David R. Henderson  

Take That, Madame Secretary

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Basic economics works.

Maerker: In Mexico, there are those who propose not keeping going with this battle and legalize drug trafficking and consumption. What is your opinion?

Clinton: I don't think that will work. I mean, I hear the same debate. I hear it in my country. It is not likely to work. There is just too much money in it, and I don't think that--you can legalize small amounts for possession, but those who are making so much money selling, they have to be stopped.


This is from an interview of Hillary Clinton in 2011, highlighted by Reason's Jacob Sullum.

What Clinton didn't understand, or maybe did but wasn't forthcoming about (although, I'm going with the former) is that legalizing drugs reduces risk on the supply side and reducing risk on the supply side shifts the supply outward, bringing down price, and, therefore, decreasing profits.

Here's from a recent item in the San Francisco Chronicle:

Marijuana legalization may have accomplished what the War on Drugs has failed to do -- put the squeeze on Mexican drug cartel activity.

The U.S. Border Patrol has released 2015 data showing that the number of marijuana seizures throughout the southwest U.S./Mexico border has fallen to the lowest level in a decade, the Washington Post reports.

Mexican manufacturers of illegal marijuana bricks have driven down prices as residents in California, Colorado, and Washington state now have safe access to reasonably affordable medical marijuana and/or recreational cannabis.

"Two or three years ago, a kilogram [2.2 pounds] of marijuana was worth $60 to $90," a Mexican marijuana grower told NPR news in December 2014. "But now they're paying us $30 to $40 a kilo. It's a big difference. If the U.S. continues to legalize pot, they'll run us into the ground."


HT2 Mike Munger.


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CATEGORIES: Regulation




COMMENTS (12 to date)
James writes:

" legalizing drugs reduces risk on the supply side and reducing risk on the supply side shifts the supply outward, bringing down price, and, therefore, decreasing profits."

Yes and yes but we have to be honest. Legalization also increases the market clearing quantity unless the demand curve is vertical. Said another way, prohibition increases profit margins but makes drugs more expensive and less plentiful.

People support prohibition for varying reasons but I wouldn't argue for legalization by saying "Well, it will make drugs cheaper and more plentiful but it will reduce the profit margins of suppliers." No current supporter of prohibition will see that as a desirable tradeoff.

bill writes:

Per capita alcohol consumption today is less than during Prohibition.

Jon Murphy writes:

To paraphrase Milton Friedman, drug prohibition, from an economic point of view, acts as protection for drug cartels.

James writes:

bill,

I don't see how today's alcohol consumption is indicative of the effects of prohibition. Per capita consumption of alcohol is down worldwide, including places that never had prohibition. It's been about a hundred years since prohibition and the supply and demand curves have both had plenty of opportunity to move around.

So long as demand curves slope downward, prohibition will reduce the total quantity consumed of the prohibited item. If that's too theoretical for you, Jeff Miron and Jeff Zweibel wrote a paper in which they find that consumption during probition was lower than the periods before or after.

I'm not arguing for prohibtion (I favor legalization), but it would be dishonest for advocates of legalization to focus on cartel profit and omit the fact that legalization would very likely make drugs cheaper and more plentiful.

Khodge writes:

Thank goodness Chris Christie bought the Attorney General's position in the economic-impaired Trump administration. He already promised to put an end to marijuana sales as president...it's just a minor title change and he'll have a better opportunity as the nation's chief law-enforcer.

Ron H. writes:

James

I think the argument is more about reducing the extreme violence, especially in Mexico, around the illegal drug trade.

My own admittedly limited observation is that most people who want to use marijuana are already doing so, and reduced prices won't increase demand or use by very much.

Don Boudreaux writes:

Hillary Clinton's deep ignorance on this matter is, truly, very deep. See here.

Mm writes:

Is this an Econ blog? Are there no costs to greater drug availability & utilization? can't do a cost benefit analysis w/o it. And yes, prohibition did decrease the rate of serious alcohol induced health & safety problems-but at a high cost. Increased cannabis use will not be benign-
http://www.cnn.com/2016/02/10/health/marijuana-weed-verbal-memory/
http://www.mirror.co.uk/news/world-news/cannabis-smokers-end-up-worse-7608737
You can argue legalization is worth it, but you need to look at effects of greater use & abuse on the population at large, and the jury isn't in on that yet. Yes legalization will hurt the cartels, but that is only part of the equation.
I know I will be flamed by the pro pot crowd, they are like Ron Paul supporters, way too active on the web.

David Seltzer writes:

Of course demand curves are downward sloping. That means bars and liquor stores are not killing each other over turf and illegals aren't climbing walls to sell tobacco.

Jonathan Petersen writes:

I look to Portugal for guidance. They decriminalized drugs 15 years ago and moved the enforcement budget to treatment. The results are encouraging. https://www.washingtonpost.com/news/wonk/wp/2015/06/05/why-hardly-anyone-dies-from-a-drug-overdose-in-portugal/

Hans writes:

Only governmental units have the capacity to turn
lead into gold and gold into lead.

Andreas writes:

I think we are misclassifying the issue. For the sake of argument, let us assume that the drug war began because of the detrimental effects drug usage has on users of those drugs, which consequently is detrimental to the general welfare. Prohibition hasn't prevented usage to the extent envisioned. What prohibition unarguably created was using violence to increase market share or to drown out competition. This violence utilized by suppliers is the now the underlying motive rather than preventing usage. While American jurisprudence still criminalizes the average user, this is not the only objective of the war on drugs. Funding for institutions such as the DEA are in reality fueled by fear. That fear is no longer founded over worry over an increase in the amount of consumers Rather the prevention of systematic violence utilized by drug suppliers. If prohibition is repealed the underground economy that that allows such systematic violence will be brought into the light and theoretically would prevent such methods as the suppliers become corporate entities and could be subject to outright dissolution by operation of law. Colorado is a poster child for this belief. So in Mexico if a particular supplier sees a decrease in revenues say due to another supplier taking over part of that suppliers territory, the supplier with significant loss will kill the competitions family. In Colorado if a dispensary is experiencing losses due to geographic competition their remedy would be to create a superior product.

1. Legalization would remove the violence component of the drug trade.
2. Legalization would allow for REAL oversight of suppliers. This oversight could go to reduce usage by underage consumers. This has been empirically proven. Just as an example prior to legalization in Colorado it was easier for a minor to acquire an 1/8 of marijuana than a six pack of beer. (For the record I don't mean to say that minors still can't get their hands on marijuana)

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