Tuesday, July 1, 2008

Markets trump policy: illicit drugs

Among developed economies, the United States has the most restrictive policy relative to illicit drug. The Netherlands have a much more relaxed one. Guess where more people use drugs.

According to a study published in PLos Medecine, Americans are far ahead of anybody else. this table shows that 16.2% have tried cocaine, New Zealand is second at 4.3%, and the liberal Netherlands have 1.9%. For cannabis, it is 42.4, 41.9% and 19.8%.

So much for the war on drugs. This shows that markets are much more powerful than regulation, they find a way to circumvent rules and laws. How can one really reduce drug use, if this is the true goal? Make it legal, thus reducing its price, as the risk premium drops. Supply will then drop. If the price goes too low, tax it like tobacco and alcohol. At least revenue would then end up in the pockets of the government instead of crooks.


VIlfredo said...

Isn't it well known that once you forbid something, it is all the more tempting to do it?

But back to Economics. The high price of illicit drugs actually makes it interesting for people to supply it who would not do so otherwise. The higher the price, the higher the supply. Making drugs illegal just increases their price and their supply.

T-Bone said...

"The higher the price, the higher the supply."

Well, I don't know about that. I imagine the higher price is a risk premium, but not necessarily higher supply.

Legalization seems like a good idea to me. No more drug lords. Areas with persistently high crime rates and violence seem to exist mainly because of drug related activities, competition for territory to be able to sell on the corner, and so on. And new drug dealers immediately replace any arrested or killed dealers.

Economically speaking, our prisons are already overcrowded and don't need to be filled with drug dealers and personal drug users. And all that labor being wasted on running a relatively inefficient drug distribution business would be better used in more productive labor activities.

I think honestly educating people on drug use would greatly help reduce drug use. I think giving a one-sided story that marijuana is terrible and evil makes some people dismiss the entire lecture as propaganda. It works about as well as abstinence-only education. But if you put it in honest perspective, you'll get more people to weigh the harms against the pleasure rather than just dismissing the harms as overblown.

Those that choose to use would likely choose the least harmful options and manage their use like a doctor might self-medicate and avoid abuse. More people would choose marijuana or ecstasy over cocaine and heroine. Those options might even be healthier than alcohol and cigarettes, especially marijuana inhaled from a vaporizer (which makes it so you inhale only THC, without any smoke).

Independent Accountant said...

We agree! Until the Harrison Act of 1914, drugs were legal in the US. You could buy opiates from Sears and have them shipped by US mail.