Unlike the War on Poverty, the War on Drugs is a real and bloody war by the United States against a minority group known as drug buyers and sellers.
Unlike the War on Poverty, the War on Drugs is a real and bloody war by the United States against a minority group known as drug buyers and sellers.
Since large banks are more or less adjuncts of the federal government that live off the sweat of taxpayers, all the while whining about how tough they have it, who can be surprised that large banks like Wells Fargo have been enthusiastic in their efforts to crush clients who dare do business with legal cannabis merchants? Notes the Denver Post:
The risk made banks, including Wells Fargo, give commercial clients an ultimatum: Drop the marijuana-related tenants of property financed with bank funds, or pay up the entirety of the loan.
“A couple of the bigger banks have a scorched-earth policy, moving immediately to eviction or simply calling the note, with no courtesy to allow them to do anything else,” said Robert Frichtel, a former commercial mortgage broker who is CEO of Advanced Cannabis Solutions in Colorado Springs.
Fortunately, as described in The Post article, smaller sources of capital have moved into the market eager to capitalize on a booming (and legal) industry in Colorado (which I describe here). If the United States had an actual free market economy, huge mismanaged dinosaurs like the big banks would have been liquidated years ago, or at least significantly shrunk in size. Instead, they went to the public trough and stole a couple trillion dollars from the taxpayers. Naturally then, they show no signs of life when it comes to the sort of entrepreneurship necessary to deal with a renewed cannabis industry that, unlike the banking sector, actually strives to provide good service to customers.
Mind you, I understand that the banks are fearful because they are subject to so much federal regulation, and could easily have their charters revoked if they did not play ball. As with so many industries, the feds have the banks over a barrel. But this relationship is made worse by the fact that the fiscal health of banks is reliant not on their customers, but on the cozy cronyism that keeps government favors coming their way. Banks have no interest in pushing back even the slightest bit in the continued regulatory war on drugs through the banking sector because the banks would rather just take money from their customers by force (via the treasury) than have to earn it.
(It’s a video of a video, but the audio is very clear.) Hosted by the Loyola University Society for Civic Engagement on 27 March 2014, Mark Thornton appeared as a panelist (via Skype) to discuss some of the intended and unintended consequences of legalizing marijuana.
Thornton provides an excellent summary of the early years of cannabis prohibition (hint: no one but the government seemed to want prohibition) plus a discussion of the many negative effects of prohibition.
This prohibition has two main effects. The first is that lots of people consume much more alcohol before they enter the stadium than they would under normal circumstances. The second is that people will sneak alcohol into the stadium, usually in a plastic flask.
What does this tell us? First, that many ticket holders are already inebriated as they enter the stadium to find their seats. So when everyone is quickly shuffling about, anxious to find their seats, get to the concession stands, and find the nearest bathroom, uncountable accidents, small and large, occur.
Second, fans resort to criminal behavior in a similar fashion to the bootlegger, the rumrunner, and the blockade runner. If caught smuggling they also face penalties and loss of their product. In order to lessen the risk of being caught, the determined fan resorts to making the product as small as possible and easy to conceal, thus the aforementioned plastic flask.
Mark Thornton writes in today’s Mises Daily:
While the drug war forces addicts and casual users to rely on unlabeled, black market (and possibly tampered-with) products for their fix, would drug users in a free market turn to such dangerous products? It’s unlikely. We do know that in the face of prohibition, many users turn to using alcohol and prescription drugs for off-label recreational uses that can cause harm that is similar or even worse than those caused by prohibited drugs.
There is simply no evidence that prohibition generates any socially desirable benefits, but there is ample evidence of its costs and destruction.
Mises Institute Associated Scholar (and author of The Invisible Hand in Popular Culture) Paul Cantor writes:
We’re launching a project to combine pop culture and free market economics. Next up is a discussion of HOUSE OF CARDS, and we just recorded programs on the LEGO MOVIE and GHOSTBUSTERS.
Listen to the Dallas Buyers Club podcast here.
The latest ruse of some conservatives to garner the sympathy, support, and votes of libertarians is to declare that they are “constitutionalists.” Although they are sometimes referred to as “libertarians” in the media, sometimes even portray themselves as “libertarian-leaning,” and get ecstatic when real libertarians describe them as “liberty-minded,” these conservative “constitutionalists” are not only not libertarian, they are not even constitutional.
The United States was set up as a federal system of government where the states, through the Constitution, granted a limited number of powers to a central government. As James Madison succinctly explained in Federalist No. 45:
The powers delegated by the proposed Constitution to the Federal Government, are few and defined. Those which are to remain in the State governments are numerous and indefinite. The former will be exercised principally on external objects, as war, peace, negotiation, and foreign commerce; with which last the power of taxation will, for the most part, be connected. The powers reserved to the several States will extend to all the objects which, in the ordinary course of affairs, concern the lives, liberties, and properties of the people, and the internal order, improvement, and prosperity of the State.
