Why There's No Money in Drug Trafficking

Jacob Sullum | November 30, 2004

Julian notes the fuzziness regarding basic economics that Justice John Paul Stevens displayed during yesterday's oral arguments in Ashcroft v. Raich. In a similar vein, the government's brief in the case quotes a 9th Circuit ruling claiming that "laws criminalizing the possession of a good decrease the demand for that good. This decreased demand results in a decrease of supply as production becomes less profitable and therefore less attractive." The barriers created by prohibition almost certainly deter some use, so that overall demand for the proscribed substance is lower than it would otherwise be, even allowing for a "forbidden fruit" effect. But one of the most familiar aspects of prohibition is that it allows black-market traffickers to earn a huge risk premium, which makes drugs much more profitable, not less so.

The government also asserts that "local manufacture, distribution, and use of controlled substances--and their possession for those purposes--directly increase the supply of those substances, which in turn increases demand for these substances, which leads to further increases in supply and the marketing to users, thus 'swelling' the traffic in the drug." Not only is the government suggesting that supply creates its own demand; in this context, it is claiming that letting patients grow marijuana to treat their own symptoms will make pot more popular. That has not been the case so far in California, where pot smoking among teenagers has declined substantially since the passage of the state's medical marijuana initiative in 1996. But perhaps it's just a matter of time before the association with AIDS, cancer, nausea, vomiting, muscle spasms, and agonizing pain makes marijuana cooler than ever.

Comments

|11.30.04 @ 9:48AM|#

"local manufacture, distribution, and use of controlled substances-and their possession for those purposes-directly increase the supply of those substances, which in turn increases demand for these substances, which leads to further increases in supply and the marketing to users, thus 'swelling' the traffic in the drug."

Well these are Reaganite supply-siders, arent they?

|11.30.04 @ 9:52AM|#

If all this musing and philosophizing--totally irrelevant to the Interstate Commerce Clause--is being heard by the Supremes, then who's asking them if we own our own bodies?

|11.30.04 @ 9:53AM|#

AIDS, cancer, nausea, vomiting, muscle spasms, and agonizing pain: my anti drug(s).

|11.30.04 @ 9:58AM|#

That is quite possibly the stupidest statement I've heard from the Supremes.(Leaving aside Dredd Scott).

Could it be any more clear that they are seeking something, anything, to uphold the federal government's position.

As I said yesterday, all we'll see out of this is the setting of a destructive precedent.

|11.30.04 @ 10:11AM|#

This is the second time I've seen a post appear between two other posts. What's up with that?

|11.30.04 @ 10:17AM|#

Mark,
Wouldn't a "destructive precedent" be the best outcome?
Then it would force more "discussion" and social "activity."
Maybe reframing the debate in terms of "Do we own our bods or not?"

|11.30.04 @ 10:21AM|#

it is claiming that letting patients grow marijuana to treat their own symptoms will make pot more popular. That has not been the case so far in California, where pot smoking among teenagers has declined substantially since the passage of the state's medical marijuana initiative in 1996.

Come on. Medical marijuana laws are a good thing, yes. Marijuana use has dropped in CA, yes (I assume). But do you *really* think the two trends are connected? Leave fuzzy corrolations to the experts at the DEA.

|11.30.04 @ 10:39AM|#

Mike, he's not claiming that medical marijuana laws caused teenage pot use to decrease, but rather that it is a fact that they have not caused them to increase.

|11.30.04 @ 10:51AM|#

First, Mark, you should read more SC statements. They get a lot dumber. Try reading the desenting opinion in the last flag-burning case.

Next, in addition to the forbiddion fruit effect there is the fact that the huge profits create an incentive for dealers to aggressively market their products. Then there is the the fact that prohibition encourages dealers and users to switch to more potent and concentrated versions of their favorite substances. Much as alchohol prohibition made beer drinkers switch to moonshine drug prohibition made opium users switch to heroin. This intensifies the drug's impact and likelihood to encourage long term use and physical dependency (which reinforces usage although it is not the same thing as the largely fictional public idea of addiction). Thus, prohibition not only can increase demand but also fortify it.

