 Gosh, this is a great group. Just don't disappoint me for the rest of the week But I want to congratulate you the the first two days are are pretty difficult pretty difficult stuff it's all methodology and theory and For the most part the professors don't really get to policy In their lectures on Monday and Tuesday, there's going to be a lot more of that the rest of the week in terms of policy in applying theory doing economics and related subjects so again, congratulations and But today at the end of this day, we're going to turn our sites to policy and economic analysis per se and and Actually, even social change Both good social change and bad social change as exemplified in the policies of prohibition and legalization so Yeah typically this lecture would be on the minimum wage the sort of most typical most talked about Policy in terms of applying economic analysis of government intervention and that Lecture is still on the schedule and I recommend it to to to be there and and really pay attention to that It's a core issue and it's a very very important issue of our times the minimum wage has actually hasn't been increased in many many years, but at least at the national level, but of course Increases in the minimum wage are surely in the pipeline right now and And so we're going to look at the economic analysis of prohibition and legalization And we're going to look at How economists view that and one reason why I think this lecture might be better suited as the first policy Lecture rather than the minimum wage is because this is an issue where Austrians and by and large most mainstream economists actually Disagree now there are surely a few vocal mainstream economists who oppose prohibition and Support some kind of legalization But you need to look at the dirty details to see that there really is a Big difference and a lot of this Material that I'm going to be drawing on here today is from a little article I did last year called death to prohibition and it's a very short article It touches on all the points. I'm going to be touching on here today, but it also gives you links to Several things that I've written in others on this topic to sort of drive the main lessons home one of the things That's important to know is is that economists back in the 19 teens and 20s Actually fully supported alcohol prohibition so Gordon Tullick who's a Famous modern economist Wrote a textbook one and he wrote in there. He said, you know, if the prohibitionist had only Consulted with economists, they would have been persuaded Not to pursue the policy of alcohol prohibition The problem with his statement it was it was absolutely false all major economists supported the policy of Prohibition back in the 19 teens and 1920s Irving Fisher who was really the most famous American economist of that era Was a really vocal Proponent of alcohol prohibition he actually wrote three books in support of alcohol prohibition at the time even though it was on a rocky road of Real failure from the very beginning I've done a survey of economists on the topic of the war on drugs and again Very few economists supported outright legalization and I could trace their roots to that small number who actually Advocated legalizing drugs in the modern context to the Austrian school and when you look at the entire survey The views of economists really didn't differ very much from the general population So Economists were really not much Help back in the days of alcohol prohibition and they're not really of much help here today As a matter of fact Gary Becker the Nobel Prize-winning economist from the University of Chicago Who's considered the biggest critic for mainstream economics in terms of the war on drugs? Well, he didn't really favor legalization what he wanted was a system of excise taxes very stiff excise taxes to raise the price of illegal drugs various forms of fines on producers and consumers for you know consuming too much or inappropriate Regulations all sorts of government interventions to bolsterize what he called legalization but of course a lot of these supports for legalization would cause Much of the same results as prohibition itself and no one in The economics profession is actually asked the most important question which is What causes all of these social problems medical problems? With the war on drugs, what is causing so many people to die from overdoses? What is causing so much addiction? What is causing so much drug addict crime? Organized crime That's really infected America in the world Certainly urban areas and cities You know, I think ultimately maybe somebody in here will write a dissertation Not necessarily in economics, but maybe in sociology or something related to that or some health discipline Where you look at the impact of government? on drug use and addiction War which we know is linked to addiction Empire building tax slavery the welfare system and just hardcore government intervention in general we know that there are some linkages to all of those things with drug abuse and Nobody in economics has really tied all that together in terms of looking at the real problems rather than just the analytics that we're going to discuss here now Mises himself didn't really deal with the problem of Drug prohibition or prohibition in any great detail That was beyond his topics he even said that These were problems beyond catalatic catalectics or economics But he did raise some important considerations of political economy for example Would it work? He didn't think so But he said if it did work Then why not expand the use of these prohibitions to all sorts of other things that we might disagree with like bad books hateful newspapers and media You know harmful foods sugary foods and drinks You know all sorts of things why stop with just alcohol and Narcotic drugs why not expand it to nicotine and all sorts of other things? Murray Rothbard Also didn't spend a great deal of time on the topic of prohibition But I'm very glad that he wrote pages 40 to 43 in power and market Because only after the fact that I realized that Those three and a half pages were essentially my 300 page dissertation on the subject So again Murray. Thank you. I did cite him on many things, but The whole story of product prohibition he discusses in a very few pages and really gets the story correct and really complete as well, so You really can never go wrong with reading