The Answer Is Transaction Costs
"The real price of everything is the toil and trouble of acquiring it." -Adam Smith (WoN, Bk I, Chapter 5)
In which the Knower of Important Things shows how transaction costs explain literally everything. Plus TWEJ, and answers to letters.
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The Answer Is Transaction Costs
Prison Gangs and Governance: David Skarbek
Curious about how the world of prison economics operates? Get ready to uncover a hidden universe with our guest, David Skarbek, a leading voice in political economy. David takes us on a captivating journey from his early days in construction to his groundbreaking research at George Mason University, where he was inspired to explore the economics of unconventional spaces. His insights reveal the sophisticated systems of governance designed by prison gangs to maintain order and manage illicit economies. Whether you're fascinated by how these groups mimic pirate crews or intrigued by their ability to regulate harm in a high-stakes environment, this episode promises to reshape your understanding of extra-legal cooperation.
David Skarbek, Michael Targoff Professor of Political Economy at Brown University.
David Skarbek's Amazon Author Page
Book'o'da'Month: Shattered: Inside Hillary Clinton's Doomed Campaign – Crown Publishers, April 18, 2017. by Jonathan Allen Amie Parnes.
Club Random: Bill Maher talks to William Shatner
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This is Mike Munger, the knower of important things from Duke University. Today's guest is David Skarbek, one of the most important young scholars in the political economy tradition. His work on extra-legal cooperation and institutions has been recognized as some of the most interesting work in that field. He's a tenured professor in the political science department at Brown University. A new twedge this month's letter plus book it a month and more Straight out of Creedmoor, this is Tidy C.
Speaker 2:I thought they'd talk about a system where there were no transaction costs, but it's an imaginary system. There always are transaction costs. There were no transaction costs. It's an imaginary system.
Speaker 1:There always are transaction costs when it is costly to transact institutions matter and it is costly to transact. My guest this month is David Skarbek at Brown University. David, welcome to. The Answer is Transactions Cost, and I always ask the guests to give the listeners an idea of how their intellectual journey started. What sort of things caused them to be initially interested in the problems that they work on? How did you become interested in economics in the first place, and what were the important people or readings that kind of directed you towards where you ended up?
Speaker 2:Well, I got interested in economics initially when I went to community college.
Speaker 2:After high school I'd been a construction worker and I ended up taking a principles of economics class and was just sort of blown away with the supply and demand model and its wide applicability. And so I went to San Jose State where I was very interested in criminal justice issues, issues surrounding mass incarceration, and we had a really exciting economics department there, and so they sort of nudged me into grad school, and that's where I sort of saw some really interesting overlap between the economic way of thinking, thinking about incentives and rational choice, and then a context in which people can't rely on sort of standard legal institutions, the illicit economy within prisons. These are environments where people are profit maximizing, they're rational, but they can't rely on the same institutions that many of us rely on in our day to day, and so it sort of generated a bunch of interesting puzzles about how is it that they're able to accomplish what they're trying to do, and can we explain some of the things that seem unusual, irrational or bizarre to us as outsiders?
Speaker 1:So I think there's a part of that that's going to seem strange to listeners. You kind of elided or skipped over a big step in the middle. You said you went to graduate school, you didn't say where, and then you said, as if it's just natural, what you studied in graduate school was this bizarre thing that nobody in economic studies. Can you flesh that out a little bit?
Speaker 2:Yeah. So I went to George Mason University, which is indeed a much more varied economics department than most mainstream departments. I had the opportunity to work with people like Pete Betke and especially Peter Leeson, who's written extensively and very profoundly on the economics of piracy in the 17th and 18th centuries. And so when I was in Peter Betke's class in constitutional political economy, I wrote a paper for the class applying models of political constitutions to a criminal constitution.
Speaker 2:A gang called the Nuestra Familia has a written constitution. It is a constitution in the political sense, in that it states why the group is being constituted, what its purpose is, and then it delineates all of the things that you would want to know about an organization or entity like that who is a member, what are the obligations of the members? What are the positions held within a gang? How do people get into those positions? Are there ways that they can be removed? And so I found it really just a fascinating example of being able to apply something from one sphere into another, from economics, political economy, into criminology. And it raised a question of how might a prison gang constitute itself, and had an answer. But it also raised other questions. You know, why do these gangs exist in the first place? Why do they exist in some places and not others, and what are the consequences, more broadly, of their rise to power?
Speaker 1:So one of the things that I think is so interesting about your story is that you, like me, are in some way a failed economist, although you actually succeeded as an economist. You had a job. I never got a job as an economist, so I kept. I would go to the AA meetings, no flyouts. Finally, the market spoke and said your salary as an economist is zero. You should do something else. I ended up in political science. You were in economics, or at least political economy, for quite a while, and then you were hired in the political science department at Brown. And can you say something about? I have to admit, I've never really understood the distinction between, as a big subject, I understand they have different journals, they have different conferences, so it depends whether you have a PS or an E on your sweater, but in terms of what it is that people are studying, what is the difference between political science and economics, and why did you end up in a political science department?
Speaker 2:Yeah, well, so I mean. One small correction is I've never been in an economics department.
