 OK, let's get started, ladies and gentlemen. Thank you for coming to my class this morning. In the schedule, the class is how we won the drug war, a little overly optimistic misinterpretation of what I told them I was going to be speaking about, which is why we are winning the drug war. But I am very optimistic about the prospects for ending the war on drugs. And for some reason or another, I always have been. And I've been writing about this subject for 30 years now. And 30 years ago, it seemed very, very bleak. But from the very beginning, I always understood that war on drugs to be an irrational type of policy that was doomed to failure. And I'm going to talk about the war on drugs. But I'm going to begin with the way in which societies change. And basically, there is, in some sense, the will of the people that really does matter. No government, no state can maintain its power without the majority of the people going along with the state, not in active opposition. Once a certain crucial number of people in a country stop believing in the state or stop believing in a certain policy, that's when things actually change. And so how do we get that kind of change? How do we get that ideological change? Well, basically, thinkers from the Austrian tradition have always believed that you have to have science. You have to have a logic. You have to have a consistency to your point of view. And you have to be able to demonstrate the inconsistencies and the failures of the view that you're actually opposing. So basically, it's having science plus experience that leads to changes in ideology. And that's basically what we're doing here in general, is that we're showing you Austrian economics, the science of economics, economic theory, and its logic. And you're not really required to know every single step along the way. Like you're probably thinking, I really need to go back and re-listen to that lecture by Jeff Herberner, because I didn't get every single step. You don't need to memorize and know word for word, line by line, those complex processes of logical deduction. But you have to be exposed to it, and you have to at least see the logic in it. So what we're all about here is Austrian economics, and then adding that historical experience to reinforce your understanding of the differences between the market economy and state action. And I've listed some historical experiences here, some of them better illustrations than others. But basically, what we've got here is a long period, many decades long, where our experience, the historical information, backs up what Austrian economists have been saying for 165 years. West Germany and Japan after World War II, their economies were completely obliterated, and all of the government regulations and taxes and all price fixing and all that stuff was also wiped out. And West Germany and Japan soon became the fastest growing, some of the largest and most efficient economies in the world. We can compare North Korea versus South Korea. You've probably all seen that satellite image of the Korean Peninsula at night, and most of South Korea is all lit up with lights, and North Korea is almost completely dark because they don't have electricity or lights. They're so poor. The difference between East Germany and West Germany, the difference between Hong Kong and Taiwan versus Maoist China, the difference between Maoist China, where basically you had 700 million people starving to death by and large, versus modern China, which has now become, at least in nominal terms, the world's largest economy. You go down and see the breakup of the Soviet Union and even marginal changes like Margaret Thatcher's changes in the UK economy, Ronald Reagan's marginal changes in the US economy, the history of Chile in South America, and the history of Sweden, which was one of the most wealthiest countries in the world. And then they adopted state socialism or democratic socialism, and they soon sank to the bottom of European living standards. And in the 1990s, they had to reform themselves. So it's this kind of historical information that backs up the science of Austrian economics and buttresses libertarian ideology, the belief in a free market system and a free society. So in terms of why we are winning the drug war, where are we now? Well, this is widely known, but we'll go through it anyways. Recreational marijuana has been legalized in several states, Colorado, Oregon, Washington, Alaska. Medical marijuana has been legalized in over 20 different states. Marijuana has been decriminalized effectively in many other states, including California. Marijuana as a legal and police issue has been reprioritized in many jurisdictions, for example, in Philadelphia, the police of Philadelphia, Pennsylvania, have basically been told to make recreational marijuana consumption their lowest priority. As a result, the number of arrests has fallen tremendously. And then Portugal decriminalized all drugs. So whereas the good news is mostly in the category of marijuana, the country of Portugal decriminalized all drug use, including heroin, cocaine, morphine, et cetera. So if you were caught with a small amount, the penalties were rather trivial, at least on the first offense. If you were continually getting caught with even small amounts, eventually you'd have to see counselors and medical counselors and so on. And Portugal has gone from a country that really had a tremendous drug problem, had a lot of overdose deaths. The addiction rates were very high. The transmission of diseases by dirty needles was very high. And now Portugal, despite decriminalizing and making it essentially legal to consume these drugs, now represents one of the best cases in Europe. They have the lowest overdose death rate in Europe. And they have one of the lowest disease transmission through dirty needles rates in all of Europe as well. And basically, with all these experiments, and some of them were faulty admittedly, there were no disasters. Colorado did not implode. I've looked at all the social indicators in terms of crime, drug use, addiction, problems at school. There's like 20 of these social indicators that are related to drug use. None of them exploded. Most of them have actually decreased since marijuana legalization there. So no disasters and mostly improvements. There