Just how good would drug legalization be?

by on April 26, 2008 at 9:33 pm in Law | Permalink

John Nye, Megan McArdle and I debated this question at a party today (Robin Hanson asked that we not ban robots, some people called for open borders, John and I explained the hierarchy of the economics profession to Will Wilkinson, and Bryan Caplan told me I have the uncanny ability to predict when people will die, among other highlights; sadly Alex had to leave early).  We also asked some questions that are seldom asked.

Under one model, local gangs have a more or less fixed ability to terrorize a neighborhood.  Even if everything is legalized, the gangs will continue local monopolies to maximize tribute, subject of course to constraints from other gangs and the police.  In this model, legalizing drugs doesn’t do much good.  The local gang either shifts its monopoly to another area (milk and sugar, if need be), or de facto the gang’s local monopoly on the drug trade continues.  The gang busts you if you try to get your supply of crack cocaine from Merck.  I call this the Rio de Janeiro model; no, drugs are not formally legal there but I don’t think it would much matter if they were.

Under a second model, the ability of a local gang to monopolize and terrorize depends on the availability of drug trade revenue.  Take away illegal drugs and the gang collapses — Merck outcompetes them — and the neighborhood revitalizes.

Libertarian arguments for legalization typically envision the second model rather than the first.  I expect something in between.  So I don’t favor the War on Drugs but I believe the benefits from stopping that war are often exaggerated.  Note that whether the first or second scenario holds may depend on just how easy drugs are to get legally.

One claim was that — a’la Freakonomics — current drug suppliers don’t reap huge rents, so legalizing drugs won’t much discourage them.

Another question from the evening is how much the abolition of zoning in New York City would boost gross national product.  I heard some overoptimistic estimates on that one.

On a scale of 1 to 10, I give the party at least a nine. 

Mike April 26, 2008 at 9:41 pm

There are some internet communities/message boards where not only the vast majority of participants favor legalization of drugs, but they pretty much compete to see who can paint a rosier picture of a world where drugs are legal. Drug legalization is a panacea for all society’s problems, in the minds of some.

mouse April 26, 2008 at 9:57 pm

While the organized criminal element will simply move on, it won’t stop the junkies. Junkies produce their own crime, both as the criminals and the victims. Legalizing heroin or crack doesn’t suddenly make someone able to hold down a job who couldn’t before.

jamie April 26, 2008 at 10:12 pm

Yes, I don’t know how gangs would be able to compete/enforce against your getting drugs at the supermarket or through the mail. There’s simply no way for them to verify your sources if drugs were legal.
Businesses could always undercut gang prices through the miracle of mass production.

happyjuggler0 April 26, 2008 at 10:35 pm

Tyler,

We have a real life example of what happens after you end drug prohibition. It is called the 21st Amendment to the constitution. Distrubtion crime plummeted after repeal of Prohibition because everyone has protection under the law.

Do various wine vintners or liquor store owners engage in drive by shootings or assassinations of their competition? If you believe in you variation #1 listed above, it is incumbent upon you to explain why there is no liquor distribution crime today (excepting tariff violations), let alone liquor distribution violent crime.

happyjuggler0 April 26, 2008 at 10:38 pm

The local gang either shifts its monopoly to another area (milk and sugar, if need be)

While I’m at it, what kind of economist thinks that an economic agent leaves that kind of money on the table, assuming they can make money coercively monopolizing milk and sugar?

If they aren’t trying to make money off of milk and sugar now it seems silly to think they would be able to after the end of drug prohibition.

April April 26, 2008 at 11:39 pm

Personally, I find the possibility to reduce the harm from drug use, and to reduce the number of people who start taking drugs, the most compelling argument, for legalization of drugs.

There is limited empirical evidence of how this would work. However MR readers may want to look at the positive impact of such a program in Zurich. An evaluation was published in The Lancet “Incidence of heroin use in Zurich, Switzerland: a treatment case register analysis” by Carlos Nordt and Rudolf Stohler. The authors found that the policy of making heroin use a medical problem rather than a crimial activity enabled them to implement a program that lowered incidence (of new users).
http://www.puk-west.unizh.ch/de/pdf/Nordt_Stohler_Lancet_2006.pdf

April April 27, 2008 at 12:08 am

World Bank economist Branko Milanovic makes a pretty compelling case that drug legalization would improve the governance of countries where drugs are a major export….so one could argue for drug legalization as a means to promote the economic development of, say, Afghanistan and Colombia.
http://yaleglobal.yale.edu/display.article?id=9920

And, this development strategy could be both more successful and cheaper than the current ones.

