April Cruels

Last month Forbes named the members of its 2012 Billionaire list and two notable Mexicans were stand outs; number one, Carlos Slim Helu and Joaquin “El Chapo” Guzman Loara (leader of one of Mexico’s most notable drug cartels).  Notably, El Chapo was reported to issue an April Fools’ mocking of several U.S. Presidents, including current President Obama, for their ridiculous and long-term support for the War on Drugs.

What is interesting about both men is that they both received tremendous amounts of wealth as a result of direct government assistance.  In the case of Mr. Helu, he has relied on a variety of techniques to secure government support of his companies and projects.  In contrast, El Chapo has relied on apparently the “opposite,” a complete unwillingness for the government (primarily in theU.S.and inMexico) to support his actions, to garner his tremendous wealth.

However, the apparent contrast between these two men’s reliance on government is actually quite congruent.  They both rely on the government to outlaw competition; collateral damage and unintended consequences be damned!  The primary difference is how far the government is willing to go to outlaw competition and the subsequent effects of that legislation.  In the case of Mr. Helu, the unintended consequences don’t even approach those dire results related to El Chapo line of work.

Painfully, even when our leaders oppose the War on Drugs, as President Obama has stated that he feels “the War on Drugs has been an utter failure” and calls for revisiting how we criminalize them, they still support and actively support it.  The Obama Administration has been aggressively persecuting and prosecuting people, even in states where voters have legally mandated their medical use, such as in California.

This begs the question, why isn’t Paul S. Walsh, the CEO of Diageo PLC, the noted proprietor of wine and spirits, similarly ranked on Forbes Billionaire list?  More importantly, why isn’t he ranked near El Chapo on Forbe’s global power list, where El Chapo holds the position of the 55th most powerful person in the world, despite only being worth $1 billion (#1153 on the wealth list)?  Almost any rigorous analysis of drug vs. alcohol shows that alcohol is far more costly.

Despite Prohibitions record of failure earlier this century, our leaders are stuck on stale/failed policies in the hope of mandating morals, all-the-while outsourcing corruption and violence south of our border.  Some (read many) argue that the 800 pound gorilla in the room (legalization) is the answer.  After all, it was the answer to the violence that evolved due to alcohol prohibition.  However, there is one stark difference.  Alcohol prohibition only lasted a few years so interest groups (Bootleggers and Baptists) had little time to develop and build strong foundations to fight undoing Prohibition 1.0.  After several decades of War on Drugs, interest groups are solidified (and so are their lobbyists).

Given all the vested interest in maintaining this war, it is unlikely thatU.S.politicians will move toward legalization in any meaningful way, even if it is how they truly feel, as President Obama’s citation above highlights.  The driving force must be a market oriented incentive and it will come from people who have a vested interest in repairing theU.S.’ broken drug policy.

Latin American leaders are increasingly open to the discussions of legalizing drugs.  Recently Guatemala’s President Perez penned an op-ed explaining his position.  And while these leaders don’t have lobbyists in DC to secure political support for legalizing drugs in theU.S., they carry a far bigger stick than our lobbyists’ carrots.

Legalizing drugs in their home countries will effectively shift more of the cost burden of the drug war ontoU.S.soil.  The current violence and corruption subsidies that many Latin American countries endure because of our failed policy will shift both the violence and corruption deeper into our home turf.  Perhaps then our leaders will turn a blind eye to the bribes, fancy dinner, donations, etc… lobbyists provide.  The 40 year April Cruels joke theU.S.has been playingLatin Americais almost over.  Sadly, asU.S.citizens, the joke will soon be on us.

FIN

Erik Chavez is a graduate of the University of Chicago Booth School of Business and the University California Los Angeles, where he studied Economics, Policy & Finance.  He has written on and taught a variety of policy and economic subjects.  In addition to being a finance professional, Erik is a Mont Pelerin Society Fellow (2008), an Professor of Economics and Finance , and a member of the American Economic and Finance Associations.  Erik can be followed on Twitter @lethalodor.