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Lessons in How Markets Work


Brought to you, surprisingly enough, by the New York Times, in an article describing how the crackdown on legal pseudoephedrine-containing medications has changed the black market for methamphetamine. One of the government's hapless drug war strategies has been attacking drugs from the supply side, trying to cut off the sources (when they're not attacking the demand side with brilliant stuff like this).

Of course, prohibition doesn't eliminate the trade, but only drives it underground, encouraging risky home "cooking" with potentially dangerous chemicals. Trying to choke off the supply of pseudoephedrine used in home cooking (which is depicted as a great success) has resulted in a decrease in home cooked meth. Instead of decreasing the total supply, however, the tactic has simply resulted in home cooked meth being replaced by meth smuggled in from Mexico. The imported drug is more potent than the homegrown American variety (more potent product means more money can be made from smuggling smaller quantities; more profit for less risk), and potentially easier to overdose on. The increase in product potency brought about by drug prohibition has been seen before, a point made by Mark Thornton in his lecture on the economics of prohibition at the last Mises University.

As the more expensive Mexican meth replaces the American made stuff, users switch from cooking to buying, committing crimes for drug money. And so, we have inelasticity of demand for an addictive substance, along with product substitution, and the market just keeps humming along. Wonder when the government will notice?

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