Why drug legalisation probably won't increase drug consumption

We've long been in favour of drug legalisation around here. One obvious reason is that it's your body, you decide what you'd like to put into it, food, other people's (yes, even other peoples') body parts or interesting chemicals. A second is that legalisation cannot be worse than the current disastrous situation of gross coruption of the body politic and society.

But there is always that worry: won't legalisation increase consumption? At which point there's an interesting economic argument that no, probably, it won't:

Many people, on both the pro and con side, recognize that inelastic demand is the core problem with most drugs. Inelastic means not very sensitive to outside influences: illegal drug abusers can’t/won’t quit because their demand isn’t responsive to the usual laundry list of things that cause people to modify their other demands: price, income, and externalities like danger.
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One of the prime tenets of economics is that demand is either elastic or inelastic, but it isn’t both (other than when we assume demand as a straight line because it allows us to use algebra). Demand can adjust, and become more elastic with the passage of time, but it’s still unlikely to go from inelastic to elastic.

The very problem we perceive with drugs is that people will do near anything to keep getting them. Which is simply another way of saying that demand is inelastic. If demand is inelastic then legalisation is unlikely to increase consumption very much.

Even I'm not sure that this is perfectly true but I do think it is generally so.

Privatise the Olympics

I became a fully conscious taxpayer a couple of years before Montreal hosted the 1976 Olympic games. Those games are probably best remembered as the ones that started the modern era of over-blown, over-budget and financially disastrous Olympic games. With notable exceptions of the games in Los Angeles and Atlanta, all of them have been vanity sinkholes for taxpayer cash. For Montreal taxpayers, the last bond was finally paid off in 2006.

As London’s moment approaches, yet another report suggests they’ll be over budget, perhaps as high as £11 billion compared with the official budget of £9.3 billion. Security costs in particular are running way ahead of forecast. It doesn’t really matter what the actual number is or why – everybody knew it was going to happen because that’s the norm for these games.

And this is really no surprise because nobody actually “owns” the games. The International Olympic Committee oversees them but doesn’t fund them. Its 15 committee members of the great and the good include six princes and sheikhs and many former athletes who have glided up the ranks of assorted sporting federations. One member has a diploma in Gender and Development, a diploma in Gender Responsive Project Implementation and a certificate in Training of Gender Trainers. Another has been a big shot in the Jordanian air force. Only a couple have any extensive experience in the upper reaches of business.

The IOC’s job is to con governments into thinking that hosting and, most importantly, paying for the games is a good idea. At that chore, they’re hugely successful given the frantic bidding for the alleged privilege of hosting the games. Emerging market governments use them to promote their emergence. Mature economies tout them as a rejuvenation or a boost to sports participation.

Rejuvenation was key to London’s bid – developing the city’s decaying east end. Never mind that developments in the Docklands had already started that process decades earlier and that the sheer pressure from housing demand in London has seen a relentless gentrification of the area. If the government really wanted bang for the buck on this front, a few years suspension of business rates or bargain council taxes would have been far more effective.

But, no, politicians get caught up in the IOC’s magic spell and most of them know they won’t be around when the bills come due, some six years after they “win” the games.

So how about just privatising the whole Olympic racket by making the IOC responsible for funding them? Bar the odd tax break here and there for facilities, this concept works fine for football, rugby, cricket, motor-sport, tennis, golf and many others. A really smart IOC would create a permanent site for the games, perhaps in the land of their origin Greece which could use the business without the drain on taxpayers.

Sadly, though, there’s nobody to privatise the IOC as long as there’s willing governments to stump up the cash. These have included despotic regimes like China and Cuba and arrivistes like Brazil and Turkey. But they have also included bids from governments with much clearer responsibilities to their taxpayers. For the 2012 games, final candidates besides the UK included Germany, France, Spain and the US  - all of whom  should have known better (and must be mightily relieved now that they “lost”). Radical reform of the Olympic games will be a slow process but would be speeded along if taxpayers just said no. 

The Wealth of Nations after 236 years

Today is the 236th anniversary of the publication of the Wealth of Nations. In the spirit of efficiency, here is Eamonn's post commemorating last year's anniversary:

For a quarter of the last millennium, we have actually known the principles by which wealth is created and maximised. The trouble is, that for most of the same time, we have been trying to resist that information, thinking that we can somehow do better than the market.

