The Vermont Cynic

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The Rational Mind of A Drug Dealer

An Economic Explanation of Why Burlington Would Not Benefit from A Reduction in the Availability of Drugs

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In the not too recent past criminals were wantonly killed and dissected publicly in order to give the public a look into the medical make-up of the deranged and irrational criminal being. While most people would shun such brutal anti-crime tactics, it is reasonable to believe that most people would prefer to have fewer criminals and drug dealers in their communities. Drug abuse and addiction is a detrimental trend with a negative impact on individuals and communities. In today’s world the aversion to drug abuse is not limited to moralists and upstanding citizens.

Even South Boston’s infamous crime kingpin, Whitey Bulger, was known for ordering horrific punishments and the disfigurement of anyone found using or selling heroin in the neighborhoods that he controlled. Unlike the average citizen, Bulger wanted his streets clean of heroin to promote stability so that his cocaine and high-level crime empire could flourish and smoothly operate without the disruptions of low-level street crime and heroin addiction.

Although most people probably lack some of the mob boss’s darker motivations, they undoubtedly share his rationale that living in close proximity to heroin addicts is not a good idea. People ranging from policemen, politicians, professors, plumbers, and parents probably all want fewer drugs in their communities. But such an outcome will not happen by magic. Communities need to ask questions and think critically about which policies will best bring out the desired results.

Many an argument has been made that current anti-drug enforcement policies are counter-productive because lengthy prison sentences have the potential to turn perpetrators of petty pilfering into hardened hoodlums and career criminals. But, instead of trying to deconstruct the current enforcement techniques from the ground up, I will use economic tools to explain how current policy outcomes contradict policy objectives and then use the same framework to present a better alternative.

In the framework in which I will operate, criminals are assumed to be rational and crime is simply an illegal money-making venture, which is little different from other enterprises in most other respects. Crime kings like Bulger did not make it to the top by being insane and irrational, they succeeded by being shrewd and savvy. An article published in the Economist magazine a few years ago supports this idea, going as far as to say “IF ONLY it were legitimate, there would be much to admire about the drugs industry.”

In fact, the biggest drug dealers operate like fast-moving, mobile, multi-national firms. They have capitalized on technological advances and the forces of globalization and built empires by selling billions of dollars worth of product with no traditional advertising. Such success is surely the result of careful decision-making and planning on the part of those involved on the supply side. In many ways drug dealers go through many of the same decision making processes as legitimate businessmen and entrepreneurs all around the globe. The potential of being caught and punished is merely an obstacle which will be overcome if profit-margins are large enough to make selling drugs worthwhile.

If this is the case, then traditional crime-fighting tactics which are based on stopping the criminals to stop the crime might prove to be ineffective against drug dealers. When fighting run-of-the-mill crime, for example taking out a bank robbery ring, the police can take down the group’s leaders and the courts can hand out stiffer penalties. The low-level robbers who remain out of the grips of the law will be leaderless and although not apprehended will be more apprehensive about breaking the law again. In this case, new harsher punishments and prison terms will act as a strong disincentive to committing more crime. These low-level hoodlums might then stop busting safes and start busting their humps trying to make money the legal way. This then, is a classic example of the traditional crime fighting theory that cutting off the snake’s head will cause the body to perish as well.

But, now let us look at the drug trade and examine the unique incentive patterns facing drug dealers. Highly respected Nobel Peace prize-winning economist Gary Becker has already extensively investigated the decision-making patterns of criminals. The Nobel website explains Becker’s theory that “a criminal, with the exception of a limited number of psychopaths, is assumed to react to different stimuli in a predictable `rational’ way both in respect to returns and costs.”

In this sense, potential drug dealers weigh the costs and benefits of entering the market. Are the expected financial gains worth the potential loss of life and limb, the chance of being caught, and the forgone future earning opportunities, which will be lost due to the social stigma of ex-con status?

There are two important implications which can be drawn from this assertion. The first is that the people with the fewest future earning opportunities will be the most likely to sell drugs since they have the least to lose from getting caught. The second is that as the prevailing market price increases more and more, potential drug dealers will make the decision that the benefits outweigh the costs and will choose to enter the market.

