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Portugal’s Experiment in Drug Decriminalization Has Been a Success – Article by Mark Thornton

Portugal’s Experiment in Drug Decriminalization Has Been a Success – Article by Mark Thornton

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The New Renaissance HatMark Thornton
July 10, 2015
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This month, Portugal celebrates fourteen years of drug decriminalization. The grand experiment is now considered a happy success considering it was adopted out of desperation and in the face of dire warnings from proponents of the global drug war.

What Led to Decriminalization

During the mid-twentieth century, Portugal experienced fifty years of military dictatorship, and when leftist democratic control was reestablished in 1974, many expatriate Portuguese returned to Portugal from its colonies. Of course, many of these people were dissidents, outsiders, and outcasts, and many of them used illegal drugs.

Over the next twenty-five years, there was a surge in drug use, drug abuse, addiction, overdoses, and eventually a very substantial prevalence of HIV/AIDS and other dirty-needle-related diseases. At the peak of this drug epidemic the rate of drug addiction and HIV/AIDS infection was “considerably higher” than the rest of Europe according to Dr. João Goulão, the longtime drug czar of Portugal.

Goulão was on the eleven member anti-drug commission that formulated law 30/2000 which decriminalized all drugs starting July 1, 2001.

The “grand experiment” seems to be the result of two factors. The first is that Portugal is a relatively poor European country and was unable to fight the war on drugs on every front.

The second factor is that the commission was relatively non-partisan and simply adopted the common sense notion that drug abuse and addiction are not criminal problems for the police to solve. Drug abuse and addiction are medical and psychological problems that are better solved by the individual with the help of professionals and social pressures.

Baby Steps Away from the Drug War

Decriminalization is just one baby step away from the war on drugs, and drug smugglers and dealers are still sought out and punished. Individuals are only permitted to possess very small amounts of illegal drugs without being punished as a dealer. Under current laws, you can still be arrested and sent to counselors, but you do not face imprisonment unless you are an uncooperative multiple offender.

While certainly not ideal, decriminalization has straightforward benefits over complete prohibition. First, otherwise law-abiding citizens will not be criminalized for possessing illegal drugs. Second, drug addicts will be more likely to seek professional help when government treats addiction as a medical rather than criminal problem. Third, the police will have more resources to address real crimes and possibly to provide subsidies for drug treatment programs. Fourth, drug addicts will turn away from dangerous synthetic drug substitutes and turn more to the natural illegal drugs like marijuana and cocaine. Fifth, if needles are legal too, then you should see fewer cases of diseases such as HIV/AIDS and hepatitis. Sixth, junkie ghettos will shrink in size and visibility. In sum, decriminalization should result in fewer people dying and being sent to prison and more people living “normal” lives.

Of course, the biggest concern prior to decriminalization was the quantity of illegal drugs consumed. That concern is even more dominant when discussing outright legalization of drugs. Back when Portugal was considering decriminalization, I was interviewed by the “Time Magazine of Portugal,” and the reporter stressed that this was the prime concern in Portugal at the time. I responded that you cannot know the answer to that question in advance, that you will never know the answer to that question, and that the question was unimportant.

Too many factors impact the markets for illegal drugs to be able to say definitively that drug consumption will increase or decrease after decriminalization. Factually, statistics on drug consumption are necessarily imprecise. This is true for statistics prior to and after decriminalization. The existing statistics are based either on things like surveys and educated guesswork with the actual facts mired in the secretive world of the black market. Consumption aside, the real question is whether prohibition does more harm than decriminalization and the answer is yes.

When I was pressed by the reporter for a guess, I responded that overall consumption would not change much; it might increase some in the short run and would decrease in the long run, unless the drugs were legalized in the future for medical or recreational uses. However, I stressed that there are undeniable benefits (listed above) and there is no reason that consumption would explode due to decriminalization.

Many Still Refuse to See the Success

It is hard to blame the Portuguese for their concerns at that time. Decriminalization was considered a dangerous experiment and a dodge of the United Nations’ rules of the global war on drugs. However, mainstream drug policy experts remained “skeptical” of the Portuguese experiment even after nearly eight years of experience.

Mark Kleiman, director of the drug policy analysis program at UCLA, claims that Portugal was an unrealistic model. Peter Reuter, another leading drug policy expert, claimed that despite achieving its central goal (decreased consumption) it could be explained by the fact that Portugal was a small country and that drug abuse is cyclical in nature.