The Wealth of Nations is a great book: most objective commentators would probably put it among the top five books ever written, in terms of its influence on humankind and the way we live. Yes, it's very eighteenth-century stuff, sprawling and wordy, with enormous digressions on things that do not seem very interesting to us today. And yet it is the book which took economics out of its primitive phase and made it distinctly modern. We can understand what Smith says because it is all around us today.

The very first sentence of the book dismisses the old idea that the wealth of a nation was the amount of gold and silver that it had hoarded up in its vaults. Rather, says Smith, the measure of a country's wealth is what it produces. He had invented the idea of gross national product. And the wealth of the citizens of that country depends on how many there are. He had invented the idea of GDP per capita. And so it goes on.

But surely his greatest breakthrough was the realisation that we do not have to grow or make things in order to increase our wealth. We can also increase it by simply exchanging things. If you have something I want and I have something you want, we are both better off by swapping it. And that is the foundation of market exchange and trade, and of the specialisation that makes our production and exchange system so spectacularly efficient, creating and spreading benefit throughout the world.

Blame socialism for conditions in Apple's Chinese factories

There have been some grim stories from Apple’s factories in China, of a spate of fatal accidents and worker suicides at Foxconn plants, which make parts for iPhones and iPads. The news has caused many to accuse Apple of exploiting Foxconn workers. Some say it’s capitalism in action. This is understandable, but wrong.

Like sweatshop workers in China and elsewhere, Foxconn employees endure long hours, low pay and dangerous working environments, but do so because there is no better alternative. In fact, jobs in sweatshops (and Foxconn factories) tend to be massively in demand, because the alternative is worse. It’s not uncommon for a new employee’s first action being to sign up their relatives to the waiting list for new job openings.

It’s easy to recoil from seen evils, while ignoring unseen alternatives that are even worse. No one in the West will ever have to put up with such bad conditions.

If wages and conditions in Apple’s hometown of Cupertino, CA, were as bad, nobody would work there. That people do so in China is because they have no better alternative. China’s economy is growing quickly, but much of it is still grindingly poor, and difficult to do business in. It’s poverty that makes China’s factories such unpleasant places to work in.

Tom Palmer spoke at the ASI on Tuesday, and made the point that poverty doesn’t have to have a “cause” – it’s simply the absence of wealth. This is quite true, but it’s still fair to ask why some places are poor and others are not. I’ve been reading Frank Dikkoter’s superb book Mao’s Great Famine lately. Dikkoter describes in chilling detail how Chinese communism murdered at least forty million people and utterly ruined the country’s economy.

It’s no surprise that China is still very poor compared to neighbouring countries like Japan, South Korea, Taiwan and Singapore. Forty years of brutal socialism under Mao’s Communist state halted China’s development, and decimated institutions crucial for wealth creation, like strong civil society and the rule of law.

The exception, of course, is Hong Kong, where conditions and wages are much better than on mainland China – not because of a bigger government, but because of greater wealth caused by freer markets.

I don’t think Apple should be blamed for the conditions in their factories, exactly, but that doesn’t mean that consumers are powerless to improve them. Apple has already brought in the Fair Labour Association, an independent body that certifies that working conditions meet a certain standard in a workplace. This will impose a premium onto the cost of Apple products, but as long as people are willing to pay it, it’s a good way of circumventing the slow climb out of poverty.

In other words, the problems with Foxconn and other Chinese factories are problems with poverty itself. In the long run, investment by firms like Apple in poor countries will raise the quality of life in those places, but market mechanisms like Fair Labour Association ratings can reduce some of the worst bits of poverty. But Foxconn-like conditions will only be history when the rest of the world is as rich as we are. It’s markets that will do that. 

Kony2012 and the dangers of Youtube fauxtivism

By now you’ll probably have heard of #Kony2012, a social media campaign that exploded on Facebook, Twitter and Youtube yesterday. The campaign centres on a video documenting the crimes of Joseph Kony, a Ugandan warlord who heads the Lords Resistance Army and is said to have overseen the abduction and press-ganging of over 60,000 children into his militia.

The campaign has been remarkably successful – the Youtube video now has over twenty-five million views after two days, an astonishing feat for any 30-minute long video, let along one about a central African civil war. However, as is so often the case with this sort of pop activism, not all is as it seems.

This blogpost has been circulated around the internet, highlighting some of the biggest problems with the the group behind the video, Invisible Children. Invisible Children has come under fire again and again for its finances. Redditor mariod505 has already pointed out some serious problems with Invisible Children's accounts. Of its 2010/2011 total expenditure of $8.9m, only $2.8m (or 31%) actually went to their charity programme. Other expenditures include a whopping $1.1m in travel expenses and $1.7m on US employee salaries. The three co-founders of Invisible Children were paid a total of $262,287 in 2010/2011 (or around 3% of IC’s entire budget).