BTW, you'll be pleased to note that I am now a member of Mensa so I am not only a smart-ass but a card-carrying smart-ass.

|11.30.04 @ 10:54AM|#

Joe:
Moveable type timestamps posts with the time at which they were started, not the time they were actually posted. So if I start in on a longish post that I leave for a while and come back to, it'll still show up below any shorter posts that go up in the interim.

|11.30.04 @ 11:29AM|#

I knew it: all our problems go back to moveable type.

|11.30.04 @ 11:36AM|#

Yikes, these guys need an econ class, stat.

I have a huge supply of dirt in my backyard, but there doesn't seem to be any demand. Maybe I should get some more dirt because that will increase demand.

This doesn't make sense in any possible way. Replace dirt with cars, food, electronics, etc. and it still doesn't make sense. Judges were supposed to have taken logic classes right? I'm trying to see how anyone could come to that conclusion, seeing as they don't make any mention of prices going down.

|11.30.04 @ 11:56AM|#

Some basic econ and/or at least some control theory.

Some government officials don't seem to understand that:

price and supply form a negative feedback loop
price and demand form a negative feedback loop

These two feedback loops wreck havoc on their puny little brains. Poor guys.

|11.30.04 @ 12:19PM|#

Supply does have the ability to create it's own demand such as when a new way to create cloth cheaply leads to an increase in demand for clothing. That's a basic priciple that allows an economy to grow.
The absurdity of the government's case in this instance is that the supply is not so much being increased as it is being displaced away from the illicit market. The legal sale isn't an enhancement of the the black market but a detraction unless, as Mr Sullum has stated, suffering is a glamorous subculture that gilds the image of pot smoking.
One could play devil's advocate and argue that legal use could lead to sick people continuing to smoke after they recover. Quite frankly, I'm more than willing , in the worst case scenario, to trade a pothead for a cancer patient. Of course the government has long shown that it is on the side of cancer. Then again, the fed has fashioned itself after cancer for decades.

Warren|11.30.04 @ 12:29PM|#

This just keeps getting my fucking dimal every day. I feel like taking up heroin.

Warren|11.30.04 @ 12:30PM|#

dismal

|11.30.04 @ 12:36PM|#

New Mensa card carrying smartass,
Do you mean the fed has fashioned itself after cancer in the sense it's metastasizing?

|11.30.04 @ 12:45PM|#

I mean that it's fashioned itself after cancer in the way that, in cancer, elements of an organism grow beyond control and begin to spread into every part of the body causing pain, disrupting bodily functions and eventually killing the organism if left unchecked.

|11.30.04 @ 12:45PM|#

"Supply does have the ability to create it's own demand such as when a new way to create cloth cheaply leads to an increase in demand for clothing."

I am not an economist but can you really say that supply is creating the demand? Price, quality, utility and fashion are also considerations, one would think. There's a lot of un-sellable, cheap, polyester stretch pants out there.

I am thinking specifically of the cotton clothing revolution that was a combination of the supply and price of cotton, technological innovation, low barriers to entry, etc. and the fact that the demand was already there (cotton clothing being more comfortable and hygienic than wool) but could not be satisfied because of the former cost of the product. In other words, the demand existed before the supply (at least at cheap prices for the hoi polloi).

Demand would seem to be the cause of supply and not vice versa. If someone doesn't want it, you can supply all you want (until you run out of money).

But, like I said, I'm not an economist.

QFMC cos. V

|11.30.04 @ 1:08PM|#

Here's what the government should do: announce that all (real) illnesses and conditions are now classified as "goods" -- since, by their reasoning, everything is apparently interstate commerce. Next, declare a war on "AIDS, cancer, nausea, vomiting, muscle spasms, and agonizing pain" etc. This is best done by criminalizing those (real) conditions and illnesses. Since it's not actually possible to harass, arrest and imprison these pesky conditions, though, the government will have to simply shift the focus to criminalizing the people who carry them.

