Dr. David Chivers, a macroeconomics professor at Durham University in England, recently presented important new research at the annual Royal Economic Society conference in Brighton. The topic of discussion? “What would happen if countries legalized heroin and cocaine?”
In the estimation of Dr. Chivers and his colleagues, legalization would boost the economy by reducing the murder rate.
The working paper "The Macroeconomics of Drug Trafficking"—authored by Dr. Chivers, Bolivian economist Gonzalo Forgues-Puccio and Dr. Serena Masino of Westminster University—argued several points, including the following:
- Legalization hurts gangs and reduces violence by decreasing black-market profits
- Drug-related gang violence hurts the financial growth of legitimate industries
- Legalization means less money and incentive to defend and expand gang operations
- Law enforcement crackdowns seem to escalate, not decrease, gang violence
- Increased access to education appears more effective than criminal crackdowns
The paper addressed the impact of gang-related murders on skill premiums, i.e., the average difference in wages between skilled and unskilled workers, arguing that, "One additional murder per 100,000 inhabitants leads to a decrease of 0.27 percentage points in the skill premium."
Countries with higher skill premiums tend to experience more economic growth and less incentive for its citizens to take part in the drug trade. A profitable and incentivized black market, meanwhile, decreases the number of people acquiring a college education and increases the allure of gang participation.
Dr. Chivers noted, "Specifically, we show drug trafficking diverts workers from the legal sector and reduces wages, the skill premium and the steady state value of aggregate output."
Why cocaine and heroin?
"The most profitable drugs to traffic are invariably cocaine and heroin," he continued. "These drugs are often produced in low-income countries before being transported for sale in high-income countries."
Dr. Chivers said cocaine can sell for a 3,800-percent markup. If legalized, the cost of cocaine would likely drop, and in dramatic fashion. Certainly that's the case for the price of cannabis in states that voted in favor of legalization.
Photo credit: Trainspotting.