Speaker 1:It was political economy.
Speaker 2:It was political economy. So I learned that I wanted to become a political scientist when I was at Duke and got this job at the Department of Political Economy at King's, and it was the perfect space for me because we had economists, we had a lot of political scientists, political theorists, more philosopher types, and so I was in conversation with political science much more closely than if I was in an econ department. I learned about the intellectual tradition, I learned about the tribe and its cultural artifacts and, practically speaking, I would have rewarded professionally for publishing in either discipline, and so if I thought a journal, an article, would be a better fit for political science, it was strongly encouraged to shoot for that, and so I had a book come out when I was there, which is a good signal for political science. I think I needed a book to flesh out the argument that I was trying to make.
Speaker 1:Well, it wasn't just a book. It was a book at a major university press, it was a real book.
Speaker 2:It really. It was a great book. It did well.
Speaker 1:I wrote it I don't want to criticize, but this was not an Elgar book.
Speaker 2:This was an actual book. It won some prizes, it made a bit of a splash, but being in conversation with those people allowed me to sort of yeah, transition or expand into political science a lot more. And, as you of all people know, there's this long tradition in political economy where economists and political scientists care about many of the same concepts and questions and they pursue and they pursue complementary or similar theories. For me, political science is a broader methodological home, so the sort of work and evidence that I was drawing on for my book isn't really evidence in the same sense in economics and the way that it is in political science, and so for me I could sort of ask the questions that were really exciting and interesting to me in political science in a way that I couldn't in the same way in econ. And our department in political science here at Brown is a very pluralist place when it comes to methods, and so they were sort of willing to welcome me into their department.
Speaker 1:Well, so let me make a professional point, for some of the listeners that we have are graduate students thinking about graduate school, maybe their junior professor some way. And I don't mean to offend you, let me just speak for myself. If I had stayed in economics, I would not be at a place like Duke. It's quite possible. If you had stayed and insisted on sending stuff to economics journals, you might not be at Brown.
Speaker 2:Yeah, I think that's right.
Speaker 1:There are arbitrage opportunities, but it requires a little bit different way of thinking and approach to problems, and so let me say a little bit about that. You and I both sort of take that this has been in the water for us for a long time, but I think for a lot of listeners it might not be. The study of markets is a set of institutions that allow people to choose in groups using a discovery process called prices. Now there are a lot of other institutions where people choose in groups that also involve discovery processes, and that discovery process might be something like voting or collective action, so there's not directly profits. What there is is either we use voting or we try to choose a set of rules that allow us to coordinate our expectations so that we can act with low transactions costs to achieve shared goals, and there's a lot of goals that can't just be accomplished individually, and so I think in particular, about Leeson making the obvious but, in retrospect, brilliant observation that a pirate ship is a firm. It actually is a well-formed little firm, and the edges of it are obvious because we have a set of commitments, we sail on the same ship, and so then, once you and they have constitutions, they have rules, they have a set of shared goals, they had insurance policies, they had governance, they had the two as Leeson talks about. They have the two different, in effect, captains the quartermaster, that basically is the manager, and then the war general, who is what we think of as the pirate captain, but actually had not nearly as much power as we think. And the pirates used the word mutiny to describe the captain failing to obey the will of the crew. It's exactly inverted. It's not that the crew disobeys the captain. A mutiny was for the captain to disobey the crew. He's been voted out and refuses to go. It's astonishing that that sort of theory of the firm led to the study of rules and Eleanor Ostrom, who won the Nobel Prize for this.
Speaker 1:There is a tradition in economics, although she was a political scientist, but there is a tradition of economics about this concern for rules. The origin that you and I sort of take for granted is that public choice was originally called the journal, was called Papers in Non-Market Decision Making, and so it was applying not so much the method as the organon, the way of understanding how people act, but in non-market settings where other institutions of aggregation discovery, so information is dispersed. Nobody has enough information to actually do what the group needs to do. We have to have some way of aggregating that information and the rules or institutions that we use to do that really, really matter. Most of us probably don't understand the institutions, but the comparative survival of these organizations is going to select for better sets of rules, and so there other, in effect, and rules that are better will survive and those groups will expand over time and it will look like boy, this group's really smart. It doesn't have to be smart. They had some pretty good rules to begin with. They created incentives that have made people contribute to the group and allowed them to coordinate expectations, and so they can expand that.
Speaker 1:So the big problem to take a step back and I've talked about this in a number of the Answer is Transaction Cost podcast is that coercion, in effect, is voluntary. I want to be coerced in the sense that it is an important part of my liberty to be able to enter into binding agreements. So I want you to put a roof on my house, and you actually have some experience with this, you, you to put a roof on my house, and you actually have some experience with this. You probably could put a roof on my house and you want me to pay you an amount that makes you willing to put the roof on the house. So we have a problem that I give you $1,000 to go buy the shingles and materials and you just take the $1,000 and leave. I have no recourse. Or I give you the $1,000, you buy the shingles and materials, you put the roof on and then I refuse to pay you Because we both know that the other side cannot be, that the agreement cannot be enforced. We can't make an agreement in the first place. That's a really big restriction on my liberty.