Remarkably, Dr. Goulão, who helped design and oversee the new law seems uninformed and perplexed at the positive outcomes even to this very day. He was recently quoted as saying: “it’s very difficult to identify a causal link between decriminalization by itself and the positive tendencies we have seen.”

One picture that sums up the Portuguese success story shows that Portugal has the second lowest death rate from illegal drugs in all of Europe after experiencing one of the worst rates with prohibition.

Drug-induced deaths in Portugal
It is also interesting to note that the European Monitoring Center for Drugs and Drug Addiction (EMCDDA) is headquartered in Lisbon. One analyst who works at EMCDDA, Frank Zobel, calls Portugal’s policy “the greatest innovation in this field” and “that the policy is working. Drug consumption has not increased severely. There is no mass chaos. For me as an evaluator, that’s a very good outcome.”

It is a happy anniversary for the Portuguese, but a scary one for all the drug warriors around the world whose incomes and power depend on continued ignorance about the effects of prohibition.

Mark Thornton is a senior resident fellow at the Ludwig von Mises Institute in Auburn, Alabama, and is the book review editor for the Quarterly Journal of Austrian Economics. He is the author of The Economics of Prohibition, coauthor of Tariffs, Blockades, and Inflation: The Economics of the Civil War, and the editor of The Quotable Mises, The Bastiat Collection, and An Essay on Economic Theory. Send him mail. See Mark Thornton’s article archives.

This article was published on Mises.org and may be freely distributed, subject to a Creative Commons Attribution United States License, which requires that credit be given to the author.

Drug Warriors Claim Colorado Going to Pot – Article by Mark Thornton

Drug Warriors Claim Colorado Going to Pot – Article by Mark Thornton

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The New Renaissance Hat
Mark Thornton
September 20, 2014
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As we moved into the second half of 2014, I was eager to learn if marijuana legalization in Colorado was succeeding. At first there was little being reported, but eventually reports started appearing in the news. Business Insider reported that “Legalizing Weed in Colorado Is A Huge Success,” although they did temper their report with a “Down Side” as well. Jacob Sullum reported that such things as underage consumption and traffic fatalities have fallen, although the declines were statistically insignificant and part of already declining trends in the statistics.

The important thing for me is that things did not get much worse according to these reports. When you open the door to a newly legal recreational drug via a very clunky regulatory circus, and where the government gives its seal of approval, there are bound to be growing pains and tragic cases. For example, one college student jumped to his death after ingesting six times the recommended number of pot-infused cookies.

The third report I came across was an editorial from the venerable Heritage Foundation. Given the previous reports, I was astonished to learn that in Colorado marijuana use was associated with an increase in highway fatalities, DUI arrests, underage consumption, drug-related student expulsions, college student use, and marijuana-related emergency room visits and hospitalizations.

The editorial concludes: “Drug policy should be based on hard science and reliable data. And the data coming out of Colorado points to one and only one conclusion: the legalization of marijuana in the state is terrible public policy.”

However, I began to get suspicious when I found out that the “hard science and reliable data” were not collected, produced, or analyzed by the Heritage Foundation, but by some outfit named the “Rocky Mountain High Intensity Drug Trafficking Area” program. They produced the report entitled “The Legalization of Marijuana in Colorado: The Impact,” which strongly calls into question the legalization of marijuana in Colorado.

There was no information about the “Rocky Mountain High Intensity Drug Trafficking Area” program (RMHIDRA) in the report other than it was produced by the “Investigative Support Center” in Denver, Colorado. It turns out the program is actually controlled by the White House Office of National Drug Control Policy, otherwise known as the Drug Czar.

Colorado has been in the process of legalizing marijuana since 2000. It initially started small with limited medical marijuana and as of January of 2014, it has legalized both medicinal and recreational marijuana with local option for commercial production and retail distribution. So we should expect, ceteris paribus, that the full price to consumers has fallen and that consumption for medical and recreational use has increased.

One of the most distressing empirical results in the RMHIDRA report was that while overall traffic fatalities decreased 14.8 percent between 2007 and 2012 in Colorado, traffic fatalities involving drivers, pedestrians and bicyclists that tested positive for marijuana increased by 100 percent. This data is exploited over several pages of the report using a variety of tables and charts.