More concerning still are Invisible Children’s overall message and goals. Their website says that they want to “use the systems, influence, and resources of the United States to expedite an end to the conflict”. What does this mean, exactly? In a blogpost that Invisible Children deleted yesterday after it was pointed out, they say:

“However, when speaking of pure pacifism, we disagree. Invisible Children believes in the usefulness of strategic intervention in humanitarian crises. To ignore this is to allow another Rwanda. “If you are neutral in situations of injustice, you have chosen the side of the oppressor.””

Invisible Children spends over half a million dollars on DC lobbying, including calls for military intervention in the region. It overtly supports the Ugandan army, which the UN accuses of committing serious war crimes in the Democratic Republic of Congo. Uganda itself is an effective dictatorship under the corrupt Yoweri Museveni. Kony is undoubtedly an evil man, but he is not the lynchpin of Central Africa’s troubles. If he died tomorrow, very little would change – making him the focus oversimplifies to the point of confusion.

The photo at the top of this post is of IC’s three CEOs in 2008, posing with members of the Sudan People’s Liberation Army (source). At the time, the SPLA itself used child soldiers and it is known for its practice of using rape as a weapon to subdue local populations.

As is so often the case when Westerners try to fix places they know little about, it looks very much like Invisible Children’s CEOs have attached themselves to one group of brutal thugs so that they can feel good about opposing another group of brutal thugs.

That Invisible Children is a shady group seems, to me, indisputable. Some argue that this isn’t relevant, that “raising awareness” of Kony is a good enough end in itself. If it means people "liking" a Facebook status and moving on, fine, although it won't do anything. But if it means more money for Invisible Children’s lobbying, and results in a hubristic military intervention in Uganda (and, indeed, there is already a government e-petition calling for interventions in four African countries), this campaign will have done a lot more harm than good.

How the EU really sees the world

Above is an advert released by the EU today, making the case for more EU enlargement. It was pulled almost immediately, and you can see why. The advert inadvertantly exposes the worldview at the heart of many EU types: one that wants a Fortress Europe, closed off from nasty foreigners in Asia, Africa and the Americas. It's hard to see how any internationalist could defend the EU.

Critics of the EU are often accused of being "Little Englanders". In the light of rhetoric like this from the EU it's clear that the mindset behind the EU itself is little more than Little Englanderism writ large across the continent — still preoccupied with keeping out scary foreigners and closing Europe off from alien cultures. If the EU is offering an insular Europe that demonizes and builds walls against foreigners, I would turn it down. There's a whole world out there to trade and engage with.

A private solution to state failure

It is often said that the first duty of the state is the protection of its citizens. The police force in the UK received a 47% increase in its budget between 1997 and 2008. Yet there has been for many areas of the country no noticeable decrease in crime or the fear of crime. When the police do venture into neighbourhoods that suffer from large amounts crime they are more often than not seen as an alien force, there to stop and search large sections of the community on the most frivolous of grounds doubtless invoking legislation intended for terrorists rather than youths on the high street. 

The ability of the police to help to defend the citizenry to the extent that all the population regardless of income may enjoy security from crime is a myth put about by the police federation, the policeman’s trade union and their political masters. However, law abiding citizens need not pay the price of the state’s failure to perform one its most basic function. Liberalizing the UK’s laws on firearms would provide immediate private protection where government protection fails.

Opponents of liberalising our gun laws claim that the more guns available the more homicide, burglary and violent crime. This is wrong. Switzerland has over two million firearms in private homes and has a homicide rate lower than the UK at 0.66 per 100,000. And readily available firearms for personal protection are not without precedent. In 1900 when the England had close to no gun control laws, the homicide rate was 1 per 100,000. It is now 1.66 per 100,000. 

The US is often used as an example of what happens when gun ownership is let loose. However, homicide rates in the US have very little to do with the availability of guns and are much better explained by cultural and societal factors. Over the last two hundred years, homicide rates in New York were five times higher than in London even when neither had gun control laws.

Private security in the UK is usually too expensive to be accessed by most small shops or residential areas.  Indeed, the capability of private security guards to deter and confront wrongdoers is limited by the amount of force they can exercise. Because of the state's monopoly on firearms, people are dependant for their security on a public body notoriously unresponsive to their interests, resulting in a poor quality service where police will arrive after a crime has been committed with almost no ability to actually catch the offender.