Speaker 1:I am worse off if I'm in a system where I cannot make binding agreements and so, as part of the contract or maybe we'll rely on the state, but we're going to rely on some third party for the adjudication of dispute and the enforcement of contract violations and we kind of just take that for granted. But that's coercion, that's violence, we want it for granted. But that's coercion, that's violence, we want it. We want to be able to have a recourse to violence, precisely so that in equilibrium, violence is never used. And so the problem is that in markets we tend to take that for granted because there are legal institutions that recognized this problem long ago.
Speaker 1:There are many, many settings that are outside what we might call the legal system and so extra-legal, as a sort of a way of describing that. They're extra-legal, they're extra-constitutional. It's very difficult for people to enter into binding agreements, but they still want to, and in fact, in some settings it may be even more essential. I can probably do without a roof on my house for a little while. If I'm in a prison and I cannot enter into a binding contract to be able to secure security for myself on condition that I provide security to others, things are going to go really badly for me. They're just maybe a few big, strong people and I'm completely at their mercy.
Speaker 1:And so the problem that you have worked on and you have a particular niche, although you've expanded a bit I think of Ellie Berman, who talks about what we call terrorist groups in the Middle East. Those groups maybe they're terrorist groups, but they provide schools, they provide welfare programs. Now, they're hardly perfect, but they're actually providing something more, and one of the things they provide is dispute resolution mechanisms and enforcement. And so we live in this lawless society. Wait, that's not quite true. We have small L law because it's provided by these groups and so we live in this lawless society. Wait, that's not quite true. We have small L law, because it's provided by these groups and that's where they get support. So Anya Shortland has talked about terrorist groups, drug cartels, providing the same sort of thing. She's talked about Somalian pirates and the problem that pirates face in organizing transactions for kidnapping, and these have surprisingly regularized institutions.
Speaker 1:So can you start at a very fundamental level and say how your work fits in and is sort of different from in terms of its implications? Because a pirate ship is self-contained. A prison is this large, chaotic thing. How are we going to pick the firm? Who's in the firm, who's not in the firm? Which firm am I in? It's not like a pirate ship where the edges of it are well-defined. So I realize that's a long and vague question, but the reason that I think your work on prisons is so interesting is that the need for enforceable agreements in extra legal contexts is, if anything, even more important.
Speaker 2:Yeah, I think that's right and I think it's tackling the sort of fundamental problem of political economy where the question is where do we get these foundational institutions in the first place? Like those other works you mentioned, it's dealing in the extra legal space, often an illicit space. Gangs and other groups in prisons also provide local public goods and club goods as a way to recruit members and to accomplish the ends that they want. Prisons are quite distinct from private ships in the sense that they're substantially larger. There's a churn of the population, with new people entering and leaving. There is no ex-ante agreement to the rules that are happening within a prison. People are forced to go to prison.
Speaker 2:The exit option is unavailable, as it is in many pirate contexts, so it's a really tricky problem. It's also drawing people into the community that we might think are less cooperative, less trusty and less trustworthy. Some of these great examples of extra legal governance, like the diamond trade in New York City at one period, for example, draws people with a tremendous amount of capital and social capital and religious belief that we might think well, of course they're going to find a way to cooperate. I think of prisons as sort of a tough case people from disadvantaged communities who don't choose who to interact with and can't leave, and nonetheless, they're able to find ways. That take different shape depending on the time and place of incarceration, but they find ways to protect property rights, to regulate bodily harm, to regulate negative externalities, to facilitate the illicit economy, and so, yeah, I suppose my interest is not capturing one of these extra legal instances in a snapshot in time, but looking at its variation across time and across place.
Speaker 1:So let's break this down. One of the things that I think your work accomplishes that is so interesting is that you kind of describe the day-to-day activities of these groups and how people interact, how they create a hierarchical organization that is capable of carrying out these functions at a very low transaction cost. So I have committed a major felony. I'm going to be in jail for a long time. I arrive at the prison, I'm disoriented, I'm pissed off, I'm terrified. What happens? Am I contacted? And what is it that I am asked to do by these groups, not by the guards?
Speaker 2:Yeah Well, and so my main focus is on California. So I'll speak with respect to that, which is that the guards would probably tell you you better hang with the white guys, and the representative of the white people incarcerated in prison would get into contact with you pretty soon. They'd probably ask for your prison paperwork, which is from officials and it says what your name is, where you're from, what crimes you were convicted of, and they want to check if you've committed a sex offense, for example, or if you're a former law enforcement. If that information is available and if that's the case, they're going to do what they can to drive you out of the housing area. They don't want to be responsible for you and they don't want you sort of contaminating their reputation, and they're standing within the prison, depending on which group you would affiliate with.
Speaker 1:So step one why don't they just ask me my name? You're saying that they assume I'll lie. So this is a is a setting where you can not rely on promises. I actually have to make a credible commitment. Here's my background, here's where I'm from. Here's my address. So literally paperwork.