If Coloradoans were consuming more marijuana and relatively less alcohol, we would expect the number of traffic fatalities to decrease because marijuana has been found to be relatively much safer than alcohol in terms of driving and motor skills. But the data indicating a 100 percent increase in fatalities involving marijuana is puzzling, disturbing, and at odds with “hard science.” If this was indeed “reliable data” it would indicate that marijuana consumption in Colorado had greatly increased beyond anyone’s estimation.

It turns out RMHIDRA’s data was anything but “reliable” and would be best characterized as misleading. If you examine the footnote section of the report you will find that the data from 2012 “represents 100 percent reporting” due to the efforts of RMHIDA to scour several data sources. However, a footnote reveals that in the data from 2006 through 2012 a very slight majority of cases, 50.13 percent were not tested! If 100 percent were tested in 2012, then the percent tested for 2006–2011 is far less than 50 percent.

What this means is that if you increased blood testing to 100 percent in 2012 when you were testing less than 50 percent of cases in prior years that you should expect to find at least a 100 percent increase involving traffic fatalities with some detection of marijuana. This result not only brings into question the reports “reliable data,” it brings into serious question RMHIDRA’s respect for “hard science.”

Another basic problem with their data is the meaning of “testing positive for marijuana.” Marijuana’s active ingredient THC can remain detectable days and weeks after it has been consumed. In contrast, marijuana impairment only lasts for several hours and is somewhat offset by safer driving behaviors, such as driving at slower speeds and avoiding high traffic areas. Given that marijuana consumption has increased significantly since 2000 we should indeed expect many more positive blood tests, but without making the leap that marijuana consumption is causing more highway fatalities.

The RMHIDRA report also offers up some dreary data on youth marijuana use. In particular, they conclude that marijuana use by young Coloradans is higher than the national average and increasing. Most importantly, they point out that between the 2008–09 and 2012–/13 school years there was a 32 percent increase in drug-related suspensions and expulsions in Colorado.

Other experts using different data sources believe that there has actually been a secular trend of decreasing marijuana use by the young people of Colorado throughout the entire legalization process. However, with respect to suspensions and expulsions, there has indeed been a 32 percent increase in the number of drug-related suspensions and expulsions.

However, weighted on a per pupil basis, there has been virtually no increase in the rate of drug-related suspensions and expulsions. The numerical increase in suspensions and expulsions is more than completely accounted for by the increased number of pupils and the relative increase of impoverished minority groups.

In addition, “drug related” suspensions and expulsions involves other drugs besides marijuana, such as cocaine, heroin, and methamphetamine. Marijuana-related suspensions and expulsions are overwhelmingly related to “possession” and “under the influence,” not things like violence, property destruction, and classroom disturbances.

The RMHIDRA report spans over 150 pages, but everything I had time to examine was either clearly wrong, misleading, or intentionally sensational.

Of course there are other sources of misinformation on the relative risks of cannabis. For example, there are academics who warn of the dangers of cannabis while they are receiving money from the pharmaceutical pain drug companies. This again suggests a deliberate attempt to mislead the public.

This is particularly disturbing and relevant information given recent reports which indicate that relatively fewer overdose painkiller deaths are occurring in states with medical marijuana laws.

There are clearly some things wrong with Colorado’s approach to legalizing marijuana and there are clearly going to be some bad results at the individual and state level, but this report is not the right way of determining and correcting those problems. As the Heritage Foundation editorial concluded: “Drug policy should be based on hard science and reliable data.”

Mark Thornton is a senior resident fellow at the Ludwig von Mises Institute in Auburn, Alabama, and is the book review editor for the Quarterly Journal of Austrian Economics. He is the author of The Economics of Prohibition, coauthor of Tariffs, Blockades, and Inflation: The Economics of the Civil War, and the editor of The Quotable Mises, The Bastiat Collection, and An Essay on Economic Theory. Send him mail. See Mark Thornton’s article archives.

This article was published on Mises.org and may be freely distributed, subject to a Creative Commons Attribution United States License, which requires that credit be given to the author.

How the Drug War Drives Child Migrants to the US Border – Article by Mark Thornton

How the Drug War Drives Child Migrants to the US Border – Article by Mark Thornton

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Mark Thornton
July 20, 2014
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Most attentive parents today rarely allow their children to go unsupervised, particularly in public. It starts with the wireless baby monitor for the crib and ends with the ever-present cell phone at college graduation.