The first implication can only be dealt with by society-wide reforms and policy initiatives and is an issue of such seriousness and such import that it requires too deep of an analysis allowed for in the limited space provided here.

The fact that higher market prices increase the number of people willing to accept the risks of drug-dealing is the implication on which I will focus here, because it is an issue of vital importance, which is currently being ignored in anti-drug policy. Let us say that with enough funding a few dogged detectives and a specially trained anti-narcotis canine unit could sniff out and hound down the biggest drug suppliers in the city. In this case taking a bite out of crime and drastically reducing the supply of drugs would be barking up the wrong tree.

Reducing supply tinkers with the price-setting function of the market-mechanism. One of the most basic principles of economics is that price is set where supply equals demand. If a given number of recreational users and addicts compose the demand side of the drug market, reducing supply means that the same amount of users will compete with each other for a smaller amount of product. As desperate buyers try to outbid each other to get their hands on the limited supply, the inevitable result is an increase in market prices. In this situation both wholesale and retail drug prices in the city increase.

Rising prices excite the entrepreneurial spirit of potential drug-dealers who had previously with-held from entering the market. With increasing prices, the risks and costs of drug-dealing might no longer outweigh the financial rewards of the venture.

In the case of a supply shortage, entrepreneurial drug dealers can transport product purchased at lower market equilibrium prices in distant states and cities and make a quick profit by capitalizing on the short-term artificially high local retail prices. As more and more new dealers enter the market, overall supply increases and prices fall as competition for each unit of substance declines.

In these situations locking up criminals is not an effective policy. Arresting distributors might dissuade and prevent those individuals from selling again, but the big-scale bust’s effect on market prices provides the incentive for a new generation of dealers to enter the market. The first part of this theory was supported by one UVM Police Services detective who explained that arresting one year’s student dealers had very little effect on the decisions made by the fresh faces of the next year’s new dorm residents. As long as demand exists, suppliers will step up to meet it.

The overall point of my theory is that trying to stop the drug trade by limiting supply works against the market mechanism and results in a conflict between policy objectives and results. It is for this reason that the drug trade is often likened to the mythical Greek creature called the Hydra which, unlike our easily killed snake, would grow two more heads for each one that was cut off. If the drug trade really is like the Hydra, then traditional crime-fighting techniques will not work against it.

If traditional tactics are proving to be impotent against the new adversary, the solution might be found in getting creative. A better alternative, which works with the market mechanism is to reduce demand. If fewer people want to buy drugs, dealers will engage in price wars as they lower their prices in order to compete for a smaller and limited number of buyers. At some point in this process, the diminished financial benefits will not be worth the risks and costs and many individuals will choose to exit the market rather than continuing to sell at lower prices.

So what is the best way to accomplish this policy objective? It may sound counter-intuitive, but the best option might be to lower the drinking age. If beer is a suitable substitute good for illegal drugs, access to alcohol will deter many young people from dabbling with the potentially expensive habit of drug use, because the added risk and costs will not be worth the gain.

This is not a revolutionary idea, but it makes sense economically and might be a fine policy.

I was once told a story by an Irish ex-pat who was living in New Zealand. He said that you can easily tell a man’s country of origin by the way he drinks his Guinness. An Irishman is likely to down a Guinness in three lengthy but leisurely swills which are separated by relaxing periods of perusing through a daily newspaper. He went on to say that an Englishman is likely to take a few hundred small sips as he drinks and chats with his friends, and then finished by remarking that rambunctious New Zealanders are apt to finish off a full pint in a single gulp. Although it got little more than a polite chuckle at the time, the story illustrates a more important point than poking fun at the stereotypes of the effeminate English and rowdy New Zealanders. The point is that drinking is an important and integral part of each of these cultures. As such it is embraced, and the result is probably better for the society as a whole.

Although American college campuses are often portrayed as halfway seriously priding themselves in the amount of alcohol consumed by students, by international comparison Americans are not very hard drinkers. Alcohol is simply not so central a part of the culture as in Europe and elsewhere.