Speaker 2:Literally paperwork and some some mechanism of creating a credible signal. And so if prison officials think you're someone that's some degree of credibility many instances in California prisons they'll ask about, they'll send you their own questionnaire and they'll say you know, were you in a street gang? You know what's your street name, where else have you been incarcerated? And that's information that they can check. It may take a couple of days but they can look if you have the right tattoos for the area.
Speaker 1:How do they check? They're in prison. How do they check?
Speaker 2:Well, the tattoos are a very credible signal that they can observe, but they can also write letters or use illicit cell phones to call people on the outside people in the free world.
Speaker 1:That's the thing. Is they make contact with Confederates outside?
Speaker 2:As well as Confederates in other prisons. So if you're transferred from prison A to B, you can call the gang leader in prison A and say is this guy in good standing? Is he who he says he is? So there are ways that are a little more costly, but actually not that costly anymore, To really confirm who you are. Are you someone that we're going to allow into the group, or do we need to assault you or tell you to leave the yard?
Speaker 1:So I want none of this. I don't want to be in a gang. This is terrible. I've committed my crime. I just want to be here quietly and then I get in a scuffle in the yard and I actually injure this Latino guy who was pissing me off. So you said they didn't want to have to protect me. Why do they have to protect me? That doesn't make any sense. I'm just me.
Speaker 2:Yeah, I mean they. They have to protect you in California, because one-off, unapproved altercations like that can spark large scale.
Speaker 1:You're making me mad, though he was fucking smart. You're not allowed. You're not allowed.
Speaker 2:You're not allowed. So if, in a case like that, you know if things are working well, you complain to your shot caller, the gang leader, and he brings it up with the other group and that guy apologizes to you. At the worst case he doesn't apologize and you find a secluded area of the prison and you fight. That's the way that well-regulated violence by the gangs, from their perspective, should be carried out.
Speaker 1:The guards have nothing to do with this. It's illegal. The reason it has to be secluded is so the guards don't see it. It has to be. This is, and maybe the guards will just turn the other way because they know the system is better off if the gangs are allowed to use this dispute resolution mechanism. So there is. I have somehow made someone else angry. I am literally not allowed to take action on my own. I have to go to the hierarchy that has been created. So this is a lot like a suit. If I'm arguing with my neighbor and I get into a fight, there's going to be a problem. I have to go to the police, who? Then we go to a judge and a decision is made. This is an almost exactly parallel system, but it's completely extra legal and the groups came up with it on their own. Why? Why do they care about limiting violence?
Speaker 2:Violence is costly, and when large scale disruptions happen, when there are riots on the yard, people get stabbed. That's when correctional officers come in and they'll use lethal, less lethal weapons to subdue riots, and people get hurt. Maybe just as important is that large-scale disruptions lead to prison lockdowns. So instead of being free to program and go into the yard during the day, entire groups of people in the past would be put on lockdown for weeks, months, sometimes more than a year, and when stuff like that happens, the quality of your daily life plummets. But you also can't engage in any illicit activity. The drug sales plummet, the contraband trade plummets Highly profitable activities.
Speaker 2:Highly profitable activities that are no longer available.
Speaker 1:This is an integrated firm. The gang is conducting these economic transactions and it is also the legal system that makes sure there's not violence to interrupt or disrupt these profitable economic transactions.
Speaker 2:Yeah, and the legal system is sort of pan-gang across the multiple gangs that operate within a prison. So there are gangs that are dealing drugs and acting as representatives in a broader sort of extra legal legal system.
Speaker 1:But these gangs hate each other, why would they cooperate?
Speaker 2:Well, it's unclear if they hate each other. There's a lot of animosity that you might see there are. Racial prejudice is involved, but at the end of the day, they are trying to improve the quality of their life and they are trying to improve the quality of their life and they're trying to profit. And this system I called a mutual responsibility system seems to be the best way to create some stability and some security in large prison environments where the state either isn't willing to or they're not capable of doing that willing to or are not capable of doing that, so I refuse to cooperate.
Speaker 1:I'm supposed to stop having these fights, but I'm a member of the white person gang. If that happens, if I understand you, it's at least possible that I will be publicly beaten by the members of my own gang as a way of saying look, we're taking care of this, you don't need to worry about it. So you ask me to apologize? I say no, okay, that means you get your ass kicked.
Speaker 2:Yeah, that's exactly right. There's tremendous in-group pressure, including threats of violence and violence and serious violence.
Speaker 1:Well in equilibrium. A couple of public actual violence will go a long way for the threat of violence working.
Speaker 2:Yeah, that's right and and, but. In doing so, you then you know, ease cooperation and interactions across groups and, importantly, you know when. When gangs assault their own members, it's also signaling that we'll take care of this, we take responsibility for this, but no one else is allowed to assault our members. Only we have the right to do that.
Speaker 1:Yeah, yes. So if someone else were to assault them, even if it were in some sense, deserved.
Speaker 2:that would be a provocation that can't be allowed. You have to go through the process.
Speaker 1:So again, even if my neighbor needs an ass whooping, I don't get to do it. I have to go to the police. It is the act of committing violence itself that is channeled into another way of accomplishing it. So I think that's just astonishing. Can you say something about the origin of one or more of these groups? How did somebody have this idea? And my second question is this gang membership now manifests there's more people not in prison that are members of the gang than are in prison, and so the gang has an outside function that is partly enforced by the threat that people are going to go to prison, where gang enforcement is much more easily accomplished enforcement is much more easily accomplished.
