Sunday, March 9, 2014

The Downside to Ending the War on Drugs

In 1975, Gordon Tullock described the "transitional gains trap." The theory is this: when the state makes people jump through hoops to start a business, or restricts how many participants (sellers usually, but similar arguments apply for buyers) can trade, the people lucky (or cunning, or diligent) enough to make the cut can charge higher prices than they'd be able to get away with in a more competitive setting. This extra-high price is valuable, so when the policy is still new, there's a scrum to see who gets it. If a state-generated rent is worth $100, you should be willing to pay just up to that without going over in order to secure the right. The bidding war that occurs for the special right to produce tends to dissipate its value. If five people each squander $99 to secure that $100 rent, society is out to the tune of $395. That money is simply squandered, never to return. It vanishes down a rabbit hole dug in Congress.

And from the point of view of the winning bidder? To her, that $100 comes in drips and drops over the life of the rent. For most policy, it's close enough to a perpetuity that it matters little for analytical purposes. So after the first year, she's paid out $99 for the rights to, I don't know, braid hair or something, but she's only gotten $5 in rent income (that is to say, income above and beyond what's available in an open-entry market) back. From her point of view, she's still out $94. And when those rents are threatened, she'll again fight tooth and nail (well, so long as the teeth and the nails cost less than $94) to protect them.

That's the transitional gains trap. State intervention destroys wealth both coming and going.

So what does this have to do with the drug war and euvoluntary exchange?

Well, wanton destruction of wealth is the opposite of euvoluntary exchange. Naturally, EEers should be wary of it. And yes, that should indeed apply to drug cartels too. Think about the ways in which they might choose to enforce their monopoly privileges. They could increase violence at the border, they could adulterate their product, they could quietly sift cash into the coffers of prohibitionist PACs. They have at least a few orders of magnitude of millions of dollars' worth of rents to protect. I'm sure they'll be a lot more clever and aggressive than I can even imagine.

So is this one surviving argument strong enough to persist with the War on Drugs?

Not a chance. The ongoing damage to poor (especially minority) communities is a grievous injustice, a set of Jim Crow institutions, the unconscionable, unconstitutional stop and frisk replacing segregation as today's tyranny of choice. The drug cartels (inter alia) will push back? If there's not enough political will to buy them out (and there isn't; I'm quite confident of that), then just get a good grip on that wax strip and tear it right out.

Dedicated to the 2014 PCS meeting, which I unfortunately could not attend.

1 comment:

  1. I never thought of this outcome--that ending the war on drugs could cause the cartels to fight tooth and nail to get it back. Interesting point of view--thanks for sharing.


Do you have suggestions on where we could find more examples of this phenomenon?