Thus, by the government's reasoning, since "laws criminalizing the possession of a good decrease the demand for that good," we'd see a precipitous fall in people demanding (and, therefore, "attaining," as Magic Johnson so eloquently stated) AIDS, cancer, nausea, etc.

Since the government is so obviously right, their war on sick people -- not to be confused with their existing war on pain patients and their doctors -- will immediately cause a precipitous drop in rates of these diseases.

This must be done! I demand it! The Interstate Commerce Clause demands it! That fuckwad Stevens demands it!

|11.30.04 @ 1:09PM|#

Supply creates demand is can be backed out of dozens of dumb government policies -- electric cars, mass transit, cheese -- on and on.

|11.30.04 @ 1:10PM|#

Supply only creates demand if the market responds favorably. Simply producing mounds of crap does not create demand.
The government's arguement here seems to be that growing MJ for medical use expands the supply base and will thus increase the demand. The flaw here is that medical MJ is not better or easier to acquire and thus will lack the market effects of true innovation. Like it or not, MJ is a common weed and supply is extremely flaxible. Medical production is unlikely to effect potential production. Indeed, it's more likely to take a bite out of the illicit market by pulling patients into the legal realm.
Since I do love playing devil's advocate, here's another consideration: could medical MJ lead to a peripheral increase in use in the friends and family of patients who use it? Any responses to this idea?

|11.30.04 @ 1:19PM|#

Eryk, I think your last question is a valid one -- peripheral use could increase -- but I respectfully and honestly answer: Who cares? The government has neither a right nor a responsibility to be dabbling in the drug-prevention business, and certainly can't use the ICC to do so.

|11.30.04 @ 1:30PM|#

Supply does have the ability to create it's own demand such as when a new way to create cloth cheaply leads to an increase in demand for clothing.

But in that case, it's the low price that increases the demand, not the supply. If you mean that cheap production allowed the supply to increase to levels that sated the demand. In that case the supply merely reflected the pent up demand, rather than creating new demand.

|11.30.04 @ 1:32PM|#

For the record, I'm just presenting an academic question in anticipation of a possible arguement.

|11.30.04 @ 1:36PM|#

Fabius et al. (Latin, get it?)--

It seems to me What you *can* say is that the price/supply curve is being shifted horizontally, resulting in a new, lower equilibrium price at a higher number of units supplied/demanded. The supply curve can shift for a number of reasons, but essentially a shift one direction means that supplies are higher at any given price level than before, and vice-versa for the other direction. If we just say that "the supply increases," does that mean with the price held constant, or not? If so, then I would interpret that as a shift in the supply curve, which will result in a new equilibrium at a lower price and higher demand level. Does that mean that the increased supply caused the increase in demand? Maybe, but it would probably IMO be more accurate to say that the shift in the supply curve caused the increase in both demand *and* supply. Could that be caused by the introduction of additional producers/distributors in the market? Sure. I think we call that "competition" and on this blog it's usually seen as a good thing.

More relevant to this particular question, if people grow their own MJ, and drop out of the market, it seems to me that would result in a (slight) decrease in demand at a given price level. This would mean a shift in the demand curve leftward, which would result in both a lower price and a lower supply. I guess the Justice Dept thinks that a lower supply of commercially available MJ is a bad thing...