This is what makes reports from the US-Mexican border so perplexing to most Americans. It is hard to believe that parents would send their children, even young children, to travel many hundreds of miles, up to 1,600 miles without guardianship, or under the control of “mules” who guide the children with the hope of a safe voyage to the United States.

The journey is both harsh and dangerous. The northern regions of Central America (i.e., Guatemala, Honduras, and El Salvador) and Mexico are some of the most dangerous areas of the world. The climate can be harsh, roads and travel conditions are mostly poor, and the children are subjected to robbers, kidnappers, rapists, government police and soldiers, drug cartel members, and bandits of all sorts.

As unbelievable as it seems, Central American parents are sending their children, or more often asking their children to join with them in the United States, in large numbers. In many cases the children flee on their own accord without any guardian.

A decade ago US Border Patrol agents apprehended only several hundred unaccompanied children per year. Over the last nine months they have caught nearly 50,000. Official estimates project the capture rate to reach 10,000 per month by this fall. Those numbers actually hide the enormity of the problem because historically the problem was largely restricted to Mexican children who could be immediately returned to Mexico. During the last couple of years, the majority of growth has come from children from Central American countries and these must be processed and turned over to the Office of Refugee Resettlement (part of HHS).

One suggested reason for the explosion of child immigrants from Central America is the perception and rumors that children from Central America who cross the border will receive a “proviso” which might suggest a permit to stay in the US legally. However, it seems that the proviso is really just a notice to appear in immigration court for deportation proceedings. Whether this gives the children more time in the US, or whether it increases the probability of them being allowed to stay in the US for humanitarian reasons is unclear. In one report, only 1 of 404 children specifically mentioned the possibility of benefiting from US immigration reform.[1]

Even if the proviso rumor was having an impact, it does not explain why the children and their parents would risk such a dangerous journey in the first place.

The Role of the Drug War

The underlying cause for this mass dangerous migration is the US’s war on drugs. Central American countries have become the conduit by which illegal drugs move from South America across the US border. Unlike conventional media sources, who will sometimes vaguely mention violence and instability in Central America as a cause, The Economist [2] quite correctly found the source of the problem in America’s war on drugs:

Demand for cocaine in the United States (which, unlike that in Europe, is fed through Central America), combined with the ultimately futile war on drugs, has led to the upsurge in violence. It is American consumers who are financing the drug gangs and, to a large extent, American gun merchants who are arming them. So failing American policies help beget failed states in the neighbourhood.

The result has been that the drug cartels have a great deal of control over much of northern Central America. The cartels control the governments, judges, police forces, and even some prisons and some of the military through a combination of bribery, threats, and outright force.

As a consequence of this control drug gangs and cartels can operate in the open or they can operate deep within the jungle beyond the reach of the law. In turn, the drug cartels can act above the law and as a result they have created a culture of violence, building on the civil wars of previous decades.

The countries in the northern Central American region, Guatemala, Honduras, and El Salvador, have the highest murder rate of any region in the world. The region’s murder rate is 7.5 times the murder rate of the North American region.

Globally, the top murder rate in any given year since the 1990s has been Honduras or El Salvador. In 2012, nearly 1 out of every 1,000 citizens in Honduras was murdered. In addition to murder, there are high rates of other types of violence, crime, and intimidation. A very large percentage of the entire Salvadoran-born population has migrated, mostly to the United States.

In addition to violence, the war on drugs has been a disruptive force for the Central American economies. After reading about the region, is anyone likely to make travel plans to go there, or to consider opening a business there? Obviously, the war on drugs has been highly disruptive for job creation, commerce, and international investment outside the drug cartels themselves. Therefore it would be more correct to say that it is not so much the attraction of opportunities in the US, but the lack of and reduction in opportunities in Central America that are spurring emigration, and that this is directly linked to the war on drugs.

When you try to make sense of parents sending their children on such a dangerous undertaking, just remember it is just another despicable result of the war on drugs with few solutions.

The Economist recommends the repeal of the war on drugs and the legalization of drugs globally as the solution. Its second best solution is for the United States to finance an effort to rebuild the institutions (i.e., police, courts, prisons, etc.) and infrastructure (i.e., military, transportation, and education systems) in the countries of Central America:

Such schemes will not, however, solve the fundamental problem: that as long as drugs that people want to consume are prohibited, and therefore provided by criminals, driving the trade out of one bloodstained area will only push it into some other godforsaken place. But unless and until drugs are legalised, that is the best Central America can hope to do.

