Question

Applied Economics - The Institutional Framework

Who the Looting Ruins

‘Seventeen years of work is gone,’ said the owner of an Ecuadorean eatery.

By

The Editorial Board

June 4, 2020 7:37 pm ET

Luis Tamay is an immigrant with an Ecuadorean restaurant in Minneapolis. Zola Dias is the black owner of a clothing store in Atlanta. Sam Mabrouk has a denim shop in Columbus, Ohio. They’re only a few of the people whom intellectuals overlook whenever they rationalize rioting or say that property destruction isn’t violence.

“Seventeen years of work is gone,” Mr. Tamay told the Minneapolis Star Tribune after his restaurant, El Sabor Chuchi, burned to the ground. When the rioting began, he stood watch. But last Friday he obeyed curfew, believing that the National Guard would control the streets. Then on Facebook he saw video of his restaurant on fire. He told the newspaper he didn’t have insurance because it was too expensive.

Safia Munye, a Somali immigrant in Minneapolis, opened Mama Safia’s Kitchen in 2018 with money saved for retirement. When the pandemic arrived, NPRreported, she couldn’t afford both insurance and to pay her workers. She did the latter. Now the restaurant is wrecked, but she’s hardly the intended target of George Floyd protesters. “My heart is broken. My mind is broken,” she said. “I know I can’t come back from this. But this can be replaced. George’s life cannot. George’s life was more important.”

In Atlanta, Zola Dias lost more than $100,000 in goods from his clothing store, Attom. “I’m very emotional when I talk about it because I put my soul and life in this business,” he told the Atlanta Business Chronicle. “I just want to tell people to go and vote. That’s the only way to stop it and make a change.”

In San Francisco, Grace Jewelers was ransacked. “I can’t put a dollar estimate on it now,” Paul Zhou, the owner’s husband, told the Chronicle. “My wife is devastated.” In Dallas, Rodolfo Bianchi’s empanada shop was trashed. “It was emotionally heartbreaking to see all of your sweat, blood and tears just shattered,” he said. “It wasn’t anger, I was just broken.”

King’s Fashion in Philadelphia is a burned-out mess. “I don’t know what to do right now,” Helen Woo, a co-owner, told the Journal. “I built it up,” said her husband, Sung. “And it’s gone. My life is gone.” Masum Siddiquee lost about $200,000 of merchandise from his Philly store, MN Fashion and Jewelry. “I have no money right now,” he said.

“I lost everything in one night,” said Sam Mabrouk, counting an estimated $70,000 in product stolen from his clothing shop in Columbus, Ohio. “That was my savings from 11 years of working. That’s what hurts more than anything.” In Milwaukee, Katherine Mahmoud’s cellphone store was looted empty, which she said had nothing to do with what the Floyd protesters are fighting for. “I look just like them,” she told the Milwaukee Journal Sentinel. “Why?”

Some of these businesses are raising funds to help put the pieces back together. Some might have insurance to cover at least a portion of the losses. But others might not survive, and many companies will go bust quietly, without making the newspapers. Contrast this heartache with the cavalier attitude shown by at least some intellectuals, who seem to think that firebombing a local South American restaurant is merely the persuasive language of the unheard.

OPINION

COMMENTARY

Don’t Call Rioters ‘Protesters’

As in the 1960s, rioters aren’t looking to make a political point. They’re in it for the ‘fun and profit.’

By Barry Latzer

June 4, 2020 1:55 pm ET

Though thousands of demonstrators have taken to the streets of cities across the nation to express their outrage over the death of George Floyd, many hundreds have engaged in mob violence and looting. Mr. Floyd’s tragic death is, for them, a pretext for hooliganism.

We’ve seen this before, back in the bad old days of the late 1960s, when rioting became a near-everyday occurrence. Economists William J. Collins and Robert A. Margotallied an extraordinary 752 riots between 1964 and 1971. These disturbances involved 15,835 incidents of arson and caused 228 deaths, 12,741 injuries and 69,099 arrests. By an objective measure of severity, 130 of the 752 riots were considered “major,” 37 were labeled “massive” in their destructiveness.

At the time, black radicals and some white leftists saw the riots purely as political protest. Tom Hayden, the well-known New Left leader, described the violence as “a new stage in the development of Negro protest against racism, and as a logical outgrowth of the failure of the whole society to support racial equality.”