All that being said:

1) All this is only relevant if you can somehow interpret "regulating" interstate commerce to include guaranteeing certain levels of supply and/or demand, which to me is patently ridiculous

and

2) I agree with Ruthless: the real question here is going unasked and unanswered. Would the Supremes (Suprema?) go along with enforcing local restrictions on, say, blogs, because it affects the overall market for newspapers?

|11.30.04 @ 1:46PM|#

Yes, let's be clear on this: all this is moot discussion if we begin with the principle that the state has no right to tell you what you may smoke. Likewise if we strictly enforce the commerce clause under it's origional purpose of preventing interstate trade barriers.
On the other hand, it can be an educational experience to spend some tome trying to fathom the thought patterns of the SC. Don't do it while eating pepperoni or you'll have psychosis inducing nightmares.

|11.30.04 @ 1:46PM|#

On the issue of the supply of cotton supply, price and demand (in that exact order) there are some key parts of the issue being skipped. The process begins with higher profits, then greater prodution, then lower prices, then greater demand. Also, cotton holds a market share of the uber-demand for clothing, bedding and such things. The lower price allows cotton to capture a larger market share by out-competing the prices of things like silk.

|11.30.04 @ 1:56PM|#

Eryk, sorry I signed your name to my post earlier. Not sure how that happened, though I guess because I was replying to you.

James Anderson Merritt|11.30.04 @ 2:50PM|#

I find it incredible, bordering on surrealistically absurd, that some Justices felt that the present case seemed similar to the long-ago wheat-growing case, which established the broad reach of the commerce clause. In the case of wheat, commerce in that commodity -- albeit highly regulated -- was legal. In the case of marijuana, commerce in it is ILLEGAL. The argument in the wheat case was that homegrown wheat would prevent a like amount of wheat from being sold within the context of interstate commerce. Now, the justices are seriously considering the argument that homegrown pot would prevent a like amount of pot from being sold within the context of interstate commerce. BUT ISN'T THAT THE POINT OF THE DRUG LAWS, to reduce or eliminate interstate commerce in controlled substances? So what's the problem? The argument that drugs are "fungible" and therefore will "inevitably" show up in interstate commerce (thus INCREASING that illegal commerce) makes a little more sense, but then you have to ask, which is true? Will homegrown pot REDUCE or INCREASE interstate commerce? If increase is guaranteed and inevitable, where are the facts to support that assertion? If reduction is guaranteed and inevitable, why is the government worried at all that their job is being done for them, albeit not in a way they planned?

The key questions, in my opinion:

1. Who owns your body?

2. Which component of our federal system has authority over medicine, state or federal?

3. If the individual has ultimate decision authority over what does or does not go into his or her own body, and if states control the practice of medicine, then what constitutional role actually exists for the Federal government in the matter of food and drugs? If you have the right to decide what goes (or doesn't go) into your body, then by what authority can the government deny you those things (or force you to use/ingest them)?

3. Can the mere assertion (not the demonstration) of "fungibility" be sufficient to bring the fungible subject under Federal control by means of the Interstate Commerce Clause? (The wheat-growing case provided an answer, but every now and then, we need to re-examine precedent to see if it still makes sense -- or ever did.)

What is most disturbing to me, apart from the suggestion of judicial inability to understand basic economics, is the apparent preoccupation with desired results. With justices speculating -- SPECULATING, mind you -- that 100K Californians or more might avail themselves of medical marijuana, many on bogus claims of illness, so as to affect "interstate commerce," the clear signal seems to be, "our goal here, our key purpose, is to reduce or eliminate use of this drug." Yet, the goal of the Supreme Court ought to be to decide whether the federal law or its specific enforcement are authorized by the Constitution. There are a great many worthy goals that the Federal government MIGHT undertake, but the actual set of goals that it is AUTHORIZED to undertake is supposedly defined and constrained by the Constitution.

Don't get me wrong: I am encouraged that the Justices bother to consider the good or evil they may do by upholding or striking down the lower court decision. But if the CSA or its application are repugnant to the Constitution, the court needs to rule for the Constitution -- perhaps in a way calculated to do the least harm, but nevertheless in the full understanding that allowing a constitutionally repugnant law to stand does even MORE harm.

|11.30.04 @ 2:51PM|#

For anybody interested in the economics of the drug trade, in the past 2 weeks the Economist has had 2 excellent articles on drugs.