either one of those two economists, but Rothbard is a great source of inspiration Just in general on his own research in his own writing and rhetoric But also a great source of ideas of things that he couldn't necessarily solve himself but Things that you can solve And so he leaves lots of hints lots of tantalizing hints about things that need to be solved But he couldn't do everything so And also I included this year in the title the way forward Because I think that when we analyze prohibition when we analyze legalization and we take the topic of ideology Into account we really have an understanding of how to move Society forward now if you looked up ideology on Mises.org and You looked at all the recent articles on ideology They're all attacks on one form of ideology or another progressivism statism internationalism You know welfare ism There's just an endless list of these articles and most of them are attacking these emerging Ideologies and with good reason, but in general Ideology is something that really does move society So we should be leery of these bad ideologies But we should also be hopeful in the sense that we can play a part in building a positive more free market ideology and Apply that in such a way as to create positive social change so We're gonna obviously stress economics here this afternoon And we're also going to stress the fact that Austrians Lay a great deal of importance of not just methodology not just theory And but applying the theory to real-world cases and coming up with real-world Solutions we're coming up with the right solutions not halfway Solutions not modified solutions, but the solutions that will actually work To create positive social change and to make improvements in people's lives So this is sort of a general Look at what we're going to be doing today here in Austrians do view ideology is a critical is of critical importance to social change So it's not just Supply and demand. It's not just Analysis of government intervention that is very important and Ideology is not an empty set. It's not just a Particular point of view ideology is a is a set of ideas that people hold together As large groups or as groups that can become large and can become dominant and can influence the political process but part of ideology is There's going to be some scientific content and so Austrian economics applies This or provides I should say the scientific content For a positive ideology and then of course, there's ethics Of what's right? What's wrong? What's helpful? What's harmful those basic sort of categories? There are also guiding features of our lives personally our family lives and things that we hope are Built into our social lives in our governments that they should Have policies They should practice things that help people in their own personal self-improvement so Things aren't going too well right now most policy issues That are going to be discussed here this week and I've listed things like taxes budget deficits the national debt money inflation Interest rate control the central bank regulations health care welfare All these things are generally considered to be getting worse in today's climate Along with the political process being somewhat broken that's a Sort of a statement that sort of Minimizes the actual damage that's being done and all of this is taking place during the Austrian revival the revival of Austrian economics which starts in the 1960s and You know, we went off the gold standard and we've The budgets have gotten much much higher the central bank has much more power The national debt is much higher Now we are experiencing Tremendous success in terms of legalizing cannabis. It's going from state to state and Medical marijuana and so on and so forth. So in my personal area of research things are going great But in all your other professors here Things are going right downhill so I just want you to remember all that and To top it off, of course in the United States socialism has become Very popular You know, there's 20% of a yeah, I guess it's young Americans believe that socialism is the way of the future that socialism is the solution to our problems and There's another big segment that Doesn't believe and is repelled at the idea of full-scale socialism But it's still They're not directly opposed to it and this is a very dangerous thing for socialism To be very popular particularly amongst the young Because of course those ideas tend to stick with that generation and they tend to grow over time as young people become middle-aged and older in fact, I've the bright side of that is I have a paper where the advent of AOC and Bernie Sanders and discussions of all these socialist policies in America are Actually driving a lot of social media contact to the Austrian school of economics So we can see that the rise of AOC and Bernie Sanders in social media hits Coincides with a big increase in hits and traffic in Social media for the Austrian school. So all is not lost in other words a large number of people are learning The wrong lessons and there are a lot of people who are learning the right lessons and are driven in our direction Again as I mentioned Policy change is driven by ideological factors This is something that many of the great thinkers David Hume the philosopher for example believe that Ideology of the people of the masses is what actually determines Policy it's not the king. It's not the parliament. It's not You know all of those things. It's the ideology of the masses Ludwig von Mises Believe that ideology was a source of social change and so did Murray Rothbard and many other great thinkers in terms of economics in terms of sociology philosophy historians They believe it. They can see it. Okay, so it's not the political system Directly that we're battling here and again prohibition is a policy where that we have had some Libertarian success there was a 21st amendment to the Constitution which repealed the 18th amendment of alcohol prohibition and then of course the marijuana legalization movement in recent times Okay, so on to prohibition It's important to note the time element and I think that was brought up in maybe one of the very first lectures on Monday Is that in neoclassical and mainstream economics? There's no Role for time to play. There's really nothing more than before Now and after and there's very little of that taken into account Where Austrians