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Mixing marketing and marijuana

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webmaster | 06/04/14

As a nation justifiably proud of our mixed free market economy, we get especially tickled (republicans more ticklish than most) whenever we can harness market forces to solve noneconomic issues (e.g. school vouchers, sin taxes on alcohol, carbon cap and trade schemes, etc.). Given this entrenched propensity, I’m forever stupefied by our irrational insistence that the problems attendant to marijuana cultivation, sales and use are somehow exempt from every economic theory in the known universe.

As evidenced by 40-plus years of complete failure, our efforts would have met with more success had we tried to repeal the laws of gravity.

But it gets worse. Rather than aligning society’s approach to marijuana with well-grounded notions of supply and demand, we’ve implemented policies that directly contravene sound economic principles; thereby yielding predictably negative results. Ever since President Nixon declared the “war on drugs” (1969 — anyone else remember “Operation Intercept”?) government agencies at all levels have overwhelmingly pursued supply-side eradication strategies to staunch the flow of drugs.

For the first decade or so, most marijuana interdiction efforts focused on keeping Mexican pot from entering the U.S., especially the lucrative California market. Fast forward four decades and California, formerly a net marijuana importer, is now the most prolific exporter, renowned across the country and around the world for its high quality indica strain of weed that boasts THC (marijuana’s active ingredient) levels of 15 percent and climbing (Nixon era Mexican pot typically contained 3 percent). While a veritable, albeit inadvertent, globalization success story, California’s experience hardly describes a winning drug policy.

Couple this discredited law enforcement model with our largely pretextual medical marijuana program, with its labyrinth of conflicting laws, and we get the worst of all worlds. Instead of a semi-rational free market outcome with readily discernible factors of cause and effect, we reap an economic dystopia with a surfeit of unintended consequences. Paradoxically, the harder we try, the more we fail.

If alcohol prohibition taught us anything (apparently it didn’t), it’s that whenever there’s a demand, there will be a supply, and all government actions to the contrary just makes matters worse.

Consider this — as police take ever increasing amounts of marijuana plants off the street, the value of the remaining undetected plants goes up. As any first-year economics major can demonstrate, such rising prices and the profit opportunity they signal, entice more producers into the market, thus establishing a self reinforcing feedback loop.

People don’t risk their lives robbing marijuana gardens to get high (though that may be an ancillary benefit), they’re motivated by the huge windfall profit potential. Due almost entirely to the law enforcement premium, a single mature plant could be worth $3,000 to $5,000. And they said money doesn’t grow on trees!

As a society, it’s long past the time to try a different approach and I have just the suggestion. Not only does it rely, rather than defy, on free market tools, it won’t cost taxpayers a dime. Why don’t we simply ignore marijuana, just pretend it’s not there and let economic forces determine the equilibrium outcome? Sound crazy? That’s exactly what the City of Santa Cruz did and the results are surprisingly good.

Several years ago that city council passed an ordinance prohibiting any and all city employees, including police officers, from expending one dollar of municipal funds, or one minute of salaried city time, to investigate, much less prosecute marijuana-only crimes. Furthermore, no employee can assist other agencies with their enforcement programs (goodbye to federal commando air attacks). While the coincidental surge in medical marijuana hopelessly muddles the issue of cause and effect, anecdotal reports were positive. For example, one police officer told a reporter that the ordinance cumulatively spares him from wasting four-five days per year of standing around the courthouse waiting for his turn on the witness stand.

While freeing up scarce city resources definitely benefits the citizenry, the greatest impact came from the increased supply of homegrown pot. Absent the costly risk premium, the equilibrium price of high grade marijuana settled down to approximately $500 per pound. Unable to exploit the formerly artificially high prices, the larger for-profit growers left town in search of higher returns — a perfect example of applied economics.

Besides running the syndicate-type growers out of town, the same people who previously smoked pot continue to do so, except for one thing: their dollars no longer fatten the bank accounts of ruthless international drug cartels. Nor has there been an appreciable up-tick in marijuana use and this makes perfect sense.

Like millions of other American, I smoked weed in my youth but eventually got bored with it and haven’t used it in over 30 years. This despite ample opportunities to do so for free. If free doesn’t entice me to pick it up again, the $500 per pound. certainly won’t either. While not a panacea by any means, Santa Cruz’s experiment has been positive overall and it would be foolhardy to dismiss it out of hand.

As a 21st century society, we face a choice. Either continue the same bankrupt practices that have accomplished worse than nothing for over 40 years, or we can think creatively and try something new that may, just may, deliver some beneficial outcomes in accordance with our venerated free market ideals. Heck, the worst that can happen is the we’ll wind up right where we find ourselves today. We have nothing to lose.


Michael Koselka,
Madera County Jail


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