The latest issue has an article on the drug trade in Britain (see the "Britain" section). Drug dealers are moving away from the vertical integration of cartels, where every step of the process is handled in-house. They are now moving toward horizontal integration, with each step of production and distribution handled by different organizations. As in any industry, specialization increases efficiency.

The Economist concludes that specialization has produced a much nimbler drug trade, one that the police will never break. An industry dominated by a few giant cartels might (at least in theory) be possible to bust. An industry full of agile and abundant competitors will be impossible to shut down.

The previous week there was an article in their "Asia" section on the Afghan opium crop. The crop is larger than any in the past several years. They observe that the resurgent Afghan drug trade is so strong that only a long, bloody, and costly military effort by the US will break it (and even that would only displace opium production to some other country).

They also comment on the economic savvy of the Taliban: They allowed opium production for a while, building up copious stockpiles. In 2000 they banned opium production to drive up the price of their stockpiles.

Maybe an unemployed Taliban warloard would be willing to tutor Justice Stevens on economics.

James Anderson Merritt|11.30.04 @ 2:54PM|#

1, 2, 3, 4! 1, 2, 3, 4! 1, 2, 3, 4! 1, 2, 3, 4!

:-)

|11.30.04 @ 2:59PM|#

It's important not to confuse "demand" with "quantity demanded".

"Demand" means quantity demanded at a certain price. "Demand goes down" means that *if the price stays the same*, less quantity is demanded. Demand is a function of *how much consumers value the good*.

"Quantity demanded" is the amount consumers actually want to buy at the actual price. So if the price goes up, *quantity demanded* goes down, even though *demand* stays the same.

If suppliers are induced to supply less, the price obviously goes up. That means the quantity demanded will drop. Which makes sense, since quantity demanded must be exactly the same as quantity supplied.

So what the justices are trying to say is that if the law clamps down on suppliers, there will be less marijuana in existence, and therefore fewer marijuana will be used. Which is self-evident. (The Supremes should have stopped there instead of trying to pretend they understood economics.)

Of course, the lower supply will cause the price to go up. Which is again self-evident.

As for profits, they will go up in money terms. However, according to economic theory, profit will be "normal" when you take into account the risk of life imprisonment and the extra expenses involved in avoiding arrest. That is, suppliers on average will be properly compensated for the risk they take, but not overcompensated.

Further, not all suppliers are the same.
Suppliers will be happy with the crackdown if their risk of arrest is lower than average, and unhappy if their risk is higher than average. Whose risk of arrest is lower than average? Organized crime, who pays bribes and has connections. Whose risk is higher than average? Joe Ordinary who sells out of his basement.

Prohibition simply removes the harmless little guy from the business, and gives a monopoly on what's left to organized crime.

Phil

raymond|11.30.04 @ 3:20PM|#

This is sort of on subject. "Who owns your body?"

I just saw this program on the BBC. It's about New York's ACS, Incarnation Children's Center, HIV+ children, and secret drug experiments on these children.

I am shocked. Truly shocked.

|11.30.04 @ 4:30PM|#

"On the other hand, it can be an educational experience to spend some tome trying to fathom the thought patterns of the SC."

Eryk Boston,
This is why we have Linda Greenhouse of the NYT. Is she a fox or what? I've lusted after her for years on Washington Week in Review.

|11.30.04 @ 7:31PM|#

it doesnt really matter what the judges rule, gene splicing will render the drug war useless. cocaine, morphine and thc will be produced in plants other than their native genus. the end of the drug war is inevitable irrespective of what the judges say

|11.30.04 @ 8:14PM|#

Holy shit Ruthless, you've outgeeked the entire group here. I bow to your pocket protector.

|11.30.04 @ 10:12PM|#

"pocket" protector?
If you knew Linda like I know Linda.
(very fastidious)
I wouldn't want that sweet thang gettin' what I got.

|12.1.04 @ 2:18AM|#

Ruthless may have the hots for Linda, but the Chicago Tribune's Jan Crawford Greenberg on the PBS NewsHour gets my SCOTUS-monitoring motor running. Lucky man, that Greenberg.

