Thursday, June 19, 2008

Egocentrism in The War on Drugs and Supply-Side Economics

Supply-side economics and the war on drugs have had an enormous impact on our national consciousness and government policy for the past 30+ years. They are also both based in large part on the same flawed logic – that the driving force of the economy is the supplier. Instead, I believe the failure of the war on drugs highlights the role of the “invisible hand” in our economy and the peril of ignoring it.

The War on Drugs in 180 Seconds

Both supply-side economics and the war on drugs find their intellectual roots in the 1970’s. Nixon declared a “war on drugs,” a phrase he coined, in 1971. Nixon’s method of fighting was a bit different than the later war and the one we are continuing today. For example, Nixon’s administration was the only period of the war where the majority of funds went toward treatment rather than law enforcement. The DEA (Drug Enforcement Agency) was founded by Nixon.

Though later presidents made Nixon look “soft” on drugs by comparison, he exemplified the typical law-and-order approach that has come to define the war on drugs. For example, he appointed a commission to look into the best ways of dealing with the menaces of pot and heroin. When the commission recommended decriminalizing minor possession for marijuana, Nixon (and Congress) ignored them.

The war on drugs as we know it – distorted sentencing laws, lots of jail time for users, multi-billion dollar anti-drug wars in far flung locals – is a product of the later administrations. In 1986, Reagan signed a drug enforcement bill that set up a system of minimum sentencing standards and the extremely disproportionate sentencing for crack and powder cocaine. George H.W. Bush doubled the war on drug’s budget to $12 billion and spent most of the money on military machinery to battle drug cartels. After flirting with drug treatment in the first two years of his administration, Bill Clinton followed these failed policies by targeting growers in Bolivia and other South American countries.

The problem, as Adam Smith and countless other economists to follow have taught us, is that if there is a high demand for a product, the price will rise. The same thing occurs when there is a short supply. In the case of the war on drugs, we continue to remove producers from the streets and throw these deviants into jail. However, as Wallace-Wells points out, “We have nearly 500,000 people behind bars for drug crimes - a twelvefold increase since 1980 - with no discernible effect on the drug traffic.” As long as the demand for drugs remains high, new dealers will always fill the place of those we kill or put in jail. Even if we could instantly remove half of the drug supply and dealers from the market, this would only serve to drive prices up, further increasing the incentives for new producers and dealers to enter the already lucrative market. The consumer – not the producer – drives the market, and until we reduce the demand for illegal drugs, the market will create one.

This isn’t just theory. Wallace-Wells points to an early 1990’s study by RAND researcher Susan Everingham that the only cost-effective strategy to reduce drug use is drug treatment. Other studies have shown the same thing. But Everingham’s study, and Clinton’s drug tsar Lee Brown’s requests for more drug treatment funding, were ignored. After the Republicans took control of Congress in 1995, Clinton gave up on treatment and began sending the U.S. military against South American growers.

For a great article on the war on drugs by Ben Wallace-Wells, (from which I have borrowed liberally), go here: How America Lost the War on Drugs

All in all, the war on drugs has cost $500 billion over 35 years. Although many of the old drug cartels have been broken up, the availability and use of drugs hasn’t changed much.

While I’m on the topic, here is another article that points out some of the insanity regarding our current drug regulatory system.

Supply-Side Economics

The phrase “supply-side economics” was coined by journalist Jude Wanniski. At its most basic level, supply-side economics is based upon the theory that if tax rates were set to 0% or 100%, no money would be collected (I personally don’t see the logic behind not collecting any money with tax rates at 100%. Its not likely that this will ever happen, but I believe the government would collect something). Under this theory, there is a point between 0% and 100% where the maximal amount of tax revenue will be collected. Though I cannot speak for the original economists who put forth this theory, supply-sider politicians usually believe this number is lower than current tax rates.

Regan (from what I’ve heard) and Bush II both used supply-side economics to justify their tax cuts, and both policies led to massive government debt due to a reduction in taxes collected. Bush II has argued that by cutting taxes, we put more money in the pockets of businesses and individuals, which in turn stimulates growth, creating more revenue sources for the government which in turn make up for the money lost due to the tax cuts. While tax cuts stimulate some growth, the government only recoups 15-20% of its tax losses.

The rational behind supply-side economics puts the emphasis on the producer of economic goods. If producers have more motivation to produce, say supply-siders, then they will produce (and sell) more, boosting the economy. It is true that marketing has created some societal desires that might never have been present otherwise. However, there are limits to the ability of producers to determine how much they can sell. Overall, consumers determine what is sold and how much of it.

Neither the war on drugs nor supply-side rationalized tax cuts have realized their stated objectives. So why do we continue on with these failed policies?

The Producer-Centric Mindset

Why do these programs perpetuate despite the overwhelming evidence that they have by and large failed? The answers, of course, are complex, multi-faceted, and different for each. The war on drugs is heavily moralized, dating back to prohibition and the culture wars of the 1960’s. Drug users are believed to be morally corrupt, which helps justify jail time instead of rehab. It is also politically difficult for politicians to say it is our failing, our addictions that have created the problem, and much easier to blame foreigners, racial minorities, and the morally corrupt. Supply-side economics, on the other hand, has found an invaluable ally in small-government conservatives and their “starve the beast” mantra.

