore? Ask your questions in the comments section to this post, and I will pass them on to Mr. Basu. While I won't guarantee that all of your questions will be answered, I'm genuinely excited to see what questions you all come up with.
So, what do you want to know about crime, economics, and Baltimore? Ask your questions in the comments section to this post, and I will pass them on to Mr. Basu. While I won't guarantee that all of your questions will be answered, I'm genuinely excited to see what questions you all come up with.
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25 comments:
How do you launder ONE BILLION PLUS in drug profits (50k+ junkies using an average of $40 a day is roughly three quarters of a billion)?
The money goes somewhere... someone's getting rich off Baltimore's biggest industry, and it's surely not the kids and junkies who sell the stuff on the street.
Can you hide this much money without the cooperation of government and/or big business?
what (s)he said!
Doesn't the IRS wonder about all that drug money?
Round: They may make a billion dollars in income, but they have a lot of operating expenses as well. I don't know what kind of profit margins drug crews make though. Any ideas?
Whatever profits there are, it's more than anyone would put in a mattress under the bed. It's got to be going somewhere!
A few thoughts:
Anirban's backgroud is a Masters in Applied Economics. A compliance specialist from a money center bank would be a better expert on that subject.
However, I'll offer the following: it's not as hard as you think.
The street dealer doesn't have to launder his revenue, just his net profit. Keep in mind that he will reinvest the cash proceeds of his converted inventory into new contraband. He will pay in cash because his seller is not a Treasury-reporting entity; it's another drug-dealer.
His gross profit will largely be expended in the form of cash on the maintenance of his posse: cash rent, cash fast-food purchases, cash liquor purchases, cash bling purchases, etc. He probably can get by without even opening any bank accounts. See the analysis of S. Venkatesh.
So, what about his local wholesale supplier? Well, he receives a lot of cash. Some of it is similarly upstreamed to national dealer/smugglers and is transacted in bulk cash. The gross profit for this type of dealer will need to be invested.
He will therefore have a strong incentive to reinvest in the highest-appreciation commodity available: more drug inventory. (This means the wholesalers overinventory the product, which induces retailers to oversell their markets, thereby poaching on the customers of competing gang territories. Translation: impending violence.) This expenditure will be made in bulk cash and no laundering is needed by him.
To the extent they do not reinvest in drugs, there ar more than enough vehicles in the informal economy of Baltimore B.
Open a drug front in a retail store on Pennsylvania Ave, Greenmount, Belair Rd., etc. Purported T-shirt shops here report massive sales and have cash deposits to match.
Interestingly, you'll never see their customers leave with a shopping bag large enough to hold a bunch of T-shirts. (???) And their total inventory on hand of shirts is worth about... $200. Hardly enough to generate hundreds of thousands of dollars of bank deposits.
Retail drug front.
Or, you can buy slum rentals and rent them to other criminals, who pay into the future in any form you want and don't file reports with any Treasury officials. Many real property sellers here would cream their jeans to be paid in green cash and understate the transaction price in title docs.
Once you are in title, you can even get Section 8 tenancies. Then the payment stream is government money, hence it is pre-laundered.
So, then, it's really only the international smugglers who have any great need to launder cash into the formal banking system.
For this, you need a Riggs Bank, a BCCI, or maybe a nice banking affilliate in Abu Dhabi. Someone inside must be willing to bend the rules for you. See the history of BCCI for that.
But also, keep in mind that the dollar is the international currency. If you generated massive reserves of drachmas, you'd need to convert them into something someone outside Greece would be willing to accept.
The dollar has purchasing power everywhere. If you can stack them in (disguised) bales and ship them by the ton on container vessels to Kazakhstan, you can buy anything abroad you want, so cartels own Hotels, Casinos, Insurers, Banks, etc.
It's my understanding, actually, that a great deal of the current petroleum inventory is held by... Columbians, Russian mafia and Nomenklatura, Tongs from the Golden Triangle, etc., in addition to sovereign hedge funds.
A better question for Anirban might be:
If we imagine the following model:
1) criminal organizations use reputations for violence to deter competitors away from their exclusive sales territory (turf);
2) competing drugselling organizations (equivalently, competing territories) engage in oligopoly quantity competition (drugdealers really frown on price-cutting), resulting in a total quantity of Q(P)= q1 + q2 + q3 +.... + qn of the contraband commodity sold by each of the n organizations at an equilibrium price, P.
3) If an outside force, like a police department, induces them to forego violence as a mode of competition, (thereby decreasing the size and increasing the number of and the degree of market competition between territories), would he not expect the result to be
a) more drug supply on the market,
b) lower equilibrium prices to consumers, and
c) more total quantity of drug consumed in total.
???
Don't forget strip clubs. Those are always popular money laundering fronts.
Great idea. I actually heard Dr. Basu speak just last night. He was outstanding. Scary smart. I learned something about him that could open up a related line of questioning. He's on the Baltimore City School Board.
So here's my question to him.
How can we turn the tide on negative outside (of school) influences; peers, parents, family, environment...etc. to regain that basic respect of education in our city students? How do we get parents to care and support learning? How do we show them that it does matter? Going to school in the inner city is a choice for many kids. The other alternative being running the streets. How do we get back to engaging kids in school in this culture. Changing the culture of a company is a daunting task; I can't imagine changing the culture of a city.