In other words, ending the war on drugs is the only solution.

Notes

[1] http://www.unhcrwashington.org/children/reports, p. 31.

[2] “The drug war hits Central America: Organised crime is moving south from Mexico into a bunch of small countries far too weak to deal with it,” The Economist, April 14, 2011.

Mark Thornton is a senior resident fellow at the Ludwig von Mises Institute in Auburn, Alabama, and is the book review editor for the Quarterly Journal of Austrian Economics. He is the author of The Economics of Prohibition, coauthor of Tariffs, Blockades, and Inflation: The Economics of the Civil War, and the editor of The Quotable Mises, The Bastiat Collection, and An Essay on Economic Theory. Send him mail. See Mark Thornton’s article archives.

This article was published on Mises.org and may be freely distributed, subject to a Creative Commons Attribution United States License, which requires that credit be given to the author.

The FDA: A Pain From the Neck to the Big Toe – Article by Mark Thornton

The FDA: A Pain From the Neck to the Big Toe – Article by Mark Thornton

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The New Renaissance Hat
Mark Thornton
October 25, 2013
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I recently experienced severe pain in my feet, particularly in the big toes. In my imagination it felt like my feet had been run over by a truck and that several of my toes had been broken. But I knew that was not the case, and that the pain came on slowly at first, and then spread to other parts of my feet until I could barely walk.

My first approach was to take some ibuprofen to relieve the pain and swelling. When this did not resolve the matter, I thought perhaps a new pair of soft shoes might work. That idea also failed, and with a little internet research I realized I had a classic case of the gout. I was soon off to see my doctor to determine what the problem was and to get it solved with the powers of modern medicine.

The doctor confirmed that I had the gout. I was not pleased to find out, that in my case, the gout was probably brought on by another drug that I had been taking daily, against my better judgment. However, I was pleased to learn that I would no longer have to take it, that as part of my treatment I was being prescribed an ancient and natural drug, and that I would only have to take this drug “as needed.”

I was off to get my prescription filled at the pharmacy when a thought came to mind: if this drug was as natural and ancient as advised by my doctor, why did I need a prescription in the first place? Upon inspection the prescription was for Colcrys, the brand name of the drug colchicine. Furthermore, when I picked up my prescription the price was much higher than I anticipated given that it was a natural drug. When questioned, the pharmacy technician replied that the actual price was much higher and that my insurance paid for more than three-quarters of the bill. The cash price (without insurance) was $198.99 which is $6.63 per pill if taken daily, or nearly $20 per dose if used to treat flare-ups.

An extremely high price for an ancient natural drug? I knew I had a new case to solve and that the solution was probably the same old answer.

After conducting some research on Wikipedia, I learned the following: Colchicine can be used to treat gout, Behcet’s disease, pericarditis, and the Mediterranean fever. It has been in use as a medicine for over 3,000 years. After serving as ambassador to France, Benjamin Franklin brought colchicum plants back to America in order to treat his own gout. Modern science has further refined the drug for better medicinal use.

Colcrys has been used to treat gout for a very long time, although the Food and Drug Administration (FDA) had not approved Colcrys specifically for the treatment of gout prior to 2009. Alternative drugs, such as Allopurinal, are also used to treat gout and related ailments. Until recently, you could treat your own gout using one of these medicines for pennies a day.

In the summer of 2009, the Food and Drug Administration approved Colcrys as a treatment for gout flare-ups and the Mediterranean fever. The FDA gave pharmaceutical company URL Pharma an exclusive marketing agreement for selling Colcrys in exchange for completing studies on Colcrys and paying the FDA a $45 million application fee.

This deal effectively created a patented drug with no generic alternative. Therefore it gave the company a monopoly for the duration of the agreement. URL Pharma immediately raised the price from less than a dime to nearly $5 dollars per pill. Comprehensive medical insurance does substantially reduce the price to consumers, but it does not reduce the cost. Insurance only spreads the cost-burden across policy holders.

At the same time, doctors are encouraged by pharmaceutical companies to employ more expensive and profitable treatments. As a result the overall cost burden increases. Evidence suggests that doctors are prescribing Colcrys in large volumes to treat gout flare-ups and as a long-term preventative measure.