This analysis ignored the observations of witnesses on the scene. Thousands of rioters in the 1960s and early 1970s engaged in a joyful hooliganism—looting and destroying of property with wild abandon—that had no apparent political meaning. In the Detroit riot of July 1967, one of the era’s most lethal (43 people died in four nightmarish days of turmoil), the early stage of the riot was described by historian Sidney Fine as “a carnival atmosphere,” in which, as reported by a black minister eyewitness, participants exhibited “a gleefulness in throwing stuff and getting stuff out of the buildings.” A young black rioter told a newspaper reporter that he “really enjoyed” himself.

Analysts of urban rioting have identified a “Roman holiday” stage in which youths, in “a state of angry intoxication, taunt the police, burn stores with Molotov cocktails, and set the stage for looting.” This behavior is less political protest than, in Edward Banfield’s epigram of the day, “rioting mainly for fun and profit.” We are seeing some of the same looting and burning today, often treated by the media as mere exuberant protest.

Analyses of the riots that pinned blame on white bias and black victimization buttressed the protest theory. Such explanations received official sanction in the report of the influential National Advisory Commission on Civil Disorders established by President Lyndon Johnson in 1967, and headed by Illinois Gov. Otto Kerner. The Kerner Report famously declared that “white racism is essentially responsible for the explosive mixture which has been accumulating in our cities since the end of World War II.” While not explicitly calling the riots a justified revolt by the victims of white racism, the Kerner Report certainly gave that impression.

Today we have the Black Lives Matter movement, which claims that police racism is the heart of the problem and calls for “defunding” police departments. Its apologists ignore the pressing need to protect black lives in communities where armed violent criminals daily threaten law-abiding residents.

A seeming oddity of the disturbances of the late ’60s and early ’70s is that they failed to materialize in many cities. An analysis of 673 municipalities with populations over 25,000 found that 75% of them experienced no riots. Even within riot-torn cities it is estimated that 85% or more of the black population took no part in them. Although they’ve gotten little or no media coverage I expect we will see comparable enclaves of tranquility today.

One possible explanation for why some cities explode with violence and others don’t is contagion theory: the tendency of people to do what their friends are doing. Once the rocks and bottles start flying in a neighborhood, it becomes tempting to join in. Youths, who played a major role in the turbulence, are particularly susceptible to peer influence. Consequently, when teenagers and young men begin rampaging, the situation often quickly escalates. No one wants to miss the party. As more young people join in, what begins as a manageable event can rapidly spiral out of control.

Closely related to the contagion theory is the threshold—or, more popularly, the “tipping point”—hypothesis. Once a certain number of rioters have become engaged, this view holds, those who had preferred to stay on the sidelines will be motivated to jump in. While imitation plays its part here too, the size of the event in itself becomes the crucial determinant of the ultimate magnitude of the riot.

Of course, a peaceful situation can quickly descend into mayhem in the presence of provocateurs. Back in the ’60s, a new generation of young black militants, such as Stokely Carmichael and H. Rap Brown, traveled around the country making incendiary speeches, unabashedly endorsing black revolution. Today we have antifa and various anarchist groups using social media and encrypted messages to organize the violence effectively but anonymously.

Certainly, there are those who honestly believe that America’s police are racist and in need of fundamental reforms. They are mistaken, but they should have ample opportunity to express their views peacefully. There should be no confusing such protesters, however, with looters, arsonists and those who would kill police officers. They deserve a different name: criminals.

Mr. Latzer is a professor emeritus at New York’s John Jay College of Criminal Justice and author of “The Rise and Fall of Violent Crime in America.”

Discuss the opportunity costs

Answer 1

Let us begin with a brief discussion on what opportunity cost is.

It is "the loss of potential gain from other alternatives when one alternative is chosen". The idea of an opportunity cost was first begun by John Stuart Mill.

The opportunity cost doctrine was first explicitly formulated by the Austrian economist Friedrich von Wieser in the late 19th century. Opportunity cost is the cost of any activity measured in terms of the value of the next best alternative foregone (that is not chosen).

---

The central question here is about how economic inequality – inequality of wealth/capital, opportunities and information – can bring about substantial differences in opportunity costs (and thus incentive structure) between groups.

Four groups are relevant here: the Blacks, the youth, business owners and the police. The groups overlap of course so we look at the opportunity cost for a statistically representative individual from each group.

---

The representative police officer is the member of a Police Union in the US which makes them too easy to hire, too hard to fire. George Floyd’s murderer had 17 standing strikes against him and yet was allowed to patrol the streets with a lethal weapon and a uniform of authority which sanctioned its use. His perceived opportunity cost at the time of holding down the knee wasn’t enough to force him to rethink his decisions.

And with so many Black artists embedding their experience of discrimination into lyrics, with so many people clearly relating to it, one could argue there’s solid reason for them to be choosing to forego singing about romance, beaches and the good life.