Speaker 2:Yeah, that's right. I mean so the gangs. You know, everybody has to affiliate with a group in prison and each group is responsible for each member's actions. And that social arrangement didn't emerge until 1970s and solidified in the 80s in California. Before then it was all about personal reputations. There was a norm about what was acceptable behavior. If you adhere to it, you had friends, you had respect. If you violated the norms, you'd be victimized. Nobody had your back and everybody knew what the rules were, what the norms were and whether you were in good standing. But as the prison population skyrocketed in size and became much more diverse, knowing people's reputations became much more difficult.
Speaker 1:And the problem then is that, and there's moving around too, so it's evanescent.
Speaker 2:Absolutely. And all of those factors make it difficult to punish people in these reputation-based systems. Gossiping about someone when nobody knows who it is or knows that that person's attached to it isn't a deterrent. Ostracism when somebody can just go and hang with a bunch of other people isn't a deterrent. So in the 50s and 60s these decentralized mechanisms become much less effective.
Speaker 2:There is an increase in rioting, weapon-based attacks and homicides and in this chaos these initial prison gangs form in California, and they do it initially simply for their own protection. They're all self-protection groups. But once they're credible as self-protection groups, they recognize that they have a comparative advantage in the underground economy. And then, as conflicts arise between these now existing groups, the system of community responsibility emerges. And I realized after publishing the book, as I started reading about Klan-based societies is that this is how Klans operate. Everyone affiliates with the Klan. The Klan as an organization is responsible for members and we see them proliferating in groups where official state-based institutions are ineffective or unable. But there are also large communities such that you can't rely on these sort of simple mechanisms based on reputation.
Speaker 1:So can you say something specifically and I know you know some things about it, but it also isn't that clear the history of the origin of the idea of having some kind of written constitution and a set of rules that we can then refer to in deciding whether the group is acting correctly and how are leaders chosen.
Speaker 2:So each gang it's probably a little bit different. The sort of origin documents, it's sort of very well defined in one case, in others it's not so Sometimes those and what is the one case? Again, you said the Nuestra Familia prison gang had a sort of very Political scientists. Should love this Very proper constitution, very thoughtful document.
Speaker 1:And it's actually available.
Speaker 2:It's something that one can read if you're interested it's, it's one that's yeah, I mean you could look it up online and see it um I'll put a link to it.
Speaker 2:It's interesting for just the reason you say yeah, the gangs, to different degrees, all have written rules and regulations. Some of those are constitutional, like the one I mentioned, others are more like. Here are the rules that you should follow in this particular prison don't throw trash on the tier. Uh, you have to work out an hour a day If you sell drugs. A third goes to the gang. That are more like policy rather than sort of constitutional foundations.
Speaker 1:Right, but there's a distinction between law and legislation. There's not a legislature that comes with the. This is effectively common law. This is something that they have found. If we have these rules, it will help us in resolving disputes and we might even change them, but the formal process of changing is not what we have to have a majority vote. We update them because it helps us adjudicate these disputes and have expectations about the way we actually do things, and so it's the Hayekian small L law rather than legislation. We write these things down because this is how we do things and we want new people to. Okay, here's how we do things.
Speaker 2:That's right. And for a lot of the gangs in California I think they initially start with a single leader or a single leader at a particular prison, and those things, for those same reasons, have sort of changed into committees, at the top tables three to five people who sort of rule by consensus. They're the top, but there's not one person there.
Speaker 2:I mean consensus is like, oh well, these people are sort of obviously well suited dispositionally for the job. For certain gangs there are leaders and even more remote prisons who will sort of say, yeah, that person seems like they're doing a good job. So it's not entirely top down, but it's also not entirely like a vote.
Speaker 1:There's it's not democratic. No, it's not formally it's not democratic. No, it's not formally. It's formally, actually, it is democratic because it is bottom up and you have to have, if not the consent, you have to have the support of the members.
Speaker 2:Yeah, that's right, and so you know certain leaders emerge.
Speaker 1:Is anybody ever removed? Can you be removed from this leadership?
Speaker 2:Yeah, some people can be removed For the gangs where there's like an actual top leader. They're usually housed in places like Corcoran or Pelican Bay Sometimes they can say, yeah, these are maximum security prisons in California.
Speaker 2:So for certain groups they can say okay, you tried, you're not doing a good job. We're getting letters about you Time to get somebody else For others of the gangs, about you Time to get somebody else For others of the gangs. I think it's sort of just a complaints from the everyday people that are being governed by. These. People Say this guy can't avoid problems with other groups, he's demanding, he puts us in danger. No, you're not doing a good job. And that can generate them stepping down, them leaving the yard, them, in the worst cases, being assaulted.