MW April 27, 2008 at 12:19 am

My impression from Freakonomics was that the soldiers earn less than minimum wage while the kingpin suppliers and distributors had huge margins.

My view is this. According to microeconomic game theory, less players in a market makes it more likely the players will collude to set monopoly pricing and less players in a market result from high barriers to entry.

To take The Wire, for example, in Season One Avon Barksdale and Proposition Joe came to an understanding that Avon had the west and Joe had the east. They both reaped huge profits because they agreed not to enter each other’s markets and they killed whoever else tried to get on my turf. And with drugs illegalized, the upstart players can’t exactly call the cops when they’re threatened. If drugs are legalized, police could focus on those willing to use violence for market share and greatly reduce inner-city violence.

I still have issues though with the legalization of harder drugs. The price of drugs, both in dollars and in the threat of police protection, would greatly decrease and quantity sold would almost certainly increase. While the addicts wouldn’t likely commit other crimes with drugs so cheap, more heroin addicts still isn’t exactly a good thing.

Brian April 27, 2008 at 1:45 am

“Keep in mind that most people are aware of consequences and choose drugs responsibly.”

That is the most ridiculous statement I’ve ever heard someone make about drug use. Are you saying that people choose to do drugs responsibly, because that certainly isn’t true. Or, are you saying that people who “do drugs” choose specific drugs responsibly, because I doubt that to be true, too. People don’t make T- charts with the pros and cons of the drugs they’re choosing between, they get high off of whatever is available to them.

Renato Drumond April 27, 2008 at 2:45 am

“The price of drugs, both in dollars and in the threat of police protection, would greatly decrease and quantity sold would almost certainly increase. While the addicts wouldn’t likely commit other crimes with drugs so cheap, more heroin addicts still isn’t exactly a good thing.”

MW, I agree with you about the increase of quantity sold, but I have some doubts about the increase of heroin(and other drugs) addicts.

I mean, some of the people that are already addict will consume more with lower prices, and maybe this explain better the increase of quantity sold than the increase of total addicts.

To simplify the discussion, let’s imagine three group of people:

(1)- people that will not take any drugs, ever
(2)- people that are open to take some drugs to know how it works, but basically because they value the experience
(3)- people that will take a lot of drugs trough their lives

The first group wouldn’t be affected by lower prices. The later group will be affected because they’ll consume more drugs. The seconded group will be affected too, but how? Well, all depends of the difference between the price of actual illegal drugs if they were legalized.

Personally I believe that the number of addicts(in terms of percentage) would be quite the same that is today if we legalize this drugs.

Andrew April 27, 2008 at 5:04 am

Are the police in Rio largely not corrupt? Prohibition is a big corrupting influence. Legalization may look different in two different countries (or cities!) depending on what the cops will allow.

Besides, you say drugs might as well be because they have so many problems. But the aren’t legal! So, why isn’t it the prohibition itself as the problem?

As I recall, Freakonomics point was that the dealers on the street didn’t make much. The kingpins disdained violence (used by low-level thugs to impress middle management) and wanted things copacetic because they were doing alright with their local monopoly.

And, my two cents: though not a panacea, deprohibition would make a lot of other crimes disappear. Imagine if a gas station couldn’t make a profit selling gas. Don’t you think their candy and beef jerky business would dry up eventually, or at least their ability to monopolize those markets as well? There are logistics involved in the drug business, and those logistics can support other endeavors and the other endeavors likewise support the drug trade. It would take time, but I wonder how big organized crime is in Las Vegas after years without illegal gambling and prostitution to support their infrastructure.

Andrew April 27, 2008 at 5:18 am

“Libertarians downplay the damage that addiction causes.”

I don’t. I focus on the market. What types of technology would arise under a free market versus what arises under the current prohibitionist system?

Current prohibitionist: drugs advance along the lines of potency (smaller for easier concealment, e.g. crack, or ability to make it at home, e.g. meth), all other technologies subordinated – addiction is good because you want to extract money from crackheads as quickly as possible, and if they die who cares, your whole business is already illegal.

Legalization: Wouldn’t legal drug manufacturers focus on pleasing the customer? Wouldn’t customers want a new drug? One that won’t make you sick. One that won’t make you talk too much, or make your head feel 3 feet thick? In other words, wouldn’t they fix the addiction problem?