Just to sort of combine the questions already asked, which is a more devastating cause of inner city poverty: the "war on drugs" or the shamefully incompetent city school system?
Kristen:
I think the crappiness of the school system is exaggerated. It's the degenerate inner-city culture that glorifies crime & violence and looks down on hard work & education that's the main culprit for the miserable performance of Baltimore students.
P and Kristen,
Your comments lead to another question: Is the "crappiness" of the school system overrated, or is the problem related to cultural elements that surround the school?
Chuck:
Obviously the school system doesn't do a good job of educating students, however I think it's the background that the students come from that's responsible for that. Obviously the city public schools aren't very well run, but there are a few schools where most of their students do well despite the crappy leadership from North Ave. You could have the best school system in the world in B'more, but as long as so many of the kids who attend have never had an adult in their lives who actually gets up & goes to work in the morning you are not going to get good results.
As a nation, we do not do a good job ªcompared to the rest of the worldº educating our children particularly once they begin middle school. It's a fact. If as a nation we are lousy, how could Baltimore City even compare? Dr. Basu can speak to this issue as well.
If the drug dealers were smart, they'd make their money off drugs and then reinvest it in the infrastructure of the war on drugs, i.e., government-contracted drug treatment facilities, home detention companies, bail bonds, and private detention services.
The drug war (like the War on Iraq) is a goldmine for these ancillary businesses.
Round:
That might be the ultimate hedge fund.
What you're proposing is known as vertical integration and interestingly, it turns out that an upstream monopolist does himself a disservice by aquiring operations downstream. It's a consequence known as remarginalization.
There are, however, certain advantages to oligopolists being subject to multi-market contact up- and down-stream. It makes collusion between them far easier to maintain.
I do not doubt your knowledge of economics, but not quite John. Vertical integration would be more like the dealers purchasing Becton Dickinson's syringe manufacturing and retail division and opening up a line of shooting galleries. This is closer to hedging where one line of business benefits from the the loss of another.
If there are so many awesome people on the Baltimore school board, why are the Baltimore schools still so bad?
Some answers already offered here include social influence of the community and parents on the students, and they are not as bad as advertised.
Many well-performing public school systems exhibit some tension between the somtimes competing goals of educating kids and providing a productive work environment for faculty.
This school system emphasizes neither. This system is a governmental fiefdom, which exists to ensconce a small army of petty bureaucrats from HQ on North Avenue in the seat of (perceived) power.
A really good question for Anirban would be of the form "How many persons would be displaced from their 'jobs' within Baltimores informal economy if we ever really cracked down on crime (including controlled subtsances)?"
It's not just a simple question of the number of local dealers, because I suspect there are multiplier effects. Further, because so very much of Baltimore is into that industry, there are macro effects which exceed the basic industry-specific multiplier argument.
I would like a, edumacated estimate of the $ spent on drugs in Baltimore every year. I've heard estimates that range from the millions to the billions.
what percent of baltimore's population is addictd to heroin? What percent of the black population? And what percent of the population under the poverty line? PLEASE ANSWER THIS ONE!!!!
Between 70 and 80% of drug users here are (nonexclusive) users of heroin. Crack is a distant second at 35%. Some consume a "one-plus-one" cocktail.
Users tend to be in their 30's, 70% male, black, inner-city, low-income, have not completed high school, and are unemployed/outside the labor force.
A single dose (100 mg), whether by vial, bag, or cap, cost $10 in 2002 dollars and overwhelmingly originates in Colombia for sale in Baltimore. The product is about 45% pure on average, but varies greatly.
A conservative estimate of drug abusers is 50,000 persons here.
So, at least 35,000 heroin addicts live here. NDIC uses a 45,000 figure.
Our population is 64% black, for 410,000 persons. So, if around 25,000 abuse heroin, that'd be 7%. (Mind you, the denominator includes all those groups unlikely to use, such as infants and the elderly, who are half the population base, so the percentage is diluted.)
19% of families here, or 28,000, are below the poverty line.
23% of individuals here, or 143,000, are below the poverty line, which is now $10,400.
32% of female-headed households here, or 23,000, are below the poverty line.
On the financial end, the majority of the supply, South American, is laundered by bulk cash smuggling across the border. Asian suppliers are more likely to employ retail fronts to launder proceeds. The fastest-growing mechanism, however, is stored-value cards and their use will predominate in the future.
A City Schools System question:
Only 1 in 3 students ever completes high school.
A disproportionate amount of money is spent on problem students, while books and paper are unavailable for those who are there to learn.
From a strictly Pareto-optimality perspective, doesn't it seem obvious that we could ditch the lower half (or other smaller tier) of the students and use the resources (and enhanced safety, focus of classroom effort, etc.) to generate a truly high-performing graduating class?
It is pretty clear from the age of 14 which are not there to learn anything. Note: this distinction is not about academic aptitude, but rather willingness to attend, comply, and perform the necessary work.
Those who are instead slow-learners are in a different category and, in fact, may be Constitutionally guaranteed certain accommodations, which are not required for the simply willful.
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