It’s National’s turn for awful policy

So I see that pseudoephedrine based medication is being made prescription only, and possibly even banned in the “war against P”.  This policy has broad-based support in parliament, with both National and Labour supporting it.  And like all policies with broad based support it is bad policy.

The purpose of this ban is solely to reduce the supply of P.  The government immediately believes that P=bad thing, and therefore reducing the supply of P (with a downward sloping demand curve) will reduce the quantity of P consumed.  Even if we assume this is true, it is ridiculous to state that the harm from a drug is solely dependent on the amount consumed.

By banning and restricting access to drugs we make more dangerous forms of sourcing said drug more attractive.  By making it harder to access drugs, we give more power to select groups who are able to access said drugs – power they can abuse in order to increase the price (both monetary and non-monetary) charged to the consumer. This is one of those un-intended consequences governments love to ignore.

For example, if we were to make drugs legal then legitimate business (with associated quality control and tax paying abilities) would be set up to sell the drugs.  This is surely preferable to having a situation where access to drugs is controlled by arbitrary gangs?

Furthermore, even if we do believe we are “reducing harm” (which isn’t obvious) we have completely ignored the benefit side.  People consume things because of an associated benefit.  As long as people have information regarding the addictive properties of P and the personal costs associated with it then how can we say that them consuming it isn’t in their own interest?  If we believe there are social costs to the consumption of a drug then tax the hell out of the damned thing – but banning it makes little sense.

And finally, by banning the cold and flu medication this policy has a real cost on people who are not involved in the consumption or production of P.  Have they taken this cost into account when coming up with the policy I wonder?

This suggests to me that moves to restrict supply further are in fact the opposite of what we should be doing.  We should be looking to legalise, tax, and monitor drug use if we want to maximise social welfare – not drive it further underground.

Update:  Eric Crampton discusses the negative reaction from around the NZ blogsphere, and his own negative reaction.

4 replies
  1. goonix
    goonix says:

    Terrible stuff. As with the recent alcohol debate, very little attention is given to the positive effects of pseudoephedrine while at the same time the negative effects are ramped up via sensationalism (Paul Holmes I’m looking at you). Even Gluckman has stated that it will have very little impact on the supply of meth (at least he can see that much). An absolute failure for the government and their worst move to date.

    And not all policy based on broad-support is bad – think FTAs. 😉

  2. ben
    ben says:

    Good post. Here is Kevin Murphy from U Chicago on drug policy. This is a post that really changed the way I think about drug policy:

    `what do we know about demand for any commodity, whether it’s drugs or haircuts or strawberries? You make them more expensive, people consume less. So our view of the world is that, basically the way drug policy works in the United States at least, is it tries to make drugs more expensive, less attractive, and cause people to consume less. In economic terms, it pushes us back up the demand curve. And rough estimates say we’ve quadrupled the cost of drugs relative to what they would be in a world without this interdiction.

    If you quadruple the price of something, people are going to buy less of it. But, unfortunately, the way we bring about that quadrupling of price is by increasing the cost of supplying drugs. The amount of money people are spending on drugs is actually higher than it would be if the price were lower, because the demand for drugs is not very elastic.

    Region: You’ve shifted the supply curve, and moved up the demand curve.

    Murphy: Exactly. So think about a simple world where the elasticity of demand is about a half. You quadruple the price of drugs, and the quantity of drugs is cut in half. So you’ve got four times the price, half the quantity. You’ve doubled expenditures. People are spending twice as much and consuming half as much.

    Well, where did that added expenditure go? It goes to the drug dealers. It doesn’t go to the government; it doesn’t stay with the consumers. It goes to drug dealers. And that revenue actually finances the supply of drugs and finances the drug lords who supply drugs to the United States. So what we’ve really done in this case is financed the people who are on the other side of the War on Drugs. So, the War on Drugs, in our view, has been kind of doomed by its basic economics. That is, the harder you fight the war, the higher you push up the price. The higher the price, the higher the revenue of suppliers; the higher the price, the greater the incentive to supply drugs to the United States.

    Now, what are the costs to the suppliers? Well, they have to avoid detection. They fight over turf for drug territories. They pay people off. They may go to prison. All those costs are pretty much bad things. They use violence to enforce their contracts and the like. Not a good outcome.

    But when you put people in prison, you have to consider not only does it cost society in the form of people in prison who could otherwise be gainfully employed, but it also costs us money to put them there. So for every dollar of cost we impose on the drug suppliers, we spend at least a dollar of our own money on top of it to keep them there. If we normalize what we would have spent in a free market on drugs at $100, consumers are now spending $200 on half the quantity of drugs and then spending another $100 on top of that to put all those people in jail. So we’re paying three times as much for half as much output. From an economic point of view, that’s more than a little bit counterproductive.

    Usually you think, if I’m going to produce less output at least it should cost me less.

    Region: So, rational addiction but irrational …

    Murphy: Irrational policy, right. So, what’s the answer? If you want to reduce consumption, raise the price. What’s the natural way to raise the price of something? Tax it.

  3. Elizabeth Marshall
    Elizabeth Marshall says:

    Surely the banning of the sale of pseudoephidrine is going to create an even blacker market for the stuff. It’s going to be difficult for people who have a genuine need for the stuff—they’ll have to visit their GP to get a prescription, and go to a hospital pharmacy to get it. Makes it even more expensive for the ordinary sufferer.

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