David R. Henderson  

Hillary Clinton Was Wrong

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Welcoming Prejudice... Affirmative action for drug pu...
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 then Secretary of State Hillary Clinton in early 2011. It's quoted by Jacob Sullum of Reason. Denise Maerker of Televisa had asked Clinton's opinion of proposals to reduce black-market violence by repealing drug prohibition.

As Jacob wrote at the time:

Clinton evidently does not understand that there is so much money to be made by selling illegal drugs precisely because they are illegal. Prohibition not only enables traffickers to earn a "risk premium" that makes drug prices much higher than they would otherwise be; it delivers this highly lucrative business into the hands of criminals who, having no legal recourse, resolve disputes by spilling blood. The 35,000 or so prohibition-related deaths that Mexico has seen since President Felipe Calderon began a crackdown on drugs in 2006 are one consequence of the volatile situation created by the government's arbitrary dictates regarding psychoactive substances. Pace Clinton, the way to "stop" the violent thugs who profit from prohibition is not to mindlessly maintain the policy that enriches them.

So what have been the results of deregulation of medical marijuana in the United States?
We show that the introduction of medical marijuana laws (MMLs) leads to a decrease in violent crime in states that border Mexico. The reduction in crime is strongest for counties close to the border (less than 350 kilometres) and for crimes that relate to drug trafficking. In addition, we find that MMLs in inland states lead to a reduction in crime in the nearest border state. Our results are consistent with the theory that decriminalisation of the production and distribution of marijuana leads to a reduction in violent crime in markets that are traditionally controlled by Mexican drug trafficking organisations.

This is from Evelina Gavrilova, Takuma Kanada, and Floris Zoutman, "Is Legal Pot Crippling Mexican Drug Trafficking Organisations? The Effect of Medical Marijuana Laws on US Crime," Economic Journal, November 16, 2017.

This result should not be surprising and, I'm willing to bet, didn't surprise the authors. Because the above Economic Journal article is gated, I went to the 2014 ungated version here.

Here's their explanation:

We argue that the main difference between states with and without MML is not the availability of marijuana. Many studies show that marijuana is widely available in states without MML in place (e.g. National Drug Threat Assessment Report NDIC, 2011, Kilmer et al., 2014). Moreover, a large number of states have decriminalized the use of marijuana in policies dating back to the 1970's. Instead the main difference between states with and without MML lies in the origin of the drug. Traditionally, marijuana markets have been firmly in the hands of Mexican DTOs. However, since their introduction MML create legitimate competition to DTOs by increasing the local production of marijuana within the US.

There is a large amount of anecdotal evidence that suggests MML have indeed provided Mexican DTOs with strong competition from within the US. According to the 2011 National Drug Threat Assessment Report (NDIC, 2011), US production has increased more than twofold in the period 2005-2009, coinciding with the introduction of MML in many states. In addition, price data indicates that the quality-adjusted price of marijuana has decreased by 6 percent in the period 2009-2012 alone (UNODC, 2014). In the background section we present self collected data on the number of marijuana dispensaries in MML states, which shows that makeup of medical marijuana indeed appears to be substantial. Several articles in popular media also suggest that the increase in production that results from MML and the later legalization of marijuana in Colorado and Washington negatively affected the activity of Mexican DTOs (e.g. articles from the Washington and Huffington Post Khazan, 2012, Miroff, 2014, Knafo, 2014.)


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COMMENTS (11 to date)
Jon Murphy writes:

Prohibition not only enables traffickers to earn a "risk premium" that makes drug prices much higher than they would otherwise be...

Wasn't it Milton Freidman who said something along the lines of "from an economic perspective, prohibition acts as a monopoly protection for the drug dealers"?

Daniel Kuehn writes:

The risk premium makes the drug prices high, but I wouldn’t think it would make it lucrative. What makes profits high as the EJ article seems to show is a lack of competition (and presumably some serious information asymmetries that come with black markets too).

Hunter writes:

The problem is that the criminal network already exists. Did the mafia just quit when prohibition ended? True they didn't make the money they once did but they are still around. And this is only MJ. There are plenty of other prohibited drugs for the cartels to sell. The decrease in violence will be limited with the legalization of marijuana.

Rick Hull writes:

Daniel,

Despite the risk, the premium is lucrative because of risk tolerance and its counterpart aversion. It's not terribly difficult to be a successful drug smuggler, but most just don't have the stomach for it. Organized violent enforcement (on both sides, heh) quickly becomes ruinous and a war of attrition, but sometimes that's just a cost of doing business, which must be quite lucrative. Long story short, nonviolent smuggling is like picking up hundreds in front of a steamroller.

David R Henderson writes:

@Daniel Kuehn,
The risk premium makes the drug prices high, but I wouldn’t think it would make it lucrative.
You’re absolutely right. Maybe I’m too charitable to Sullum, but I took him to mean not that the risk premium makes the drug market lucrative, but, rather, that it is lucrative.
But here’s where I think we need to introduce Rick Hull’s beautiful steamroller analogy. I would put it in the following terms: The infra marginal suppliers do get a higher than normal rate of return, even adjusted for risk. Back to Rick Hull’s analogy: The people with the higher than normal rate of return are people who really move quickly to pick up those Benjamins.

john hare writes:

This is hearsay and not verified. I used to work with some Mexicans about 20 years ago that knew prices at various points. A pound of pot was $1,000.00 in Florida, $250.00 in Texas near the border, $150.00 in Mexico near the border, and $25.00 a kilo in rural southern Mexico near their homes.

If they were not pulling my chain, the risk premium was huge at the time. They talked too much which is likely why some of them got caught and deported after prison. One of the statements: "When a Mexican making $5.00 a day can make several months wages by swimming an inner tube of weed across the river at night, it's going to keep coming in."

Brandon Berg writes:

Regarding the last part, I've had a theory for some time that decriminalizing possession while keeping dealing illegal combines the worst of both worlds in some ways. Decriminalization increases demand while leaving supply in the hands of criminal organizations. If you're going to decriminalize demand, you should legalize supply, too.

Michael Byrnes writes:

Seems a bit weird that this post reaches all the way back to 2011 for a Hillary Clinton quote espousing what seems like a fairly mainstream (in 2011) view on marjuana legalization.

There are certainly current cabinet officials who appear to hold similar, or even less favorable, views.

Shane L writes:

I interpret this also as evidence that it is broadly unethical to buy illegal drugs. I know people who are very cautious about buying animal products out of their concern for the well-being of animals on farms. Similarly, we should avoid incentivising murderous drug gangs in their violent competitions through buying illegal drugs.

David R Henderson writes:

@Michael Byrnes,
Seems a bit weird that this post reaches all the way back to 2011 for a Hillary Clinton quote espousing what seems like a fairly mainstream (in 2011) view on marjuana legalization.
I don’t think whether it was mainstream is relevant. What was striking about the quote was how wrong it was: she identified as a problem that legalization would increase something that actually ended up being reduced as a result of legalization.
There are certainly current cabinet officials who appear to hold similar, or even less favorable, views.
I bet you’re right. I haven’t found any of them making that same error, but if you can find some cites, please provide. It will strengthen this post, and if they are close enough to making the same error, I will update and hat tip you. Deal?

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