At the center of these two policies lies a common thread – the importance of the producer. Both policies place the producer at the center of the system. On the one hand, we believe that if we can prevent drugs from being produced, our problems will be solved. On the other, our salvation lies with the entrepreneur and business owner. If their life is easier, so the logic of our policies go, our lives will be better.

In our market system, the consumer is the driving force, the engine that drives the entire system. The producer plays a critical role, it has no role in the system without demand, where as demand may exist without a product (i.e. flying cars).

I fear that the same mistake that was made in the war on drugs is being made in the latest war, the war on terror. Much of our military policy has been about killing the terrorists and assassinating their leaders. If we destroy the producers of terror (whatever that may be – I’m not arguing that the war’s philosophical groundings make sense to begin with), then we end terror. Our policies do not recognize, however, that the terrorists fulfill a demand for an ability to fight, a demand for empowerment, a demand to fill power vacuums, a demand to fulfill Allah’s word as interpreted by some Muslims. There are a variety of demands that feed our declared enemies, and I think that a concerted effort to eliminate these demands instead of merely eliminating the producers of violence will lead to a more robust and sound solution.

So how do we get ourselves out of this producer-centric rut? Some answers depend on the issue. Part of the problem in the war on drugs is, I hope, generational. The association between drugs and “hippies” seems to largely reside with conservative boomers. Perhaps my perceptions are skewed, but I feel that a large majority of under-40 year olds don’t see drugs as distinctly within the right/wrong moral prism. Similarly, I hope the tax-and-spend-liberal vs. the small government conservative dichotomy is generational as well. God knows Bush has shown its inherent falsehood to many.

Finally, a bit of humility. The United States has a long and hallowed tradition of idealizing the producer. Rockefeller, Carnegie, Ford, Disney, Buffet, Gates – despite their flaws, the king producers are figures of awe. Even the nameless small-business owners and family farmers bask in the same rays of admiration. It is nicer to see ourselves in their shoes, to see our production as the thing of import. Yet these men would have been nothing without the demand of millions of individuals who consumed their products.

Monday, June 9, 2008

An Inequitable Democracy

I’ve been working on several essays this week, none of which are complete. So, instead of posting a half-assed essay, I have decided to review the non-democratic system we will use in five months to select our President, House of Representatives, and Senate. There are two specific issues I want to consider: the Electoral College, and the method used to create congressional districts.

I don’t like it when people complain that “my vote doesn’t count,” or that voting, “won’t make a difference.” In local elections, our votes are counted equally. At the ballot box, my vote matters as much as my neighbors and my boss’. Saying that a single vote doesn’t count implies to me that individual people do not matter. From a broad and sanitized point of view, that might be correct, but I find it extremely depressing.

The Electoral College – the system used to select the U.S. President – throws the equality I have outlined above is thrown out the window. In all states except for Maine and Nebraska (which I will exclude from the current discussion), the candidate who wins the majority of votes in the state wins the entirety of that state’s electoral votes. Under this system, the state one lives in determines how much their vote counts. Here is a list (curtsey of Wikipedia), which documents this disparity.

The fact is that a vote for president in Wyoming (where votes count the most) counts four times as much as a vote in Texas (where they count the least). Voter equality in the U.S. Representatives is a bit better. Montana has the worst ratio of 957,861 people per representative, while Wyoming has the best, 522,830 per representative.

The U.S. Senate is, however, the most twisted of all. Created to reflect the Federalist side government, the U.S. Senate is supposed to represent each individual state’s interests. Every state is treated equally, with two senators coming from each. Citizens of Wyoming get one Senator for every 261,415 people. California, with over a tenth of the nation’s population and a gross state product of $1.8 trillion, has one Senator for every 18,276,608 people. When voting for the Senate, citizens of Wyoming have nearly seventy times the influence of those who reside in California.

Nebraska and Maine assign two electoral votes to the winner of the state’s popular vote (one for each senator), and one to the winner in each congressional district. Should all states adopt this system? Perhaps, but this has its own problems, due to the way congressional districts tend to be drawn.

In the U.S., gerrymandering is the rule. In most states, the political parties in power draw the boundaries of congressional districts with the aid of computer modeling to give their party the most possible districts.

You can get a good taste for how strange some districts are here.

Districts are drawn so that specific voting blocs – African-Americans, Hispanics, farmers, hippie communes, etc. – are placed together to create “safe” districts, where historical voting patters heavily favor specific parties. It doesn’t always work, but it usually does. Over the last few elections, over 85% of all districts were won by at least 10%, and over 70% by at least 20%. So while the House of Representatives comes closest to the idea that all votes should be equal, this equity is undone by the cynical (at best), or malignant (at worst) side of our politicians.

Despite these inequalities, we still consider ourselves democratic. By the measurement that matters, I believe that we are, deeply, a democratic nation. We are just not an equitable democracy. At most every level of society, the ideal is a rule of the majority, with minority rights embedded in the system of a fairly applied law. The ideal, of course, is rarely realized. Yet is an astonishing feat that, with the one exception of the Civil War, power has been passed on without violence (or much protest) to (mostly) non-related people since the late 18th century. By comparison to the history of governments around the world, this is truly remarkable.

Yet we should still strive for a more equitable union, and a great place to start would be with voter disparities that disadvantage most everyone except the residents of Wyoming, and there aren’t that many of them anyways.