Wallace-Wells’ skillful illustration of the international repercussions of the repressive Nixon-Reagan-Bush-Clinton-Bush war on drugs, which threatens to turn Peru and Mexico into narco-states, inspired me to revisit economist David R. Henderson’s findings on the effects of stringent drug control. In a working paper circulated in the late 1970s and finally in a 1991 paper published in the University of California-Davis Law Review (1991. 24: 655-676) titled “A Humane Economist’s Case for Drug Legalization,” Henderson shows how increased penalties never have the effects on drug markets predicted by governments.
Henderson looks at drug markets as rational, which they are, and writes that increased drug penalties tend to drive “more civilized dealers” out of the market and reduce supply. “Competition by buyers for a lessened supply must cause the price to rise,” he writes, and as “the price rises, profits will increase and in the long run eventually will return to their precriminalization levels.” As the civilized dealers exit, the most vicious dealers rise. He continues:
Profits of dealers will look higher than normal because the cost of imprisonment, fines, and bribes is not subtracted. Also, profits of successful dealers who are never caught will be higher than normal, just as profits of lottery winners are higher than normal. Looking only at the profits of dealers who successfully avoid capture, however, and concluding on that basis that the illegal drug business is abnormally profitable is like looking at the fortunes of only lottery winners and concluding that buying a lottery ticket is abnormally profitable.
Henderson’s insights help explain the phenomenal violence of the cocaine trade described by the Rolling Stone piece.