Just how good would drug legalization be?

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. 


Comments for this post are closed