Once again the federal government has taken something that was both cheap and beneficial and turned it into a monopoly that hurts the general public and drives up the cost of medical care to the benefit of Big Pharma.

Note: Just because it is natural and produced in a pharmaceutical environment, does not mean that Colcrys is harmless. It can be considered toxic in large amounts, has a long list of possible side effects, and is not recommended for people with certain conditions.

Mark Thornton is a senior resident fellow at the Ludwig von Mises Institute in Auburn, Alabama, and is the book review editor for the Quarterly Journal of Austrian Economics. He is the author of The Economics of Prohibition, coauthor of Tariffs, Blockades, and Inflation: The Economics of the Civil War, and the editor of The Quotable Mises, The Bastiat Collection, and An Essay on Economic Theory. Send him mail. See Mark Thornton’s article archives.

You can subscribe to future articles by Mark Thornton via this RSS feed.

This article was published on Mises.org and may be freely distributed, subject to a Creative Commons Attribution United States License, which requires that credit be given to the author.

Where Is the Inflation? – Article by Mark Thornton

Where Is the Inflation? – Article by Mark Thornton

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The New Renaissance Hat
Mark Thornton
January 30, 2013
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Critics of the Austrian School of economics have been throwing barbs at Austrians like Robert Murphy because there is very little inflation in the economy. Of course, these critics are speaking about the mainstream concept of the price level as measured by the Consumer Price Index (i.e., CPI).

Let us ignore the problems with the concept of the price level and all the technical problems with CPI. Let us further ignore the fact that this has little to do with the Austrian business cycle theory (ABCT), as the critics would like to suggest. The basic notion that more money, i.e., inflation, causes higher prices, i.e., price inflation, is not a uniquely Austrian view. It is a very old and commonly held view by professional economists and is presented in nearly every textbook that I have examined.

This common view is often labeled the quantity theory of money. Only economists with a Mercantilist or Keynesian ideology even challenge this view. However, only Austrians can explain the current dilemma: why hasn’t the massive money printing by the central banks of the world resulted in higher prices.

Austrian economists like Ludwig von Mises, Benjamin Anderson, and F.A. Hayek saw that commodity prices were stable in the 1920s, but that other prices in the structure of production indicated problems related to the monetary policy of the Federal Reserve. Mises, in particular, warned that Fisher’s “stable dollar” policy, employed at the Fed, was going to result in severe ramifications. Absent the Fed’s easy money policies of the Roaring Twenties, prices would have fallen throughout that decade.

So let’s look at the prices that most economists ignore and see what we find. There are some obvious prices to look at like oil. Mainstream economists really do not like looking at oil prices, they want them taken out of CPI along with food prices, Ben Bernanke says that oil prices have nothing to do with monetary policy and that oil prices are governed by other factors.

As an Austrian economist, I would speculate that in a free market economy, with no central bank, that the price of oil would be stable. I would further speculate, that in the actual economy with a central bank, that the price of oil would be unstable, and that oil prices would reflect monetary policy in a manner informed by ABCT.

That is, artificially low interest rates generated by the Fed would encourage entrepreneurs to start new investment projects. This in turn would stimulate the demand for oil (where supply is relatively inelastic) leading to higher oil prices. As these entrepreneurs would have to pay higher prices for oil, gasoline, and energy (and many other inputs) and as their customers cut back on demand for the entrepreneurs’ goods (in order to pay higher gasoline prices), some of their new investment projects turn from profitable to unprofitable. Therefore, you should see oil prices rise in a boom and fall during the bust. That is pretty much how things work as shown below.

As you can see, the price of oil was very stable when we were on the pseudo Gold Standard. The data also shows dramatic instability during the fiat paper dollar standard (post-1971). Furthermore, in general, the price of oil moves roughly as Austrians would suggest, although monetary policy is not the sole determinant of oil prices, and obviously there is no stable numerical relationship between the two variables.

Another commodity that is noteworthy for its high price is gold. The price of gold also rises in the boom, and falls during the bust. However, since the last recession officially ended in 2009, the price of gold has actually doubled. The Fed’s zero interest rate policy has made the opportunity cost of gold extraordinarily low. The Fed’s massive monetary pumping has created an enormous upside in the price of gold. No surprise here.

