Lesson 50: The Economics Of The Drug War

First of all the drug war is not a war against drugs. It is a war against the buyers and/or sellers or producers of certain drugs. It is a war against people not drugs.

This war was started in June of 1971 when President Nixon declared drug abuse to be “public enemy number one”. So far the war has not been won after 52 years. Some might even say we are losing it.

Any good econ 101 student can predict the unintended consequences of the drug war using basic supply and demand analysis.

An increase in the cost of production will shift the supply curve to the left. Consequently less will be sold at a higher price. A penalty on buyers will shift the demand curve to the left. Consequently less will be sold at a lower price.

If both curves shift equally a smaller amount will be sold at the same price.

What a great plan. If only it worked.

The problem with central planners is that they do not foresee or understand the unintended consequences of their plans. These are sometimes called secondary effects. Remember everything affects everything else.

In this case the jails will be full of nonviolent consumers unless the penalties are extreme. So full that people will start to object to the act of putting people in jail just because they exchanged their own money for a product in the marketplace. Gangs and cartels will use violence to protect their market shares.

Another unintended consequence is if the demand curve does not shift far enough to the left then the sellers will initially experience higher prices and more profits since the demand for drugs tends to be highly inelastic. This will help finance their side of the drug war.

The sellers will also have an incentive to shift the demand curve to the right with intensive marketing efforts such as outside high schools for example and recruiting a marketing force from low income individuals in bad neighborhoods with no parental controls.

An interesting thought experiment would be to ask yourself if you think the drug lords would like drugs to be legally bought and sold. When alcohol production was made legal again Al Capone was replaced by Budweiser.

In the natural society there would be no restrictions on buying or selling. Keeping drugs away from children would be the responsibility of parents. There would be no drug war violence. The negative consequences of consuming drugs would provide a disincentive to use them and rehab would be available if needed. In other words the drug problem would be similar to today’s alcohol problem.