and good historians believe that you have to look at things in terms of time and with respect to prohibitions prior to Narcotics being prohibited alcohol being prohibited and cannabis as well There was actually very little in the way of medicine in America in America was more advanced Along with the European countries in terms of medicine in terms of doctors in terms of Medicines in terms of even hospitals which were relatively new and patent medicines may have heard of patent medicines. They were You know unregulated concoctions that very often Contained opium or narcotics alcohol most of them contain some amount of alcohol and Cannabis or marijuana prior to prohibition alcohol Including very heavy consumption of alcohol was an integrated part of American life So if a new preacher was coming to town and it was going to be set up in the church, of course They'd roll out barrels of Alcoholic cider and beer and bottles and bottles of rum because after the ceremony there was going to be a Citywide or a villagewide or whatever Giant block party essentially and alcohol was the beverage of choice So all of those things were an integrated part of American life In the early days of the Republic there was very little intoxication Even though people drank all day long it was more of a food and beverage thing than it was an intoxication thing And we didn't really have a concept of addiction Which was only realized in the late 19th century so all of these things are very new and so Analyzing the situation and developing policies was very hazardous that should have Prompted some caution on the part of policymakers, but this was the progressive era where Americans in particular thought that they could accomplish anything that they were the great people that they were the city on the top of the hill the city of light and that they were going to perfect American society and they were going to do so By removing alcohol and narcotics and other things from society and Also, these drugs caused very little in terms of social problems With respect to patent medicines for example, they think about 30% at least were actually effective for things like pain So you can imagine if you had a really serious back injury or you had your spinal cord had been broken at some point You know, there was no surgeries for that kind of thing. There was no Medicine or therapies or anything like that. So opium turned out to be really their only choice and So patent medicines were very helpful for some and of course They had the placebo effect which Which was about 30% It's about 30% today for most things as well You take something it really doesn't have any way of helping you But just taking it makes you feel better and then of course about another third We're we're actually harmful if you took it it actually made you worse But at least there was something for some people Prior to the prohibition and So what we're going to look at here first of all is the naive model of prohibition and this is the model that Prohibitionists think of in terms of what they think prohibition does and this is also the way mainstream economists from the early part of The 20th century to now they have a similar mindset in terms of thinking of prohibition In terms of supply and demand now supply and demand is supposed to be something we use to analyze the simple analytics Of a market of a free market and so on this model We give a supply and demand the demand is Downward sloping the supply is upward sloping. It's more difficult to produce more and then prohibition is added We need a battery here Then prohibition is added to this marketplace and What they're really thinking of here is in terms of adding a tax to this now prohibited market and so in in their mind the prohibitionists and the mainstream Economist is that prohibition is just adding a tax and so the increase with the increase in tax of course The price is going to go up here from the previous equilibrium level Up to the new prohibition price. So we measure an increase in price along the vertical axis and We also see that from this previous equilibrium point To the new equilibrium with the prohibitionist tax. There's going to be a decrease in the quantity Of whatever's being transacted here alcohol narcotics cannabis and so forth So that's what they have in their mind when they look at prohibition It's just an application of things that they've already been doing So prohibition does reduce supply it eliminates actually in the case of prohibition it eliminates all Producers and a new set of producers comes into the marketplace. It does increase price It does decrease the quantity demanded And in their minds therefore prohibition must be beneficial Because we're reducing the amount of alcohol being consumed or reducing the amount of drugs being consumed And so therefore all of the problems that go along with consuming those things must also go down Of course, there's also an increased government budget and there's higher taxes that go along with that But this all comes down to a for them a marginal cost equals marginal benefit type analysis it comes down to simply a trade-off and So for them prohibition or the more modern approaches of excise taxes it's just a trade-off between letting the free market go wild or trying to prohibit it and restrict it and then looking at the benefits of reduced Consumption versus the cost of enforcing the prohibition Itself, so it's just a simple trade-off to them. There's obvious benefits and And so they don't really see a problem with it the problems that they see are easily dealt with one by one The problem with this analysis is that it doesn't really apply to the real world in the real world everything changes Everything changes. It's not just a matter of price. It's not just a matter of Quantity And this really goes along with the hidden agenda of the progressives Which was not so much trying to solve this problem and use and drunkenness and so forth but was really at their core mission, which was to build a Christian white Anglo-Saxon Empire of the city on the hill of this miraculous Type of society where they could weed out all forms of Evil or sin and So when we look at their overall structure and what they actually did and how they actually talked It's a little different With the Harrison narcotics act for example, there was a long string of restrictions taxes regulations prohibitions that