Actually, commodity prices increased across the board. The Producer Price Index for commodities shows a similar pattern to oil and gold. The PPI-Commodities was more stable during the pseudo Gold Standard with more volatility during the post-1971 fiat paper standard. The index tends to spike before a recession and then recede during and after the recession. However, the PPI-Commodity Index has returned to all-time record levels.

High prices seem to be the norm. The US stock and bond markets are at, or near, all-time highs. Agricultural land in the US is at all time highs. The Contemporary Art market in New York is booming with record sales and high prices. The real estate markets in Manhattan and Washington, DC, are both at all-time highs as the Austrians would predict. That is, after all, where the money is being created, and the place where much of it is injected into the economy.

This doesn’t even consider what prices would be like if the Fed and world central banks had not acted as they did. Housing prices would be lower, commodity prices would be lower, CPI and PPI would be running negative. Low-income families would have seen a surge in their standard of living. Savers would get a decent return on their savings.

Of course, the stock market and the bond market would also see significantly lower prices. Bank stocks would collapse and the bad banks would close. Finance, hedge funds, and investment banks would have collapsed. Manhattan real estate would be in the tank. The market for fund managers, hedge fund operators, and bankers would evaporate.

In other words, what the Fed chose to do ended up making the rich, richer and the poor, poorer. If they had not embarked on the most extreme and unorthodox monetary policy in memory, the poor would have experienced a relative rise in their standard of living and the rich would have experienced a collective decrease in their standard of living.

There are other major reasons why consumer prices have not risen in tandem with the money supply in the dramatic fashion of oil, gold, stocks and bonds. It would seem that the inflationary and Keynesian policies followed by the US, Europe, China, and Japan have resulted in an economic and financial environment where bankers are afraid to lend, entrepreneurs are afraid to invest, and where everyone is afraid of the currencies with which they are forced to endure.

In other words, the reason why price inflation predictions failed to materialize is that Keynesian policy prescriptions like bailouts, stimulus packages, and massive monetary inflation have failed to work and have indeed helped wreck the economy.

Mark Thornton is a senior resident fellow at the Ludwig von Mises Institute in Auburn, Alabama, and is the book-review editor for the Quarterly Journal of Austrian Economics. He is the author of The Economics of Prohibition, coauthor of Tariffs, Blockades, and Inflation: The Economics of the Civil War, and the editor of The Quotable Mises, The Bastiat Collection, and An Essay on Economic Theory. Send him mail. See Mark Thornton’s article archives.

You can subscribe to future articles by Mark Thornton via this RSS feed.

Copyright © 2013 by the Ludwig von Mises Institute. Permission to reprint in whole or in part is hereby granted, provided full credit is given.

US Gone to Pot, but Not Completely – Article by Mark Thornton

US Gone to Pot, but Not Completely – Article by Mark Thornton

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The New Renaissance Hat
Mark Thornton
November 12, 2012
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The only good thing about the 2012 campaign — other than its being over — is that much progress was made on marijuana policy. Marijuana was legalized in two states, Colorado and Washington. Medical-marijuana legislation passed in Massachusetts. Marijuana was decriminalized is several major cities in Michigan and Burlington, Vermont, passed a resolution that marijuana should be legalized. The only defeats were that legalization failed to pass in Oregon and medical marijuana was defeated in Arkansas.

This is a stunning turnaround from the 2010 campaign when Prop 19 in California failed to pass despite high expectations. I explained in detail why Prop 19 failed here. It was an unfortunately common story of Baptists, i.e., people who oppose it, and bootleggers, i.e., people who profit from black-market sales, who stopped the legalization effort.

With regards to the legalization victories in Colorado and Washington, Tom Angell, Director of LEAP (Law Enforcement Against Prohibition) called the election a “historic night for drug-law reformers.” Paul Armentano, the deputy director of NORML (National Organization for the Reform of Marijuana Laws), called the Colorado and Washington victories “game changers,” noting that “both measures provide adult cannabis consumers with unprecedented legal protections.” He noted that “until now, no state in modern history has classified cannabis itself as a legal product that may be lawfully possessed and consumed by adults.” Writing for the Marijuana Policy Project, Robert Capecchi called Colorado and Washington “historic victories,” saying that they “represent the first bricks to be knocked out of the marijuana prohibition wall.”

