Simple Economics: The US War on Drugs

Julie farms for a living to support her family of five in the Putumayo region of Colombia. She used to grow grapefruits, but the costs of transporting the grapefruits across ruined roads to distant towns made it unreasonable for her to even pick the fruit from the trees. However, she found a new crop to harvest; one whose prices remain stable and provides at least five times the profit, and she does not even have to leave her farm to sell it. Every month, buyers come directly to her farm to purchase what she harvests – the coca leaf, the first ingredient in the making of cocaine.

US fumigation efforts have hindered her crop, but not entirely. As soon as the chemicals land on her crops, Julie knows how to quickly wipe off the chemicals before they start killing her crop. She usually manages to save a majority of the crop, but even left with only half of her crop she would make much more than she would with an entire grapefruit harvest.

Fumigation is only one facet of the United States’ War on Drugs which demonstrates their ineffective militarized and supply-side approach. These tactics have only transformed the drug market into a more lucrative and organized venue. Much literature on this topic has concluded that the War on Drugs has been unsuccessful; unchanging policy and has not produced the satisfactory results that four decades and $1 trillion dollars should exhibit.

How do we make the War on Drugs as cost effective as possible? A new study released by the London School of Economics basically reiterates everything that literature over the past decade has been proving: by focusing on demand and rehabilitation. In theory, rehabilitation and treatment programs should decrease overall demand for drugs since addiction and repeat customers are what fuel most of the demand. Decriminalization, another point explained by the study, will also cut healthcare (decreased HIV transfer through dirty needles used for drugs) and incarceration costs for taxpayers.

These tactics have not been implemented in the United States due to political roadblocks. Instead United States policies continue to be centralized around supply-side eradication efforts.

How did this happen?

The international community has enacted drug reduction policies since the 1900s, with their initial focus on opium. Hundreds of countries signed multilateral treaties  (though the League of Nations and then through the UN) in which each country promised to sanction policies that combat the drug trade that posed a domestic and international risk to civilian safety and health. Not until the Nixon administration did the United States finally coin the term “War on Drugs,” demonstrating a new, militarized approach to narcotic control.

When the Cold War ended, the Pentagon and other government officials realized that the end of the war meant decreased military spending, thus reducing their prestige and importance in the government. They needed an alternative and the War on Drugs was the perfect substitute. The war had an unclear end, which basically guaranteed funding for a very long time. There were politicians in Washington who wanted to focus on a demand side approach, to target the issue from the addiction end. However, there was greater support for taking a hard stance on drugs which was more popular with the constituency and in the White House.

Cartel structure

The United States seemed to be gaining a foothold in the War on Drug s the early 1990s as they managed to capture one of the most prominent drug lords – Pablo Escobar. However, in the wake of his demise, at least another dozen, smaller drug lords filled his power vacuum. The flexibility of the hierarchical structure of these cartels made it harder for the US to take down a cartel by killing a prominent member, as they are easily replaced. The rhetoric behind the War on Drugs allowed for easy “villainization” of these drug cartels or any involved member. In the wake of the 9/11 attacks, drug traffickers began to become associated with terrorists, thus creating the term “narco-terrorism.” This new rhetoric added a new dimension to the War on Drugs. Now not only was drug trafficking harmful to public health, but it was also a threat to national security. This further propagated the policies that drug trafficking had to end and to do so, the US had to take a militarized approach, because the US does not “negotiate with terrorists.” Thus, the US prioritized supply side eradication over any drug rehabilitation programs. Yet, as long as the demand exists for drugs, these cartels can always recruit people to work for their very lucrative business.

Agricultural sectors

US eradication efforts, such as fumigating coca fields in Latin America, seem effective when analyzing the decrease in coca crop in each fumigated country. However, when one country fails to grow the necessary amount of coca to match demand, another country picks up the slack. The coca crop cultivated in Bolivia, Peru, and Colombia since US eradication efforts demonstrates this phenomena. In a sense, by attempting to remove the coca crops, the US is playing a game of musical chairs where they fail to remove one chair every round.

These eradication efforts are performed bilaterally, where the United States receives permission from the country’s government to spray their country’s crop. “Permission” refers to the US promise to increased aid to governments that agree with US drug war policies. Unfortunately, inefficient crop substitution and agricultural subsidy programs in these Latin American countries means that this aid does not go to the coca farmers that the eradication methods displace and marginalize. Thus, when a country’s coca crop is fumigated, there always seems to be a rebound in the following year, probably due, in part, to these failed policies that do not give coca farmers a better alternative. Yet, the reason remains that growing coca is the best employment because of the consistent demand for drugs.

Creating the perfect product

The “Iron law of prohibition” explains that the toucher the enforcement on a drug, the more potent it will become. This happens due to to simple business decisions. For a drug trafficker, making drugs more concentrated means decreasing bulk and cost of transport, which is artifially high due to law enforcement. As demonstrated by Figure 1, the price of marijuana in the United States has steadily decreased while the potency has increased by at least 100 percent. By making drugs more potent and concentrated, not only are drug traffickers able to increase their profits per gram, but they can also transport drugs more inconspicuously. In turn, the War on Drugs ha thus increased the profit margins for drug traffickers as transportation costs are lower and revenues higher. This benefits the consumer because as the drugs become more potent and of higher quality, drug dealers have to become competitive and lower or stabilize their prices. The economic effects of the War on Drugs have been beneficial in the sense that consumers have lower prices and higher quality and the producers have lower costs and higher profits.

Present day

Most of the new rehabilitation policies mentioned by the London School of Economics paper will take time to really become effective. In fact, simply introducing these new ideas has taken over a decade and will most likely take longer to become law in the United States. In the meantime, Portugal’s decriminalization has seen dramatic reductions in HIV levels, increased rehabilitation, and an almost steady amount of users since their new drug laws were passed. Relative to other countries, Portugal’s policies have been a success. A CATO institute study conducted seven years after the drug laws were passed noted that post decriminalization, Portugal had the lowest rate of lifetime marijuana use amongst people over the age of 15: 10 percent, contract of the US’s 39.8 percent. The laws that used to drive drug users underground now allow the Portuguese government to treat these people, making positive steps towards decreasing demand.

This change in mindset can almost be seen as reversing the rhetoric that the United States had established about drugs. The United States has always taken a tough stance on drugs, marking users as criminals and essentially alienating the constituency that needs the most aid from the government. Portugal on the other hand has reversed this rhetoric of criminalization, by identifying addicts as patients who need medical treatment; they decrease demand by encouraging an inclusive drug free community. Though decriminalization and demand-focused policies are not perfect, they are, in theory, the most cost effective way to fight the War on Drugs by drastically decreasing healthcare costs and excessive military involvement. And enacting these types of policies in the United States, which is one of the world’s largest consumers of illicit drugs, might have a greater global ripple effect on the drug supply chain than a small country such as Portugal can cause.