went way back into the 19th century and they were all basically aimed at the Chinese immigrants Chinese mostly Chinese but other immigrants as well With alcohol prohibition it wasn't so much to get rid of Consumption and drunkenness it was to get rid of the drunks So it was the policy was really identified within the progressive movement is to get rid of the Catholics Stop the stop the Catholics from drinking on Sunday Stop giving the Irish and the Italians You know reason to to come to this ideal at place So it was to smash particular groups. It was really racism the marijuana tax act if it had any justification at all At least in terms of its propaganda. It was against blacks and his particularly Hispanics to keep them out And reefer madness the movie the B movie it particularly Says some really awful things about these groups And patently untrue These were all B movies. They were only a meant meant to scare young people Apparently some adults actually watched it and got very concerned about the whole thing So there were outrageous claims about minorities raping people about being impervious to the police's Bullets that they would be shot with you know, and that cocaine was like a Magic bulletproof vest and that Bullets couldn't stop them and that was actually used As a way of getting police officers higher caliber guns In order to stop these drug Menaces out there in society and then the marijuana gateway theory that's worth mentioning Here because it came up during the legislative hearings for the marijuana tax act every Industrial and health group opposed that legislation But the director of the drug agency at the time came up with this gateway theory Which says if you try it you buy it you're hooked and you're only going to get using higher and more potent drugs, so if you took a puff of Marijuana you would end up being a heroin addict and I was at the Oxford Union debating this subject and the director of the British drug policy Actually said that they said that if you know, we we can't legalize drugs because people would try Marijuana, but if they tried it pretty soon the entire nation The entire nation would be heroin addicts and would be dropping left and right and overrunning the public support system So Prohibition really does change everything it changes the legal and economic framework Austrians are Number one in terms amongst economists of Paying heed to and tension to and maybe even trying to learn something about the legal system The Austrian economists and and this is true today in the Spanish program in Spain You know, they you do learn about the the legal system and law you learn about the rule of law In prohibition does away with all this stuff. So if you're Involved in the illegal market for heroin for example and somebody Gives you a dirty deal or steals your money or something you can't go to the police and say hey this guy stole my heroin You know, that's not going to cut it. Okay, so those things are completely out of the question the rule of law social contract Excuse me social constructs and So all of these things Add to the negative consequences of prohibition things like violence things like crime bribery and corruption and of course bribery and corruption is what helps establish Organized crime organized crime pays off the political process to go after their competitors And so they become organized in that fashion and of course it undermines civil society We don't talk a lot about that now, but of course in Central American countries right now the war on drugs, which we sponsor they pay the the cost of that in terms of The drug cartels Taking over their countries raping and pillaging Murdering threatening the military threatening the police threatening the mayors and the politicians And they completely undermined Civil society in Central American countries So when we see people kids walking from Central America to our border and wonder what the heck are they thinking? Well, they're thinking that back home is a completely untenable life So one of the things I want to get to here because I think it really makes a lot of important Makes a very important point I'll let that sit up there for a minute is the iron law of prohibition and And This is really what got me started on this topic and ultimately on my dissertation It's based on a very simple notion It's called the Alchin and Allen effect and two economists Alchin and Allen tried to explain why The apples were much better in the stores in places like Florida where there are no apples grown at all and the apples in Western New York and The state of Washington where the best apples in the world are grown why the apples there Tend to be of an inferior quality and it has to do with the transportation cost of Transporting apples from the state of Washington to Florida or from New York to Florida Is that the transportation cost is very high so that if we looked at? good apples in the state of Washington They might cost just to round up everything a dollar for a Good apple and a bad apple would be 50 cents So that when you're looking at the trade-offs as Producers and retailers and consumers in the state of Washington one good apple will actually cost you two bad apples So you really have to think you know, what am I using those apples for am I? Making a painting or am I eating the apple for my lunch or am I just making applesauce or an apple pie? Because if I'm just making applesauce or an apple pie I can go with the bad apples. They don't look as good but They're really inexpensive But if we transport those apples to Florida, there's a heavy transportation cost Okay, and this example I've used a transport cost of one dollar per apple. That's obviously a little high But it makes the calculations a lot easier because now in Florida the The good apple now only cost one and a third bad at bad apples or inferior apples So in Florida in a relative sense if you looked at the apples in the store The good apples are gonna look relatively cheaper and you're you're typically not going to the grocery store on the same day in Florida and in Washington, so you don't really feel That you're getting ripped off or you know, why are these transportation charges? So high So if we extend that and we see this, you know, the the good lobsters are transported out of Maine So typically if we get Maine lobsters transported and sold to Alabama, they're actually very