Government Intervention · Walter

Missing Serial Number

In addition to depicting the underground market for firearms, this clip is also useful to spark a discussion about gun control policies. Walter could purchase a gun legally since he doesn’t have a criminal record, but he’s willing to purchase an illegal one without a serial number.

See more:

Inequality · Jesse · Macroeconomics · Walter

Cost of Getting Even

The scene brings forward a discussion between Jesse and Walter. Their dialogue is centered on how their competitors choose to protect their turf and the shooting of their partner Combo, for which Jesse seeks revenge. The scenes within are particularly useful for discussing the importance of property rights delivered by a functioning legal system and the consequences brought about by the impossibility of enforcement, for instance, in the black markets for drugs. For example, when Combo sells “blue” methamphetamine in the competitors’ turf he ends up being killed by an 11- year old boy. The rival gang seizes and sells the “blue” methamphetamine, distributed by Combo and cooked by Walter and Jesse, as their own. Outside of black markets, courts or specialized branches of the police would have handled such disputes. However, when the rule of law and property rights are absent, vaguely defined, or not enforceable, agents resort to other means of enforcement such as violence, which breeds more violence – Jesse is obviously seeking revenge for Combo’s death.

The clip is also useful for illustrating the socio-economic costs and the unintended consequences of illegal drugs and the black markets that form in response. The loss of life and the use of children, often from poor neighborhoods and low-income families, as labor are obvious. A discussion about social mobility and human capital development may also originate within these scenes. In broad terms, children who end up dealing drugs and protecting turfs fail to accumulate the much-needed human capital, which should allow them to fare better than their parents. The scenes within may also be used to discuss how failure to accumulate human capital or make meaningful investments in tomorrow’s labor force diminishes a jurisdiction’s ability to produce goods and services, or, in other words, shifts that jurisdiction’s production possibility frontier inward.

This description comes from Duncan, Muchiri, and Paraschiv (Forthcoming)

See more:

Costs & Production · Growth · Jesse · Macroeconomics · Mike · Walter

Owners, Not Employees

Walter, Jesse, and Mike and splitting the proceeds from a new, methamphetamine-production business. The scene demonstrates how businesses incur various expenses while providing instructors and students with a lively example about the different cost types. Once Mike divided the revenue into three equal stacks, he goes on to do an accounting of all the costs they have incurred while producing their latest batch. One can observe that some the costs such as the ongoing expense with keeping former collaborators quiet are fixed, while others, such as the cut to the dealers or the fee for the drug mules (i.e., those who transport the methamphetamine from its production to distribution location) are variable. Actually seeing each pile of cash shrinks, as they account for the costs of the business, provides a visceral example about costs, profit, and the relationship between the two.

This clip may also serve as a catalyst for discussing, once again, the role of institutions in shaping the behavior of economic agents and the consequences brought about by their lack of reach into black markets such as that for methamphetamine. Walter is surprised to find out that the cost with the mules is 20% of the revenue. However, Mike adds that transporting the methamphetamine involves risks (i.e., of being robbed by a rival gang or being caught by the police and sent to jail) and the cost is justified – in economics jargon, such costs represent the compensating differential for hazardous work conditions. Outside black markets, a robbery is solved by simply reaching out to the police or other specialized authorities. In other words, property rights may be enforced through the judicial system. However, in the case of methamphetamine this is not possible. This way, those who move the drug must also guard it and enforce the property rights over it through violence. Hence, the steep cost of transportation that characterizes the methamphetamine-producing business.

This clip also provides a detailed account of various activities that form the underground economy and underpin the $1,392,800, methamphetamine business. For example, dealers receive $13,240, mules (the ones who transport the methamphetamine for distribution purposes) get a flat 20% (after the dealers have been paid) or about $278,560, miscellaneous production-related expenses total $120,000, expenses with concealing the laboratory add up to $165,000, while the lawyer/money-laundering fees are $54,000. As part of the methamphetamine production, all these activities are illegal, thus not recorded officially, and hence part of the underground economy. The figures associated with such activities may find their way into official data, however, as fictional activities/services conjured by money launderers. This illustrates once more the difficulty that arises from accurately measuring the volume of the economy be it as the gross domestic or gross national product.

This description comes from Duncan, Muchiri, and Paraschiv (Forthcoming)

See more:

Jesse · Market Structures · Mike · Supply and Demand · Walter

Hire the Cook

After a failed first attempt to gain full control over a key production input and get the blue methamphetamine off the market, Declan, a Phoenix-based dealer, meets with Jesse, Mike, and Walter. Right from the start, Walter tries and appears to succeed in convincing Declan that collaboration is the best path forward. This way, Walter’s superior blue methamphetamine remains in production and the methylamine, the key input, is used in the most efficient and profitable way. Further, Declan and his crew would serve as their distributor. This way the parties specialize according to their comparative advantage while all parties economize and gain from trade.

See more:

Market Structures

Bulk Discount

An illegal arms dealer is selling the criminal twins some bullet-proof vests. As other entrepreneurs, his profit-maximization incentives push him to offer bulk discounts on guns. Bulk discounts are a popular form of price discrimination to incentivize buyers to purchase more products than they may have originally intended.

See more: