Saturday, July 3, 2010

Pot Microcosm Of Wider Markets

Colorado has been rushing headlong into the medical marijuana business, partly by a non-enforcement policy, and now by laws licensing marijuana dispensaries. Unfortunately, as a laissez-faire capitalist, I'm seeing my dim view of national commerce policy reflected in the way things are being handled regarding pot in Colorado.

While I'm not promoting drug use per se, I do defend people's right to buy and consume marijuana, because those acts -- in themselves -- do not harm anyone. If someone wants to smoke pot, they have every right to do so, because it is proper and moral for people to make their own decisions about their lives. Rational decision-making, even if we are mistaken, is an essential part of human nature, and our moral and political philosophy should reflect this.

Last week, this story caught my eye as an object lesson in what not to do with this new industry. Although this market is thriving in its current state of relative freedom, according to a 9News story:
On Aug. 1, dispensary owners will have to submit their state registration information. It could cost anywhere from $7,500 to $18,000.

Because of the high cost, the Department of Revenue believes half of the dispensary shops statewide will close down.

Now, I don't know whether this will be true or not; it is a prediction. However, this currently unregulated market sector is in some sense a test tube free market (relatively speaking anyway); it exists in a state prior to many of the fees and regulations to which industries are usually subjected. It is a real-life economic laboratory for the effects of freedom vs. overbearing state paternalism. Currently, business is booming; dispensaries are opening up all over Colorado, because the demand for pot -- medical or not -- is huge, and such businesses are stepping in to provide the supply.

From this angle, I'd like to point out several things:
  • Observe the predicted impact on the number of businesses once the new law kicks in: cutting them in half. Businesses that have to close will not have done anything wrong, other than not being able to afford the fee or regulatory scrutiny. However, their economic value is lost, as is all future growth they might have had.
  • Now project this effect on the national economy as a whole, where the regulations each industry is subjected to are much more burdensome and expensive, including product-specific taxes, licensing, filing, antitrust actions, labor laws, health and other benefit requirements, and so on. The loss in business terms is staggering. Most people probably don't think about this, because they don't see it. However, I suggest that our economy has been running at a small fraction of its possible productivity and total wealth for much of the last century, due to government coercion.
  • Note also that of all times to place burdens on business, this is being done during a recession. Talk about a kick in the teeth.
Note that these negative impacts of bad government policy are not due to some arcane economic principle that only professional economists can understand. Rather, the economics is a reflection of easily-grasped facts of human nature. In order to survive, we need to think and act. In a social context, that means being left free to act on our economic plans, provided we don't infringe upon that same right in others. By preventing entirely voluntary acts of trade between two parties, the government is infringing upon our rights, and lessening our capacity to live. When you see lessened economic activity, what you are really seeing is a reduced capacity to flourish and provide for ourselves; you are seeing the human equivalent of a wilting plant, or a starving animal. In essence, bad economic policy is suppressing our lives and causing us direct and tangible harm.

Getting back to the issue of drugs, there is an additional and more sinister problem: the underlying problem of violence in the drug business has not been dealt with because we are still pursuing the suicidal War on Drugs. This is in fact a war on innocent people, bringing violence to our cities and wreaking havoc on entire countries. Witness Columbia. Witness northern Mexico. See the history of Prohibition during the 1920s.

Although liberalization of regional drug policy is a positive step, without removing the underlying illegality at the federal level, the violent gang culture will remain, and such gangs will eventually come in and take over the dispensaries, if they have not already done so. Hopefully the newfound freedom in Colorado will last long enough to benefit from real reform at the federal level.

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