good lobsters The same with Idaho potatoes They're all the exact same size They're hardly any blemishes on them at all or green spots. I Was in Idaho for one day and I ordered a steak and baked potato and The potato was about this big. I'm not kitty It was about that big it had a separate whole plate It was all kind of gnarly looking and there was no way I was gonna be able to get enough butter to butter that potato The same is true with wine typically You know the best French wines the best Italian wines That are the wines that are shipped from say northern Italy or western France are gonna be some of their better want better wines and so if we apply that to cannabis and we look at the price of Pot or cannabis or marijuana in South America, you can buy a pound I'm not sure if these figures are very accurate You can buy a pound of high potency cannabis for this example's sake for ten dollars or a Pound of low potency cannabis for five dollars So the relative prices in South America the high potency Pot is pretty expensive But if you ship that to South Carolina Okay, you're gonna add about a thousand dollars really a lot more than that To the price of every pound and so The price of high potency and low potency pot in South Carolina is entirely driven by the risk transport price of Getting it from South America here so Essentially the price of high potency is the same as the price of low potency Here in the United States. So there's a tremendous economic incentive to grow to ship and to sell and distribute and buy high potency cannabis In the United States and so this is the iron law of prohibition Which is prohibition makes everything more potent and more dangerous Things are obviously less dangerous with cannabis But it still drives the potency higher. So in 1972 the average potency in the United States of cannabis Was point four of one percent the THC content was point four of one percent by 1984 After Nixon and Reagan's war on drugs the average potency was about four point four percent or a thousand times Higher in a pretty short period of time in more recent times before The legalization of cannabis started rolling No, that's not a good Started Accelerating Yeah The potency, you know, you could get some Products that were 10% potent And so there was a tremendous drive for higher potency cannabis and then Markets quickly developed so that cocaine started coming into the country they in the early 1980s crack cocaine developed here As a consequence at the retail level and of course heroin has had a major resurgence New products have come on to the market like crystal meth, which didn't really exist And then the chemical Substitutes like fentanyl which are killing so many people Have become widespread. So the iron law of prohibition, which is basically You know the Driving force here predicts higher potency predicts more dangerous more addictive drugs and that's essentially what we've gotten With respect to cannabis legalization and ideology In 1972 12% of all American adults supported legalized marijuana So the overwhelming majority of people supported the war on drugs at the time today 65% of the American public supports legalization for adults And 90 something percent support medical marijuana legalization. So there's been a complete change over in terms of Support for legalization and opposition to drug prohibition We've got 40 states now that have legalized medical marijuana. We've got 27 in counting That have decriminalized Marijuana so you might get fined And get other punishments, but no prison time no jail time and 11 in counting states That have legalized it for recreational purposes. So there's been a a groundswell of a change in support It's changed from prohibition to supporting legalization and things that have have actually happened now I'm going to take an extra minute because I think this is important because a lot of people point out to me that you know Nowadays in this legal market for cannabis the potency of some of these things are really high Again apologizes. I can't eliminate all these words from my vocabulary So indeed, you know, there are products now Where the cannabis is Getting close to 20% on a regular basis. There are other products that you can get that are basically distilled versions And you can buy them in 60 80% concentrations And there's a this represents a threat for a lot of people And it represents a threat to Thornton's theory here that prohibition drives things to become more potent But what's really going on here because a lot of people have asked this question because they've been Studying, you know, what goes on in these dispensaries apparently Just for their own justification But let's take a closer look at that well Cannabis is now known as a widespread substitute for hard illegal drugs like heroin So heroin users crystal meth users a certain percentage of them will use cannabis To at least temporarily get off of the harder drugs that they've been using Cannabis is also now a widespread substitute for ineffective Prescription drugs so psychoactive drugs pain drugs relaxation appetite a whole variety of things now people are Using cannabis legally or illegally as a substitute for those prescriptions and also even if you look at the market itself Cannabis is now an eight to nine billion dollar Industry whereas hemp flowers which contain no THC but contain lots of CBD Non-psychoactive is only about two billion dollars. So It's definitely tipped in that direction except when you look at the fact that Cannabis is still six or seven times the price of hemp flowers. So if you look at the actual quantity of This plant that's being transacted in the market and you look at the fact that half of the volume of This new legal market is zero percent THC or Point zero one percent THC That the average potency consumption Since legalization in a lot of these states is actually falling So if you look at this the dispensary shelves and what they're advertising you'd think wow that looks pretty potent stuff, but if you look at the market as a whole and you look at what consumers are actually buying the fact that there's a Heavy consumption in terms of these hemp flowers and CBD oil Which has again no THC that the average potency consumption even of cannabis Has been falling so that too stays in line with The theory of the iron law prohibition so out of time. Thank you very much for your attention