Speaker 1:So in a way that's a lot like an analogy to the common law system. The argument for the evolution of the common law towards more efficient assignment of liability and the creation of rules is that when we're getting a lot of disputes, it must be that the current assignment is not efficient. And if we get to the point where everyone agrees these are what the rules are and nobody is obeying them, we're not getting complaints and you actually don't even notice that the system is working. And so if you're getting a lot of complaints about a leader, maybe this is just a difficult situation, but more likely they're not handling their responsibilities well, because really the job of the gang is to minimize actual violence and to allow people to have as good a life as you can in prison and to pursue their economic enterprises in ways that make them some profits. And if the gang takes most of it, that's okay, because everyone is better off as a result.
Speaker 2:Yeah, I think that that's right and the, the, the personal reputations do operate very effectively in these much smaller groups. So you can have a reputation as being a standup guy who's going to be a good leader, good shot caller or somebody who's, you know, on drugs in a serious way, or a hothead. So all of those things work. Things continue to work very effectively within the group, and this is not to say that these gangs are sort of ideal in all respects. There's not a robust system of due process or rule of law or equality before the law in these groups. Maybe that's too much to sort of demand or ask, but they've been very effective at reducing conflict and promoting the underground economy.
Speaker 1:So the guards know about prison gangs, and it's actually not up to the guards to approve or disapprove, because it's going to happen anyway. But it does seem like the guards would often be complicit in looking the other way if gangs are trying to do what it is that they do, because the alternative is chaos on a scale that couldn't be managed and guards will get hurt. So the fact that the violence is concentrated means the guards themselves are safer, which seems paradoxical.
Speaker 2:The gangs don't want you making complaints to guards. For the most part, they want to maintain that control. Correctional officers that often say that these guys have more information about what's going on. They know who the culprit is, they know who the bad guy is. Maybe they don't say it to me when I speak to them, but it's clear that incarcerated people, they have the choice to use threats of violence and violence that correctional officers can and do use. But if somebody else wants to do it, that's not necessarily a disadvantage to them. So there's something that crosses or blends a giving over of power to them and maybe of gangs taking the power from them. But they have a huge influence and, yeah, it's not like a correctional officer could decide there's not going to be any gangs on my yard.
Speaker 1:And since it is basically a fact, accepting that is not the worst thing, because the trying to change that would be difficult. Well, you have also done research on. If we take a step back for a second, there are parameters that might explain the settings in which prison gangs will emerge and the features that they might have turnover rate, the gender and something about maybe the culture of different nations might have different sort of attitudes about the way that prisons might be, so that this emerged. Maybe not for the first time, I don't know. The answer to this Was the US in the 70s, in California, the first place in the world where something like this emerged in prisons. And looking across those parameters, if I look at different prisons turnover rate, size and gender are the gangs different on those three dimensions in different prisons?
Speaker 2:Yeah, so there's definitely older historical examples. There's the Soviet gulag system had an extensive thieves-based legal system, but across countries today. So gangs are important in some places in the United States, but not all. California, texas, new York have pretty serious prison gang problems. Other states South Carolina, vermont, rhode Island, much less Syria. So there's plenty of subnational variation. If you look in Latin America, gangs or other inmate groups have a huge, huge impact on the everyday life of prisons. Prison officials provide very few resources. They don't administer prisons, they don't govern relationships among prisoners, and gangs and other prisoner groups emerge to do that either autonomously or in connection with prison officials. Even in the US, women's prisons, even in California women's prisons, don't have gangs like the ones that exist in men's prison, and that's not because women don't join street gangs Anywhere. From a third to half of street gang members are women. There are some all-female street gangs, but there are no gangs in women's prisons in California, and that's also in spite of the fact that women often have higher rates of assault against other prisoners while incarcerated incarcerated.
Speaker 1:There's it, the the sicilian, the classic sicilian, cosa nostra. Uh, that was a gang that existed outside, a mafia that existed outside of prison but became important in prison because if someone's in prison they're exposed to punish punishments. So I rat out one of my colleagues for a much shorter prison sentence, but I still have to serve a year in prison. I'm not going to live very long.
Speaker 1:There are enforcement mechanisms that are internal and you have to have some way of handling that. It's likely that when I am killed or badly injured by someone in the prison, they will be caught. So you have to have this external organization that will take care of their family and make it clear that you should carry out this vendetta against the person who has violated the rules of the gang, and we will make sure that your family is taken care of as a result. Care of as a result. It sounds to me like in some cases at least the sort of direction of metastasizing is different in California that the prison gang can do enforcement outside of the prison. So you do something, you're outside of prison, or you say I want to leave, I want to quit. You may face punishment from what, in effect, is still the gang, but outside of the prison.
Speaker 2:Yeah, and that's what's really striking, that I was sort of stunned to learn more about, which is that it's the gangs on the inside who control the gangs on the outside, and they have this very credible threat of violence against drug dealing street gang members in the free world, because these guys know that at some point they're going to get locked up and they know that the gangs control the county jail.
Speaker 2:High probability, with a pretty high probability with a very high probability and um, not over 10 or 20 years, but over one, two and three years a month.
Speaker 1:A month because you know my name. I have to show you all, right? Yeah, I, I see how it is, we'll be back.