The question in my mind is this. What comes after meth? If we keep our current prohibitions in place, what will be the next technological advance along the lines of more potent, concealable and addictive?

“…they get high off of whatever is available to them.” Is this not because there are limited choices available to them? Is the lack of availability of better choices not partly due to prohibition?

Larry April 27, 2008 at 9:25 am

With drugs legal, the demand curve moves left, meaning a lower equilibrium amount of crime. This happened after Prohibition. Gang resources would shift to other markets, which while more lucrative/attractive than legal behavior, were less so than drugs.

Craig April 27, 2008 at 10:19 am

What about the liability cost of legal drugs, why would Merck on any company assume the cost, if a drug user looks at you funny let alone the potential in property damage the lawsuits will be enormous?

LoneSnark April 27, 2008 at 10:25 am

As Zoraster pointed out, we can direct the market. Legalization does not preclude regulation. For example, instead of banning all drugs which do not have medical uses such as marijuana, just ban the chemically addictive drugs. Drug companies will invest billions to develop drugs which satisfy the regulations to be safe and less addictive. Of course, it is nearly impossible to classify something as not-addictive, since technically everything is addictive (gambling, driving fast, sex, video games). But certainly there is a measurable difference between pain medication and heroine. I would not know, but perhaps drugs could be developed which do not cause physical withdraw? Or, if such is impossible, then perhaps drugs with good antidotes to prevent withdraw symptoms for those that are detoxing?

liberty April 27, 2008 at 11:19 am

There are so many variables in all of this, it is impossible to predict the likely outcome. Would legalization break up the ghetto crime scene or would dealer rings turn to other crime? If the former, there could be huge economic advantages, if the latter, maybe none at all.

“LoneSnark: Heroin *is* pain medication. Incidentally, were it legal, the major long-term negative side effect of regular heroin use (when taken safely and cheaply in pill form) is constipation.”

This points to one of the biggest fallacies of the legalization cum Switzerland & UK. True, heroin is a pain mediation; true it is almost identical chemically to several legal pain medications. Almost. Why is it illegal and those are legal? Because it is much more addictive, especially for a subset of people, than those other drugs.

Keep in mind:
(1) There are many people addicted to other pain relievers too; they can also destroy lives.
(2) Heroin, in any form, is much more addictive than those.
(3) “Side effects” are not the issue – many addictive drugs have few “side effects” – the chief side effect of alcohol, when taken safely in bottle form, is having to pee. Does that mean that alcohol addiction is never a problem?

This is not to say that there wouldn’t potentially be benefits to legalization of heroin. We just have to be realistic about what it would mean. There might be great benefits in terms of crime reduction and overdose reduction (*might* be, we don’t know that for sure). But we also *might* see an increase in use, and hence likely an increase in addiction.

I do not agree that all those who would be addicted are addicted. When other pain meds and fun pills started becoming easier to obtain from the doctor – mamma’s little helper – there was a huge increase in addiction.

Sounds like it was a great party.

th April 27, 2008 at 12:18 pm

> John and I explained the hierarchy of the economics profession to Will Wilkinson

For the benefits of aspiring economists, could you share some of this insight?

anglo-burgundian April 27, 2008 at 2:22 pm

“In other words, wouldn’t they fix the addiction problem?”

I can’t conceive of legalization leading to a prevalence of non-addictive drugs due to a different, path-dependent development. While there’s a possible story in competitive pressure leading to less-addictive substances, that seems like an excessively short-term view. Companies want market share, but they also want repeat consumers. With imperfect information, what’s to discourage them from disingenuously peddling the highly addictive stuff, or offering steep discounts to new customers?

Bob Murphy April 27, 2008 at 3:48 pm

I call this the Rio de Janeiro model; no, drugs are not formally legal there but I don’t think it would much matter if they were.

Tyler, I had given you the benefit of the doubt and assumed that this meant the drug laws weren’t really enforced in Rio. That is the only way you could plausibly point to this city as evidence of what happens when drugs are legalized.

But no, when I typed in “Rio de Janeiro” in google, the first hit was a story of how police killed 11 people in a slum raid, going after drug traffickers. The story concludes:

Rio police are notorious for rough tactics against drug gangs that control many of the city’s shantytowns.

Now this doesn’t prove whether model #1 or model #2 is correct. But you can’t use Rio as evidence of model #1! You have to find a place where drugs are actually legal, or at worst you get a slap on the wrist, and then show us the drug gangs still terrorize people in that place.

