Here is a youtube clip called “Why The War on Drugs Is a Huge Failure” (the email subscribers can watch it here).
Some time ago, I wrote about the economics of rhino extinction. Specifically, my point was that:
- By most accounts, the recent increase in the demand for rhino horn was being driven by a rumour/story in Vietnam that a rhinohorn milkshake cures cancer.
- That demand is price inelastic. That is: it doesn’t matter what the rhino horn costs, people will bankrupt themselves in order to live longer.
- The falling supply of rhino horn due to a dwindling rhino population, without a corresponding change in demand, was driving the price of rhino horn upwards.
- The higher the price of the rhino horn, the more incentive professional poaching units have to hunt down rhinos (we’re talking manned helicopters and drone observation units, etc).
- This in turn accelerates the falling supply – which further pushes up the price of rhino horn – and the cycle repeats itself.
And I guess the real conclusion is: you can’t fight rhino extinction by trying to restrict access to the supply of rhino horn. You have to target the demand (if you can), or increase the supply (by farming rhinos).
In many ways, the general suspicion is that the War on Drugs has similarly done the wrong thing: because when the demand for a product is not really affected by changes in price, it doesn’t make sense to try and ban its use.
You’re already dealing with consumers who will pay almost any price for it – and unfortunately, restricting the supply or banning the consumption won’t change the fact that they will still pay almost any price for the product. All you’ll have done is add some risk premium to the market price and driven the market underground, while incurring ever higher costs in your attempt to be draconian.
It’s probably time to try something else.
Rolling Alpha posts about finance, economics, and sometimes stuff that is only quite loosely related. Follow me on Twitter @RollingAlpha, or like my page on Facebook at www.facebook.com/rollingalpha. Or both.