A citizenry which is armed would not disintegrate into a mass of homicide and armed robbery. Rather, it is one in which the law abiding majority feel that their property and persons can be adequately protected. In the UK, those who have firearms are either criminals or agents of the state. It's high time this was addressed in favour of the citizens wishing to live their lives without fearing outlaws or the inadequacies of government law enforcement.

Economics is fun, part 13: International Trade

International trade is probably the most impressive weaving together of the concepts Madsen has talked about so far. Madsen uses the example of a pair of jeans, made in China or Vietnam, coloured with dye from India, sold around the world. There are countless other little things we use every day without giving a second thought to the journey each one has made around the world. And that process is hardly new — scholars have traced international trade right back to the ancient times, and can show ripple effects from crop failures in medieval China even affecting parts of Europe, as trade patterns change.

You can watch the whole playlist of videos here.

You know the world's gone crazy when...

Current political debate ahead of the UK budget puts me in mind of the set of jokes originally inspired by the US comedian Chris Rock. Chris Rock’s original quip went like this: 'You know the world is going crazy when the best rapper is a white guy, the best golfer is a black guy, the Swiss hold the America's Cup, France is accusing the U.S. of arrogance and Germany doesn't want to go to war.’

But now we have a world where the Liberal Democrats argue for tax cuts, the Labour party calls for wider tax cuts, and the Conservative Chancellor is at pains to damp down any speculation that he is about to make tax cuts.  This of course isn’t as funny and isn’t quite the political reality. Osborne has constraints on what he can achieve in next month's budget, both in terms of what the market will accept and what his coalition partners will allow.

But even if he doesn't have the scope for big tax cuts to help the economy, there are some useful pro-growth measures that the chancellor might include in his budget. The MP John Stevenson has suggested that stamp duty to be altered so that is borne by the sellers of properties. This is a reasonable idea: it could enliven the housing market by moving the cost from first time buyers onto those (the sellers) who are more likely to be able to afford it.

However, much better would be allowing small and medium sized businesses (SMEs) to opt out of onerous health and safety rules, a whole host of labour market regulations, and the minimum wage. This is where the chancellor could really help the UK economy, and it wouldn't cost the Exchequer a penny.

It is self-evident to anyone who deals with small businesses that HSE directives don't make workers any safer, that labour market regulations unnecessarily restrict employment, and that the minimum wage is higher than a free market would bear. Party political cross-dressing aside, the government's continued failure to deal with the onerous (and sometimes plain ridiculous) legislation imposed on SMEs is no joke. The forthcoming budget is a good opportunity to turn the tide.

Capitalism makes the world go 'round

Tom Palmer (speaking at the ASI tonight) writes in City AM's excellent Forum section on why he loves free-market capitalism:

It’s a legal, social, economic, and cultural system of decentralised innovation – what the economist Joseph Schumpeter called “creative destruction” – that relies on the voluntary cooperation and exchange among legal equals. Capitalist culture celebrates the entrepreneur, the scientist, the risk-taker, the innovator, the creator. Although derided as materialistic by some, capitalism is at its core a spiritual and cultural enterprise. . . .

Capitalism rests on a rejection of the ethics of loot and grab, the means by which most wealth enjoyed by the wealthy is acquired in other economic and political systems. For much of human history, those who were rich were rich because they took from others, and especially because they used their power to gain monopolies and to confiscate the produce of others through taxes. It’s only under conditions of capitalism that people commonly become wealthy without being criminals.

Palmer makes the crucial distinction between free-market capitalism and crony capitalism:

It’s important to distinguish free-market capitalism from crony capitalism, a system that has mired many nations in corruption and backwardness and is, sadly, on the rise. In many countries, if someone is rich, there is a very good chance that he (rarely she) holds political power or is a close relative, friend or supporter – in a word, a crony – of those who do hold power, and that his wealth came not from being a producer of valued goods and services but from enjoying the privileges that the state can confer on some at the expense of others.

This is a crucial point. Far too often, capitalism's advocates and critics end up talking past each other. When liberals defend capitalism, they mean the system that free enterprise gives rise to. When people attack capitalism, they tend to mean the current state-subsidized, state-protected economic system where large corporations are in bed with government and use the state to enrich themselves at other people's cost. No wonder both sides find these debates so frustrating — all too often, they're not even talking about the same thing.