In article I, section 8, of the Constitution, there are eighteen paragraphs that enumerate the limited powers granted to Congress. Everything else is reserved to the states—even without the Tenth Amendment. Four of them concern taxes and money. One concerns commerce. One concerns naturalization and bankruptcies. One concerns post offices and post roads. One concerns copyrights and patents. One concerns federal courts. One concerns maritime crimes. Six concern the military and the militia. Once concerns the governance of the District of Columbia. And the last one gives Congress the power “to make all Laws which shall be necessary and proper for carrying into Execution the foregoing Powers.”
One can search the Constitution morning, noon, and night with an electron microscope, x-ray vision, and night-vision goggles and never see a reference to the national government having the power to identify drugs, regulate drugs, classify drugs, set up a Drug Enforcement Administration, outlaw drugs, pass a single law related to drugs, or have anything whatsoever to do with any drugs. Read More→
Introduction: Mark Thornton is Senior Fellow at the Ludwig von Mises Institute, with articles published often in the Mises Daily. He serves as the Book Review Editor of theQuarterly Journal of Austrian Economics and was a member of the Editorial Board of theJournal of Libertarian Studies. He has served as the editor of the Austrian Economics Newsletter and as a member of the graduate faculties of Auburn University and Columbus State University. He has also taught economics at Auburn University at Montgomery and Trinity University in Texas.
Mark served as Assistant Superintendent of Banking and economic advisor to Governor Fob James of Alabama (1997-1999) and he was awarded the University Research Award at Columbus State University in 2002. His publications include The Economics of Prohibition (1991), Tariffs, Blockades, and Inflation: The Economics of the Civil War (2004),The Bastiat Collection (2007), and The Quotable Mises (2005). Mark Thornton is a graduate of St. Bonaventure University and received his PhD in economics from Auburn University.
Daily Bell: Hello there. Let’s jump right in. We’ll cover marijuana regulation, in particular, in this interview. Given the recent legalization in Uruguay, pending changes in many US states as well as new regulations governing production and distribution of medical marijuana in Canada, we wanted to get your take on what’s happening.
Your 1991 book, The Economics of Prohibition, is as timely as ever now and you’ve written quite a number of provocative articles on marijuana legalization more recently. Tell us a bit about the book and about your position on the issue now.
Mark Thornton: The book was a byproduct of my PhD dissertation, which I completed at Auburn University in late 1989. It was an old-fashioned dissertation with a review of the literature, a chapter on the history of prohibition in America, a theory chapter and two application chapters, one on potency and one on crime. The final chapter addresses the repeal of prohibition. The nice thing about the old-fashioned dissertation is that you are constantly rechecking your work: theory, history and applications. I think that is why it has held up so well. I have had to rethink things over the last two decades, but there have been no radical changes in my thinking. Time has only served to confirm what I wrote a quarter-century ago.
The main takeaway of the book is that the policy of prohibition is a failure. It provides no demonstrable social benefits while coming at a high cost and nearly uncountable negative unintended consequences.
Daily Bell: Please explain how prohibition “inevitably creates incentives for producers to increase the potency of drugs and alcohol products distributed via the black market,” as the description of your book states.
Mark Thornton: The more the government acts to suppress a market with more police, severe penalties and new tactics the higher they drive up prices and the more incentive black marketeers have to invest in ways of protecting themselves against detection, arrest and penalties. One of the primary ways of doing this is to increase the potency of the product or to switch to higher potency products. It’s more bang for the buck. Instead of smuggling wine, a truckload of 10% alcohol, why not smuggle a vanload of whiskey that is 90% alcohol? Why try to bring weak potency marijuana into the country when you can smuggle marijuana that is 5 or 10 times more potent, or why not switch to cocaine and heroin smuggling where a million doses can be smuggled in a single suitcase? Marijuana is not a true gateway drug that leads people to heroin. Stricter prohibition leads black markets from weak marijuana to heroin.
My students are often skeptical of this analysis. Perhaps drug dealers are not smart enough to figure this out, they think. Then I ask them about what happens at an Auburn University football game. “If you went tailgating before the game, what alcohol drink would you most likely see people drinking?” The answer is nearly unanimous – beer. Then I ask them, “Once you get into the stadium (where alcohol is prohibited) what type of alcohol are you most likely going to see consumed?” The students’ eyes bug out and I have seen a jaw or two actually drop because they know the answer is some type of high potency liquor.
Prohibition is like on Star Trek when they encounter a “spatial anomaly” that acts as an “energy-dampening field.” It’s kind of like the Chinese handcuffs of science fiction – the more energy you use to break free of the Chinese handcuffs or the spatial anomaly, the more stuck you become and the more you get dragged closer to the spatial anomaly. With prohibition, the more the government tries to enforce it, the higher the price and the more effort that will be exerted to overcome the prohibition, whether that is higher potency, more dangerous concentrated drugs, larger bribes, more powerful guns …
Daily Bell: What are the effects of prohibition policies on crime rates and government corruption rates?
