The Economic Consequences of the War on Drugs

During the 1970’s, President Richard Nixon declared war on drugs. This marked a significant shift in American foreign policy. Billions of dollars were earmarked for this war. The legal and judicial system was overhauled to make drug use and sale, a serious offense with grave consequences. However, after four decades, the war is far from over! On the other hand, it seems like the government has been dragged into a conflict which has no end. Both the human costs as well as the economic costs of this unwinnable war are startling.

In this article, we will conduct a critical analysis of the war on drugs. However, we will do so from an economic point of view.

The Cartels Keep Changing

From the late 1980’s to the present day, i.e., 2017, the United States government has spent a total of $1.5 trillion in its war on drugs. A budget of this scale has not been provided to many important causes. It seems like the United States government is obsessed with the drug war.

However, they have no results to show for it. It is true that the government states that it has won several battles. They have ended the reign of several cartels. However, the effect has been zero. Drug abuse has increased in America instead of reducing. If the government takes down one cartel, it is simply replaced by another cartel. Smuggling routes are replaced with newer routes, and drug bosses keep changing. However, the supply of drugs never goes down. The Drug Enforcement Agency (DEA) is successful in stopping less than 1% of the drugs that are destined for the United States.

Supply-Side Policy

From an economic point of view, the whole war on drugs was meant to be a failure from the very start. This is because the government was only focusing on the supply side economics. Their efforts were meant to stop the problem at the source. The problem is that when demand remains stagnant, and supply falls, the prices start to go up. This is simple economics which applies to illegal drugs as much as it applies to any other product or service!

The price rise makes the drug trade even more lucrative. An increasing number of criminals want to get involved in this trade because of the massive amounts of money that can be made. The government should adopt a policy that focuses more on the demand side. The drug trade leads to violent cartels only because government measures make it impossible for anyone except violent cartels to be a part of this trade.

The Real Cost

The real cost of the war on drugs is far greater than the $1.5 trillion that has been spent by the federal government. Millions of human lives have been lost. Human rights violation has become a norm in many of the countries. Also, the number of people dead in countries like Mexico is much higher than in Iraq and Afghanistan combined, even though the latter are war zones with one of the world’s deadliest conflicts.

  • Mass Incarceration: The war on drugs has led to one of the highest rates of incarceration in the United States. Even though the United States has only 5% of the world’s population, they have more than 25% of the world’s prison population! Also, most of the people belong to the minority community.

    More than 40% of the people in American prisons are of Latin American or African American descent. The prison population has grown more than five times since the war on drugs began. This is costing the government billions of dollars. However, it is also running the lives of these young adults who have to go to jail for these non-violent crimes. Also, once they have these crimes on their record, they have no source of legitimate employment and hence are forced to turn to a life of crime.

    The economic impact is therefore threefold. First, there are expenses related to incarceration that need to be borne by the state. Second, the government has to forego the tax revenue that these otherwise normal individuals would provide. Thirdly, the government has to spend more money on law enforcement since they have converted a bunch of teenagers into criminals who have no other source of employment.

  • Violence and Destabilization: The cost of the war is even higher when you consider the amount of turmoil that is being borne by the countries that are in the front line of this battle. Countries like Mexico and Colombia have seen violence like the world has never seen before. Medellin and Ciudad Juarez have both been murder capitals of the world at different times. Several governments have been changed since the war on drugs began.

    The violence and destabilization have led to lost economic output and increasing law enforcement expenditure in these countries as well. An economic approach would have been much better in this situation as compared to a military approach.

Breaking the Monopoly

Many critics of the war on drugs including prominent politicians like Bernie Sanders have been critical of the monopoly. It is clear that violent cartels are a natural byproduct of the government created lucrative drugs monopoly. Instead of pushing harder if the government made it easier and legal to sell drugs, the violence in other countries would simply disappear. There is no need for hardened criminals if ordinary businesspeople can sell drugs. All the excess profits will also be drained merely out of business. The money should be spent on educating the youth about the ill effects of the drugs and rehabilitating them. History is witness to the fact that prohibition has never worked. The US government should stop throwing good money after bad behind a failed strategy.


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The article is Written By “Prachi Juneja” and Reviewed By Management Study Guide Content Team. MSG Content Team comprises experienced Faculty Member, Professionals and Subject Matter Experts. To Know more, click on About Us. The use of this material is free for learning and education purpose. Please reference authorship of content used, including link(s) to ManagementStudyGuide.com and the content page url.

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