The question of drug legalization is not part of the political debate in the United States. The resounding consensus among America’s governing class is that it would be insane to legalize or decriminalize even marijuana, let alone “hard” drugs. Many of these drug-warrior politicians admit to prior use of illicit drugs, and yet they show no compunction in supporting policies that would imprison people for doing the same things they did themselves. The hypocrisy is rather staggering.
Among economists, of course, the question of drug legalization/decriminalization is taken much more seriously. Hardcore free-market economists from the Austrian school are virtually unanimous in their opposition to the government’s War on Drugs. But it’s not only academics of the laissez-faire fringe that strongly condemn prohibition—Nobel Laureate Milton Friedman was also an uncompromising critic of the Drug War and made it a primary focus of his later years in life.
How can these economists stand for legalizing drugs? Do they think illicit drugs are good? On the contrary, anti-prohibition economists who oppose the War on Drugs generally acknowledge that drugs are bad but argue that, economically, prohibition is worse.
There are legal and moral arguments against the War on Drugs as well. For example, the federal government needed a constitutional amendment to outlaw alcohol on a national scale—why did it need no such amendment to outlaw marijuana or cocaine? An entire book could be written about this question alone, but for the sake of brevity, this article will look only at the economic arguments against drug prohibition.
I should, however, clarify that by “economic,” I do not mean strictly “dollars and cents.” The Austrian view of economics is much larger, considering economics to be the study of human action; cause and effect. What are the logical effects of drug prohibition in a world ruled by the immutable law of supply and demand? Like any intervention in the free market, there are unintended consequences to the War on Drugs.
For starters, let’s admit that there is a demand for intoxicating products—be they in potable, puffable, powder or pill form. This is a fact backed up by tens of thousands of years of human history. When the state prohibits a product for which there is clear demand, it does very little (if anything) to dampen demand. Instead, prohibitionist policies have a greater effect on supply, reducing it, and creating scarcity. As a result, the price of the product in question rises, making it less affordable for people to consume.
Perhaps this is the logic behind prohibition. But as is virtually always the case with interventionist economic policies, central planners do not take the long view. For when prohibition causes scarcity and higher prices, it also creates greater profits for the individuals or businesses involved in the illicit trade. These black-market entrepreneurs then have an incentive to market their products to new consumers—to stimulate demand. Thus, the demand for a prohibited product can, and often does, increase rather than decrease, even as supplies are limited.
This is exactly what happened during America’s failed experiment with alcohol prohibition. In 1919, the last year before the Eighteenth Amendment prohibited alcoholic consumption on a national scale, the average American consumed just under 0.8 gallons of pure alcohol per year. According to a 1932 Columbia University study, within ten years, this figure had increased to nearly 1.3 gallons a year, despite—or more accurately, because of—the illegality of drinking.
Further evidence to suggest that prohibition actually stimulates demand can be found by comparing drug-usage rates in the U.S. to those of the Netherlands. In 2005, a study conducted by the U.S. Department of Health and Human Services found that more than 97 million Americans—40.1%—had used marijuana at least once. Over 33 million (13.5%) had used cocaine at least once, and 3.5 million (1.5%) had tried heroin. In the Netherlands, where drug addiction is treated as a health problem rather than as a criminal one, a 1999 study by the University of Amsterdam found that only 15.7% of Danes had ever tried marijuana—which is essentially legal in their country. Only 2.1% had ever tried cocaine, and just 0.3% had ever used heroin.
The disparity between “tough on drugs” America and the comparatively hands-off Netherlands is even more staggering when you look at figures for people who have used a given drug in the past month—i.e. likely addicts. Six percent of Americans had smoked pot in the past month, according to the DHS, versus just 2.5% of Danes who can legally procure and smoke it in a “coffee shop.” One percent of Americans had used cocaine in the past month versus 0.3% of Danes. And about 140,000 Americans—0.1%—had used heroin in the past month whereas the number was too small to calculate in the Netherlands.
It’s also telling that the Dutch have no crack problem whatsoever. In the U.S., a shocking 7.9 million people have tried crack, with 1.3 million smoking it in the past year and 680,000 in the previous month. The Netherlands can’t even track usage of the drug because it is so small. Why would this be? An economist would argue that crack—which is cheaper than cocaine—is a byproduct of the high cost of cocaine caused by prohibition.
Alcohol prohibition also had another very serious, unintended consequence—it led to the rise of an organized criminal infrastructure. The streets of major cities were turned into war zones as rival gangs fought over the valuable turf in the booze trade. Does this sound a lot like South Central L.A. in the eighties and nineties? Prohibition leads to black markets which are inevitably ruled by violence. If the CEO of Coors gets cheated by the CEO of Miller, he takes his case to court. When the leader of a drug gang gets cheated by a rival, he has no legal recourse—he can’t file civil suit for breach of contract. Therefore, the only people who do not get cheated in the drug trade are those who are able to strike fear into the hearts of their competitors. A man cannot survive as a high-level drug dealer unless his rivals know that he will kill, if necessary, to protect his business interests.
It is statically proven that drug prohibition leads to greater usage rates and more crime. What are the arguments for maintaining it? The only groups that benefit from drug prohibition are drug dealers—who are able to capitalize on the profits caused by product scarcity—and the “prison industrial complex,” which reaps massive profits from the incarceration of non-violent perpetrators of victimless crimes. The cost of prohibition is great in terms of dollars and lives. Think of the children shot down in drug-related drive-by shootings. When’s the last time you heard of an executive from a beer or pharmaceutical company gunning down an innocent bystander in pursuit of a corporate rival?
The Drug War, from a hardcore laissez-faire economist’s view, is nothing more than price support for drug dealers, and like all interventions into the economy, it should be ended.