Speaker 2:Yes, and you know there's also hostages in the prisons, in the jails of incarcerated street gang members, and so they can say you know the street gangs are going to do what? What the gang in the prison says, because we're going to get you when you come here later or we're going to get your friend now. And so they have this tremendous, credible threat and they use that in addition to tax the sales of drugs out in Los Angeles County. They use that to adjudicate conflicts between competing drug dealing gangs in Los Angeles and they've even done it to regulate noxious behavior. Drive-by shootings were incredibly problematic, especially in the early 90s. It generated a lot of backlash from law enforcement, bad media attention, innocent neighbors scared or harmed, and it was easy for gangs to do that because it was always in somebody else's neighborhood where those bad actions happened.
Speaker 1:But of course there's a reciprocity. It's bad for business overall.
Speaker 2:It's bad for business, overall it's bad for business. And so these prison gangs that tax that trade said you can't do that anymore, you don't have to stop killing each other, you can't do these chaotic drive-by shootings. And so, in the wake of this sort of declaration by one of the gangs, there's a 95% decline in gang-based drive-by shootings, but only a 5% decline in homicides. The violence was still there, but it was a less costly violence from a business perspective.
Speaker 1:Well, so has there been an evolution over time. The size of the incarcerated population in the United States in general, and California in particular, is shocking. If you look internationally, the US really incarcerates a high proportion of its population. That means that there are a lot of older people who might no longer be in prison but are still members of the gang. Can you leave a gang? Can you be no longer? Obviously, you can retire, you're old. Gang. Can you be no longer? Obviously, you can retire, you're old. But once I'm no longer in prison, am I still a member of the gang as far as the gang's concerned.
Speaker 2:So there's sort of three levels of gang affiliation. The lowest level is that you weren't in a gang before you go to prison. You're not trying to be a player. You work under the umbrella group of the race and gang in your prison and when you leave you go back to your life. Then there are people who have been in street gangs or pretty criminally active before. They have a closer connection. They're definitely expected to put in work for the gang while incarcerated. Many of those people are trying to earn membership in the sort of the top tier. So the actual sort of hardcore made members of prison gangs is within, you know, like a number of hundreds of people rather than thousands or tens of thousands. Those are the people who are making a sort of lifetime commitment I'm never going to leave. And when they leave the prison they're very much expected to actively work for the gang, carry out drug deals, carry out violence, extortion, and those people absolutely must keep working after release.
Speaker 1:And you mentioned before tattoos. Is there some signal or means by which I can make a credible commitment? Yes, I want to be in the top tier and I'm going to do it in a way where everyone will know and I can't say I've just, I've changed my mind.
Speaker 2:I mean to get into the gang you need to prove you earn a lot of money and willing and capable to use violence, and you have to be in good standing Once you're in. It's less true now. Gangs are too credible. Tattoos are too credible of a signal now and so gang members don't want law enforcement to have very credible information about gang affiliation. But for many years, very prominent tattoos, they're permanent. You can't get rid of them, you can't hide them. That's as credible a signal of gang membership.
Speaker 2:And, yeah, when you're out in the free world, those things are going to mean something and you can't just erase them and people can observe them. If it's on your neck or your face or your forehead. That's not something that's easy to cover up and so breaking from gang membership is very difficult. I think that's part of the function. It's difficult to get out signals quality coming in, signals quality coming in. So, going back to Ellie Berman stuff, there's a sacrifice that reveals underlying dedication, motivation and loyalty from getting something that in the future, if you weren't loyal, you actually wouldn't really want to have.
Speaker 1:Right and I can't tell. I ask you do you really want to be a member at the top level of this gang and get all the benefits that that confers? Yes, yes, I do. Will you do the things that are necessary?
Speaker 1:Oh, absolutely, that's a pooling equilibrium a whole bunch of people that will all say that I want a separating equilibrium. Do you mean it? And so you have to do something that's very costly. On another dimension, and maybe it's committing an act of violence for which you're going to be punished, but that means that I'm willing to do it Maybe it's to get a tattoo on my face that is very difficult to remove and people are going to look at me and say, oh, I know what that is, and that then is a separating equilibrium. It allows me to give a costly signal. Allows me to give a costly signal.
Speaker 1:Well, my last question is I think this is I don't know if it's economics or political science and I don't care I think it's some of the best kind of research at the intersection between problems of market organization and the selection of political by which I mean collective action rules out there, it is a place that a lot of people could have successful academic careers. If you were to advise someone who is just starting graduate school or to think about graduate school, what sort of course of study, what things would be important to learn? What skills do people need to have in order to do, generally, this kind of research approach?
Speaker 2:Yeah, and you know, the way that I think about it is that in political science, economics and sociology there's institutional approaches and non-institutional approaches, and it's the institutional approach across the disciplines that are in perfect conversation. So work by Diego Gambetta, in sociology, Federico Veresi, that's just as institutional in the way that the sort of work that I'm doing is that tends to be more European sociologists.
Speaker 1:There are some American sociologists that do it, but the European sociology is very institutional.
Speaker 2:Yeah, absolutely so.
Speaker 2:Acquiring the sort of institutional toolkit you know there's obviously a long literature on new institutional economics Becoming equipped with some basic tools in game theory is crucial.