It’s completely irrelevant that drug gangs are very violent in a city where the police are literally at war with them. That’s the libertarian’s whole point, that if you go to war with a certain group of people, don’t be surprised if they grow violent!

Ed Dunkle April 27, 2008 at 6:12 pm

Re: heroin as a pain reliever

Would you rather your child be in constant excruciating pain, or pain free and possibly drug addicted?

Cisco April 27, 2008 at 11:45 pm

I’m rather more curious about the NYC zoning and GNP boost part of the post, but regarding the “milk and sugar” polemics: I believe there are examples of something similar in Rio, where militias charge favela inhabitants for gas cannisters, but I don’t know the details.

allan April 28, 2008 at 12:29 am

*Canadian*

Russell Nelson April 28, 2008 at 2:24 am

I find it hard to conceive of a seller in the marketplace who wouldn’t find it necessary to change their operations when forced into a lower-margin product.

Andrew April 28, 2008 at 3:30 am

Will they move on to other work? Yeah, that’s the point. Will they choose crime?

I think the number of people who have their heart set on committing crime is fairly low. I watch one of my favorite movies, Heat, and think, man, these guys could make hundreds of thousands of dollars legally with their skill set. And, sure enough, Michael Mann, who researched the film, said at any one time, there are anywhere from zero to one (maybe) of these type crews working in the United States. Now, one of the themes of his move was that the “justice” system (aka Gladiator Academy) trains people to be better criminals and keeps people from getting those legal jobs that can pay like bankrobbing. But, that is for guys with records who can’t learn anything else.

I suspect there would be some spillover for reasons already discussed, but over time, one less profitable criminal activity is one less profitable criminal activity.

Andrew April 28, 2008 at 4:01 am

“(1) There are many people addicted to other pain relievers too; they can also destroy lives.”

True, but there are also examples like Rush Limbaugh and Ricky Willians. People who manage their “addictions” while performing at the top of their field in highly demanding professions.

But, these people are top performance, and not everyone is. Point taken. But still, the main problem people addicted to drugs face is incarceration and other hassles associated with enforcement. Noone even noticed Limbaugh’s problem except for his odd loss of hearing story, and Williams might have been one of the greatest running backs ever had the league not harassed him.

The enforcers are here to help, as in, “to keep you from destroying your life, we are going to break down your door, maybe shoot you, and if you survive arrest, put you in prison for many years, destroy your career and make you commiserate with other criminals…you’re welcome.”

Sarah April 28, 2008 at 11:07 pm

–But still, the main problem people addicted to drugs face is incarceration and other hassles associated with enforcement.

Where is your data to support this claim? What in the WORLD makes you think that the main problem a junkie has is with law enforcement?

I posit that none of you making such claims realizes what a junkie’s life is like, and almost none of you are aware of how many of your coworkers, colleagues, or acquaintances are addicts.

There are addicts at your place of work. Addicts in your neighborhood. Law enforcement is usually the LAST of the issues facing them.

Kevin April 29, 2008 at 3:37 pm

I believe that a geneology of drug laws should be considered in this debate as Nietzsche pondered his Geneology of Morals. All anti-drugs laws in this country have roots in anti-immigration or anti-ethnic sentiment. This starts with the prohibition of smoked opium in San Francisco of 1875 discriminating against Chinese immigrants. It also includes the laws criminalizing marijuana from the 1930s that targeted Mexican laborers. Current crack cocaine laws disproportionately affects African Americans.

If we pay attention to the right of the state to discriminate against groups, we might be able to better understand how health consequences – both real or imagined – became used along the way.

Admiral April 29, 2008 at 5:46 pm

Ho-hum. It sounds like a tame version of the University of Florida’s Economics Society, which meets on a weekly basis and has soirees that lately have involved a) the gold standard, b) intellectual property rights, and c) drug legalization.

MICHEAL SMITH May 13, 2008 at 7:16 pm

This is a comprehensive addiction portal focusing on topics of alcohol and drug abuse. http://www.alcoholaddiction.org

josh chaffin August 1, 2008 at 5:24 am

“If we legalized these less dangerous drugs, we’d make the market for crack, heroin and meth almost inviable, in my opinion.”

Bruno’s right, absolutely. Who wants meth and crack if you can get good-quality cocaine legally?

dhansen January 13, 2011 at 5:12 pm

I find these kind of ‘economic’ debates about drugs really interesting, but would also like to hear more from a human point-of-view: parent/child issues, drug rehab placements, and long-term health among other issues.

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