Following is a list of all marijuana measures on the 2012 ballot as provided by LEAP:

Colorado Marijuana legalization Passed
Washington Marijuana legalization Passed
Oregon Marijuana legalization Failed
Massachusetts Medical marijuana Passed
Arkansas Medical marijuana Failed
Detroit, MI Decriminalization of adult marijuana possession Passed
Flint, MI Decriminalization of adult marijuana possession Passed
Ypsilanti, MI Marijuana to be lowest law enforcement priority Passed
Grand Rapids, MI Decriminalization of adult marijuana possession Passed
Kalamazoo, MI Three medical-marijuana dispensaries permitted in city Passed
Burlington, VT Recommendation that marijuana should be legalized Passed
Montana Referendum restricting medical marijuana Likely to pass

Some readers might not be fired up at the prospects of legalization, decriminalization, and medical marijuana, but the benefits are higher than you might think. First of all, the economic crisis is a great opportunity to get this type of reform passed. There are several economic dimensions at work here. The most obvious thing that comes to mind is that legalized marijuana might be a source of tax revenues and possibly excise taxes and license fees. It would also be a source of jobs, although the net gain in jobs and incomes is probably initially small.

A major benefit would be a reduction in the size of government. Marijuana prohibition results in hundreds of thousands of people being arrested, tying up police, jails, courts, and prisons. When the city of Philadelphia decided to make marijuana prohibition a low priority and treat it like public intoxication ($200 fine), they ended up saving $2 million in the first year.

One of the most important benefits of these measures is that they make for a more liberal society in the Misesian sense. Marijuana prohibition is public violence, prejudice, and partiality. Legalization and liberalism is private property and public tolerance. As Ludwig von Mises wrote,

The essential teaching of liberalism is that social cooperation and the division of labor can be achieved only in a system of private ownership of the means of production, i.e., within a market society, or capitalism. All the other principles of liberalism democracy, personal freedom of the individual, freedom of speech and of the press, religious tolerance, peace among the nations are consequences of this basic postulate. They can be realized only within a society based on private property. (Omnipotent Government, p. 48)

The key thing, economically speaking, is that more liberalism is good for business, jobs, and prosperity. Legalizing marijuana, along with things like same-sex-marriage laws, may be appalling to some people, but when companies are looking to get started or establishing new operations, those are some of the things that are looked at, just like taxes, schools, crime, etc. States that are competing for the best companies that offer the highest paying jobs are the same states that are liberalizing their policies.

Therefore, it should come to no surprise that a state like Washington legalized marijuana even though it does not have a history of marijuana-reform activism. Washington needs to compete with other states for computer programmers, engineers, and technicians for Washington-based firms like Boeing and Microsoft. Do not be surprised if what happened in Colorado and Washington spreads to other states in coming elections.

The most important aspect of the victories in Colorado and Washington is that the people of those states stood up and voiced their opposition to the federal government and its policy of marijuana prohibition. They are directing their state governments to no longer cooperate with the federal government. You can bet that federal officials will seek to intimidate local officials and businesses as they have done in California. They seek to use fear and violence to maintain their power.

However, demographically and ideologically, they are fighting a losing battle. Supporters of legalization are younger, smarter, better educated, and have above-average incomes. The leaders of the reform movement do not seem to view their efforts as “pro-marijuana,” but rather as anti-prohibition, and they realize that the benefits are in terms of health, public safety, and prosperity.

When my book The Economics of Prohibition was published 20 years ago, I was often asked my opinion if marijuana should be or would be legalized. My stock answer was that medical marijuana would start to be legalized in 10 years and that marijuana would start to be legalized in 20 years, probably during an economic crisis. My only prediction in print was that the reform process would begin around the turn of the century. The first reform was actually a medical-marijuana law passed in California in 1996.

Mark Thornton is a senior resident fellow at the Ludwig von Mises Institute in Auburn, Alabama, and is the book review editor for the Quarterly Journal of Austrian Economics. He is the author of The Economics of Prohibition, coauthor of Tariffs, Blockades, and Inflation: The Economics of the Civil War, and the editor of The Quotable Mises, The Bastiat Collection, and An Essay on Economic Theory. Send him mail. See Mark Thornton’s article archives.

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Copyright © 2012 by the Ludwig von Mises Institute. Permission to reprint in whole or in part is hereby granted, provided full credit is given.