The average person joining the police force doesn’t have a high opportunity cost career-wise either: joining the police in the US is an easy way out (9 months of training) for a white American whose academic career has come to a self-evident conclusion after passing 12th grade.

But there other real opportunity costs to being a policeman, of course: e.g. a regular working man’s life without the constant life risk. Of course, this life doesn’t offer as much power over other lives, as much glamour of authority; and the risk is somewhat mitigated by the classification of police homicide as first degree murder.

---

The opportunity costs facing a representative youth:

a. Legal implications of getting caught: the great majority live their life as it comes, gung-ho like their peers, so they aren’t thinking or don’t really know about how a criminal record affects immediate and future job / career prospects. Serious legal risks are non-existent below a certain age, and perceptibly minimal in the anonymity of a crowd.

b. Academic progress: With their peers outside, they aren’t thinking school/uni either. Especially since it’s uncertain when the latter opens up again, if they open up at all, and what the new status quo will be like; stronger community bonding is something of a primal, default response to future uncertainty of living conditions

c. Personal recreation: What would they rather be doing – scrolling Facebook, watching a movie or set things on fire and feel like Gawd? (millennial spelling intentional)

-----

The representative business owner in the cases mentioned appear to have been materially affluent. Their present scenario may be slower or even negative growth in living conditions, but it is “cushioned” by their existing wealth.

Initially the opportunity cost to them running a business would be the wage income earned by closing down the business and joining the labor workforce. But their skills are usually managerial – manage their stock of differentiated capital - instead of highly technical; other employment-providing companies can only use so many managers.

Plus if businesses close down and business owners enter the workforce, this puts substantial downward pressure on wages because not only do the owners but also the displaced workers join the workforce afresh with smaller number of job opportunities (firms which previously provided employment have closed down).

Now these business owners face the same opportunity cost, without the advantage of existing capital to monetize.

On a subjective note: this is particularly unfortunate if the owner gained the capital with their own skill and will, like a first generation entrepreneur. However many capital owners are beneficiaries of capital left over by their predecessors.

This includes money, land, machinery and all the conventional connotations of capital but also more abstract forms like education, connections and “worldliness” that give the possessor a distinct advantage in securing a place for themselves in our modern capitalism ecosystem. A quotation from George Matthew Adams is exceptionally relevant here:

“There is no such thing as a self-made man. We are made up of thousands of others. Every one who has ever done a kind deed for us, or spoken one word of encouragement to us, has entered into the make-up of our character and of our thoughts, as well as our success.”

So the battle these business owners now face will arguably demonstrate which “will” was a greater determinant of their economic prosperity – their own or their grandpa’s.

-----

And this leads very naturally to the opportunity cost facing the fourth group: the representative Black in the US.

If Black radicals of the 1960s “such as Stokely Carmichael and H. Rap Brown, traveled around the country making incendiary speeches, unabashedly endorsing black revolution” then perhaps it would do us well to ask WHY.

The Achievement Gap between white students and black students has barely narrowed over the last 50 years, despite nearly a half century of supposed progress in race relations and an increased emphasis on closing such academic discrepancies between groups of students.

The 1966 Coleman report found, among many other things, that in both math and reading the average black student in grade 12 placed in the 13th percentile of the score distribution, meaning that 87 percent of white students in grade 12 scored ahead of the average black 12th grader.

But 50 years later, that gap has barely narrowed, Eric Hanushek's 2013 analysis shows. The average 12th grade black student, according to data from the 2013 National Assessment for Educational Progress, placed only in the 19th percentile. In reading, the achievement gap has improved slightly more than in math, but after a half century, the average black student scores at just the 22nd percentile.

It seems difficult to imagine a report that found the average black 12th grader in the rural South registered an achievement level that was comparable to that of a white 7th grader in the urban Northeast not making headlines. But that's precisely what the Coleman Report found, and that gap and others never received attention.

So the opportunity cost of rioting for a typical Black may be spending time with family or "freedom" or watching their child grow, but it's not career prosperity "the honest way". The reality is they don't have the winning hand (yet).

-----

Just like any other enterpise or economic activity, with crime comes an opportunity cost. As discussed before , many criminals are faced with extreme scarcity which is why they choose to resort to crime with the belief that the risk involve with their activities outweighs the issues with facing poverty. These risks are the opportunity costs of criminal activity.

For example , if a man chooses sell narcotics because he is unable to find a job , this opportunity cost is choosing to sell illegal drugs and losing the opportunity cost for a legitemate career. This simple cost of giving up a chance at a real career leads to more opportunity cost that have deeper consequences.