In the United States, the purchase of alcohol is restricted to persons over the age of twenty-one. Under current laws, high-school students are cut off from most of the sources of supply of this legal commodity. But, the law does not dissuade substance abuse, it merely shifts consumption patterns. The sad truth is that because high schools are connected to informal distribution networks of illegal drugs, an average ninth grader could probably find a way to buy a gram of cocaine or marijuana more easily than she could purchase a bottle of wine. If both drugs and alcohol are illegal and out of reach, many students probably start experimenting with drugs simply because they are easier to purchase than alcohol.

As a society, we probably all wish that drug-abuse was not an issue. But, the demand for mind-altering substances exists and since it does, policy should focus on managing the problem, rather than trying to stamp it out.

Although drinking can have negative effects, if alcohol consumption is an important part of the culture and is done in a social, community setting, it can be a positive trend. It is hard to argue against the fact that drinking socially and in moderation is better for a community than pervasive cocaine or heroin abuse.

Current polices obstruct young people from being brought up in a culture of drinking and from being taught to consume responsibly. Cost-benefit analysis done at a young age might make drug use more appealing or at least more easy to access than drinking. But, drug abuse patterns that start at a young age will lead to serious problems for both communities and individuals down the road. But which country’s policies and social norms work better? Can we really assume that European cultures are better off?

According to one New Zealand government study, Ireland ranked third in the world for per capita alcohol consumption. The United Kingdom ranked number nine, and New Zealand came in at a number twenty-four with a whopping 6.9 litres of pure alcohol consumed per person each year. The United States did not make it to the top twenty-five with a measly 3.7 litres consumed per person every year. So what can we conclude from this? Can we say that the D.A.R.E. program is educating American youth to lead responsible, puritanical lives? Hardly.

Currently one third of all Americans over the age of twelve admit to having experimented with drugs at least once. More shocking still is that, a full 25 percent of all 12th graders admit to having used illegal drugs at least once in the last month, according to one government report. Far from being a beacon of proper policy and healthy living, the United States is a drug dealer’s wet dream and an anti-drug policymaker’s recurring nightmare. Even though the United States spends almost as much as Ecuador’s total GDP, 35-40 billion dollars, each year fighting the drug trade, the United States is still the biggest market for illegal drugs in the world.

The Economist estimates that 60 billion dollars worth of illegal drugs are consumed in the United States each year. This means that the country with the biggest anti-drug expenditures and a mere 4.5 percent of the earth’s population consumes more than one third of all the drugs sold in the entire world.

The fact that America has low alcohol consumption rates and big problems with drug abuse is evidence that alcohol does not have to be a gateway substance and that all over the world alcohol and drugs are not complimentary goods. Countries with drinking cultures have fewer problems with drug abuse, which supports the idea that access to alcohol lowers the demand for drugs.

America’s high youth drug abuse rates are evidence enough that it is losing the war against drugs with its current tactics. The supply side focus is simply not working. Rather than throwing away taxpayers’ money chopping away at a Hydra, it really might be time to get creative with anti-drug policy.

The answer just might be to implement policies, which foster an environment in which demand for drugs is naturally reduced as young people are taught to drink responsibly and are integrated into the adult aspects of community life.

If teenagers were permitted and encouraged to learn to drink responsibly, few would accept the risks of dabbling with drug use and abuse. Some people might argue that lowering market demand in this way is insensible because it might lead to an increase in drunk-driving accidents involving young and inexperienced drivers.

To this I would counter with noted economist Todd Buchholz’s theory that supply-side policies cause “higher prices [and] might spur addicts to mug and rob even more to pay for drug habits.” The sad truth is that the people most willing to pay the higher prices caused by supply contractions are those deepest in the grips of addiction and are the least able to hold steady jobs and earn money to finance their habits. Increases in drug habits are likely to lead to increased street crime and further erosion of community stability. Which is worse: drunk driving accidents or the destruction of communites and high levels of street crime?

I would encourage such critics to weigh the costs and benefits of each policy option. In this piece I have argued why criminals, drug dealers, and teenage party-goers all operate within a framework of rational decision-making. I will now conclude by encouraging policy makers to do the same.

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The Rational Mind of A Drug Dealer