Mark Thornton responds to former DEA administrator Peter Bensinger’s claim that the legalization of marijuana is a disaster. Thornton is a Senior Fellow at the Mises Institute.
Ryan McMaken writes in today’s Mises Daily:
Amendment 64, with all its language covering “equipment, products, [and] materials,” hints at the economic complexity that has always existed behind recreational drugs, but which now, in a limited case in a limited jurisdiction, has emerged from the black market and underground operations into the light of the larger marketplace. The cannabis market is not simply a matter of putting some leaves in small bags. The new legal market, instead, is a market with far better quality control and accountability on the part of merchants. And it means economic growth for many industries that have never traditionally been connected with recreational drugs.
Supporting the cannabis merchants are a wide variety of enterprises from distribution warehouses to financial institutions, attorneys, short-haul truckers, and more. The new demand for commercial real estate to serve the needs of both producers and retail outlets has created a need for real estate brokers who can specialize in the cannabis industry, while attorneys assist with the drafting of legal documents, and accountants must be hired to keep track of the money. Unfortunately, many of these industries must continue to be wary of federal law, even when state law is clear on the matter. Banks, specifically, which are regulated at the federal level, only recently were given the green light by federal regulators to open accounts for cannabis-related businesses. The legality of this sort of banking remains on shaky ground, however, and many banks remain loath to participate, thus crippling the financial and banking opportunities for the cannabis industry in Colorado and Washington.
Interviewed by Paul Molloy, Mark Thornton talks about the economics of prohibition.
A little old, but new to Mises.org:
Mark Thornton discusses the War on Drugs at the Lions of Liberty podcast.
The Dallas Buyers Club is based on a true story about Ron Woodruff (McConaughey), a redneck, heterosexual Texan who contracts the HIV virus in the 1980s. There is lots of sex, drugs, drinking, homosexuals, and even transsexuals, in addition to great acting, so be warned, this movie is not for everyone. However, it teaches us many lessons about how the state and its agents work.
This is an anti-government movie that exposes the true relationship between the American Medical Association and Big Pharma, and reveals it as a crony capitalist network that exploits Americans, and especially their health. The hero is just an ordinary guy and the heroine is just an ordinary doctor who comes to realize the widespread fraud within the American medical establishment, and stands up against it.
Today is the 80th anniversary of the Repeal of Alcohol Prohibition in 1933. Here are some of my comments from the 75th anniversary. Here is another good question on the 80th anniversary: why don’t we smarten up and repeal marijuana prohibition?
Some 90% of the American population is still in the Great Bush Depression that began in 2008. Only the stockholders have really recovered. The actual unemployment rate is historically high, a fact hidden by the tinkering with the definition of unemployment. Shouldn’t we now be as pragmatic as FDR, and seek to end the Federal prohibition of marijuana, as well? It would be a boon to the economy and to a government burdened by debt. And, shouldn’t we be embarrassed, as a country with a very large and important Latino community, of the racist origins of this Prohibition? And, are we still afraid of youth and jazz?
Here is an article that reports legal marijuana growers are using a great deal of electricity in Colorado following the vote to legalize marijuana. It focuses on the negative impact this is having on pollution, but spending lots of money on electricity indicates that they are also employing people and providing medical and recreational benefits to their consumers. Producers are buying warehouse space, special lighting and growing equipment, greenhouses, etc. in order to serve the high demand for legal marijuana. Even if overall quantity demanded increases, the total spending on marijuana by Coloradans is expected to fall due to much lower prices, meaning that many households will have more money left over for purchases of other goods or savings.
Faced with daunting energy bills, Kocer and his business have expanded their growing operation to include an 18,000 square foot greenhouse, which will primarily use solar power as opposed to artificial lights.
“Our goal here is to lower our costs as much as possible to pass it on to our patients,” said Kocer. He said his new greenhouse will only use about 6 percent of the energy required to grow the same amount of marijuana indoors.
In Boulder, one grower is experimenting with new lighting systems that use about five times less power than standard lighting systems. The new system is manufactured by iGrow Induction Lighting from Cleveland, Ohio.
William Anderson Walter Block Per Bylund John Cochran Jeff Deist Thomas DiLorenzo Carmen Elena Dorobăț Gary Galles David Gordon Jeffrey Herbener Robert Higgs Randall Holcombe David Howden Jörg Guido Hülsmann Peter Klein Hunter Lewis Matt McCaffrey Ryan McMaken Thorsten Polleit Joseph Salerno Timothy Terrell Mark Thornton Hunt Tooley Christopher Westley