"Supply creates its own demand" is a paraphrase known as Say's Law, even if Say never said it quite that way. New products would seem to "create" their own demand. Entrepreneurs have some idea what customers might want, if they were ever exposed to it. Sometimes the new product fills some gap in the market that folks were not consciously aware that they desired, until they were exposed to it. I'd expect H&R is rife with "early adapters" who can confess to gadget-lust for new gizmos that do things they never knew they wanted until they were launched.

Prohibition, unfortunately, does provide incentives for those who can develop new chemicals or new delivery systems to evade or otherwise thwart the "law." Bathtub gin has been mentioned, and I would like to quote the mortal Sam Kinnison: "Give us back the pot, and you can have the crack!" It doesn't matter how many tons of happiness-in-a-pill/joint/vial the DEA, etc. confiscate. The number of doses matter. That they have to keep rewriting the laws to cover designer drugs proves that those providing the stuff will keep working around those trying to stop it.

Nothing above changes the fact that they should just leave adults who want to get messed up on pot alone, on 9th amendment grounds, at the least.

Kevin

|12.1.04 @ 10:00AM|#

Supply can certainly create demand. Take for example the telephone. If you are the first person to have a chance to buy one, what would you pay? Nothing: who would you call. If most people have a phone, the your utility in having one is much greater, and therefore demand increases. This could apply to pot, since the utility of being stoned by yourself is pretty low...

raymond|12.1.04 @ 3:23PM|#

It's not exactly _supply_ which is creating demand in the phone example. It's acceptance of the technology. Basically, demand is creating demand.

If there are a million betamax players but no one has bought any, then there won't be lots of betamax tapes available because people haven't accepted the technology and thereby created the demand.

|12.1.04 @ 9:13PM|#

Demand creates supply, plain and simple. If noone smoked marijuana nobody would want to supply it. There could be tons and tons of completely free pot, but if nobody wants the stuff there is no demand. There can also be tons and tons of demand but very little going around, and this will simply increase either price or supply. The government honestly believes that by reducing supply, all demand will go away. This is possible, but no probable. They must, in fact, reduce all demand. Problem is, people will always want drugs and their legal status does not matter. People know better, they know the government can't catch everybody doing drugs because (like the supply factor) this would be improbable. Stopping both supply AND demand is only possible (as I said before)by drug testing all citizens and people in the US, and killing anyone who fails the drug test on the spot. No questioned asked. You're shot in the back of the head in front of your family. Why do you think there weren't many drug addicts in Nazi Germany? Is it really worth this? No. And this is just for illegal drugs, there will always be nicotine addicts, alcoholics, chocolate addicts, television addicts, people addicted to the hundreds of prescription drugs on the market, and basically addicts of anything pleasurable. There is no logical way to win a War on Drugs. All it does it create real criminals out of people who don't commit real crimes. In the government's eyes it would be alright to jail anyone listening to rap music if they deem it to be illegal for arbitrary reasons.

Full-out legalization, regulated by law like alcohol, is the ONLY way to stop the drug problems. This must be combined with fact-based drug education and harsh penalites for people who abuse the privilege of using the now-legal drugs. This would be fine, since there wouldn't be many drug-related crimes without a black market. Kind of like how getting a DWI is much worse than being caught with an 8-ball of cocaine. People wouldn't shoot up, they'd drink laudnaum or take diacetylmorphine (Heroin) pills. They'd drink cocaine wine or elixir, not snort lines off a mirror. If, for some odd reason, people did want to administer drugs intranasally or intravaneously there are newer ways than snorting pure powder or sticking a needle in their arm. Nasal mists containing cocaine or diamorphine, or use the new "needle-less" syringes that have been developed. They use gas to shoot a substance into a person's arm. Snorting and needles are something out of the 19th century, not the 21st. Black markets keep people behind the times.