Speaker 2:I've been on a kick lately about why typically economists should care a lot more about qualitative evidence.
Speaker 2:Institutions are multifaceted and multidimensional concepts and describing them with single numeric measures is often very difficult to do.
Speaker 2:It hides lots of the things that are actually texture, that are important when I think a lot of qualitative research methods bring those things to the front and give us a much richer and complete view of something as multidimensional as institutions. So there are some great comparative politics, qualitative methods, textbooks that we've been working on, thinking about comparing institutions and political science since at least the 1970s, and we've gotten pretty good at it. So I think equipping yourself with those sorts of tools I'm a big fan of econometrics and causal inference, although I don't use that sort of method in my work very much I think it tends not to be great at describing institutions and their change, but it can measure well the consequences of institutional change very well, and so the studies that I think are sort of most interesting have this rich texture description of institutions, how and why they change and then if you can find some empirical quantitative measures to pick up those other effects, that's a really nice, robust, complete picture of institutions and their consequences.
Speaker 1:Well, I appreciate that. I'm very glad to have had you on a guest, for the Answer Is Transactions Cost, and I wish continued good luck to you and your research. I look forward to reading your future research.
Speaker 2:That's great, Mike. Thanks so much for being in conversation.
Speaker 1:Whoa. That sound means it's time for the twedge. I had ChatGPT write a joke taken from David Skarbek's book, just to see what it would say. It was actually quite interesting. Here's the joke. Why did the new inmate bring a briefcase full of forms on his first day in prison? Because he heard the gangs insist you do the paperwork when you arrive. But he figured he'd negotiate his way out of violence by threatening them with an audit. I don't know if that's funny, but that's a really weird thing to come up with. Thanks, chatgpt. Then I also found kind of an edgy joke. It's one joke with two different punchlines. Why are white prison gangs the scariest? A, well, because you know they're guilty. B, they're all wearing guard uniforms. Either way, that's a little bit rough. This month's letter bit rough. This month's letter, mike.
Speaker 1:Several recent episodes were about common law versus legislation. I haven't heard yet the drawbacks of law instead of legislation. My mind goes to the Bill of Rights, the idea being these rights are so important we must write them down. Countries that don't write down these rights often lose or are limited in their exercise of these rights. Thinking of recent legislation in Canada and Great Britain over free speech versus hate speech. Yes, this is one form of legislation protecting against another, but it seems to offer more protection than just a whim when a class of people can easily change ideas of what is or is not acceptable. Cm from Montana Well, cm, that's certainly right.
Speaker 1:This, I think, accords with a definition the joke that I always tell that listeners are going to be tired of about Hayek University. The story of Hayek University is that we're going to wait for a couple of months and see where the muddy paths emerge and then pave those that would be law. You raise an important point, and that is the Buchanan objection to Hayek University, and that is where are you going to put the buildings? Well, there have to be some initial place where we have an agreement that these will be the basic rules of the society, and to me, the Bill of Rights in the United States is those basic architectural rules. And James Buchanan certainly thought and I agree that for the most part those rights have to be written down or, as Buchanan would put them, laid on. So that's a good point. We have three different things going on here. One is the legislation we have a meeting. We decide where the sidewalks are going to be. The second is law. We wait until the muddy paths emerge, and then we pave those, and the Constitution, which is the basic rule about where the buildings go, and those are relatively fixed. You can't change those. We're not going to allow that to be changed, and so you're right to say common law might not be able to provide that. Although the tradition of free debate is one that had emerged in England, the United States wrote it down because the king had violated it, and so it was precisely because there was a law that is, the muddy paths of free speech in the parliament that Americans were concerned about that. They ended up writing it in the Constitution, and so we might recognize that there are emergent traditions, but we want to make it impossible or very difficult for those to be changed, and so that actually was Bruno Leone's concern in making it very difficult for legislation to change law. But thanks, that's certainly a good question.
Speaker 1:This month's Book in a Month Go back a ways to a book that I thought was interesting at the time, but is now just essential. The book is by Jonathan Allen and Amy Parnes, published in April 2017 by Crown Publishers. The title of the book was Shattered Inside Hillary Clinton's Doomed Campaign and the reason I think that it's important is that the Democrats in 2024 basically committed all of the same mistakes that the Clinton campaign committed, except more so. What seems to have happened in 2024 is that the Democrats were just incredulous that anybody would like this idiot Trump, and their campaign was mostly say look, look, what a bad person Trump is, and when, in fact, many of the things that Trump had said were the reasons people were voting for him. Anyway, I think if you read the book, you'll see a lot of the parallels between the 2016 campaign and the 2024 campaign.
Speaker 1:Also, it's not really a book but a podcast. It's Club Random by one of my favorite people, bill Maher, among other things. In the most recent version of Club Random, we hear William Shatner express the mainstream Democrat view that, since he thinks Kamala Harris was a great candidate, anyone who disagrees can only be a racist, a sexist or maybe a moron. Well, the next episode will be released on Tuesday, december 31st, new Year's Eve. We'll have a new topic, some letters and, of course, a hilarious new twedge. All that and more next month on Tidy C.