was a study on needles used to inject dangerous drugs like heroin. And they looked at countries from around the world. And there were some countries that offered free needle exchanges or allowed you to buy needles at the pharmacy. And there were other countries where needles were basically prohibited. You couldn't buy needles. You couldn't be prescribed needles. If you needed an injection, other than some cases, basically you were prohibited from accessing needles effectively. And what they found was that the rate of HIV infection and other blood diseases was very low in countries that provided free needle exchanges and was very high in the countries where they were prohibited. So the historical information, the recent information about moving in the direction of legalization and away from prohibition has all been good. And the reason that I'm optimistic about further gains in towards legalization, I guess there are several of them, in the United States, for example, people who now the majority of Americans support legalizing recreational marijuana. About 85% of Americans support legalizing medical marijuana. And if you look at the demographics within those polls, what you find is that young adults overwhelmingly support both legalizing medical marijuana as well as legalized recreational marijuana. And basically all the young categories support legalization. Once you get up into the 55 to 65 group, it's about split 50-50, and 65 and older still support marijuana prohibition, which means that we're going to make progress towards legalization one funeral at a time. And other information that I have that is not really publicly known, but some of you may be aware of this, is that in many European countries and some areas of South America, and I imagine elsewhere, where I don't have contacts, is that it's a well-known secret that the police are not interested in busting people and arresting people for small amounts of recreational purposes, particularly of marijuana. So it hasn't been publicly reprioritized, but effectively it has been reprioritized that marijuana consumption is their lowest priority. And another thing that isn't widely known is that the United Nations is going to be reissuing a statement regarding global drug policy. And the US has been able to strong arm the UN into organizing the worldwide war on drugs. But it's my understanding that in 2016 they're going to rewrite those policies and those guidelines. And it's going to be a completely or hopefully a completely different picture that instead of prohibition, they're going to go in the direction of harm reduction. And that's effectively going to cut loose a lot of these European countries and other countries from around the world who do want to change their policy but also want to comply with UN guidelines. OK, now the ideological support for prohibition comes from, of course, prohibitionists, people who believe that consuming certain drugs is immoral and therefore should be stopped, as well as economists. And they're modeling of the market for illegal drugs. Historically, economists have supported the war on drugs early on. And the alcohol prohibition in the United States economists were strongly in support of alcohol prohibition. It's only been in recent years where some economists have come forward with at least recommendations for harm reduction rather than prohibition, which would involve legalization and decriminalization of certain drugs. But in general, the prohibitionists and historically economists have believed that this following argument. First, prohibition increases the price of the product it's placed on. You make something risky in the sense not of risking to use but risky to being captured by the authorities and put in prison or heavily fined. So prohibition increases price. Higher price reduces consumption. Reduced consumption is a good thing according to both of these groups because it reduces addiction, violent crime, property crime, corruption, and lots of health problems associated with alcohol and illegal drugs. And if you pose the question about legalization to these particularly prohibitionists and drug war bureaucrats, they would see legalization as an utter disaster. And I've come across that phrase in the literature at least a half a dozen times. And I also, last summer, I was invited to Oxford University for the Oxford Union debates. And they were debating the question of should we end the global war on drugs? And I, of course, was on the legalization side. The other side had a social worker dealing with illegal drugs and a drug war bureaucrat from the United Kingdom, government, and a couple others. But the bureaucrat actually made the argument that if we legalized drugs, that very soon that everybody in the UK would be addicted to heroin. Everyone. I thought that was kind of a remarkable argument. And it's the type of argument that you see consistently from the prohibitionist side. And you can see the sort of arrogance and ignorance of the prohibitionists when you go back and look at some of the justifications for the war on drugs. The Harrison Narcotic Act, which made opium, heroin, and cocaine illegal, was based on the notion that, well, basically it was an attack on African-Americans in the United States, as well as Chinese-Americans in the United States. And they said that because of morphine, excuse me, because of opium that white women were cohabitating with the China men, and that cocaine made African-American males in the South impervious to bullets and wanting to rape white women. So it was blatant racism and discrimination. The Marijuana Tax Act also noted that marijuana was being used by illegal Mexican immigrants. So this is something that's old hat, really, and that marijuana would cause you to go insane and die, and that if you lived, that you would soon progress to cocaine, and heroin, morphine, opium, be your own personal pharmacy, basically. And some of this was based on the movie, Reef for Madness, which I've never actually been able to watch the whole thing. It's pretty funny, but it's considered one of the worst movies of all time. But it's all about scaring people. It's just one puff of marijuana and the sex, the guns come out. People are shot. People are raped. People run people over in their cars. All in very quick succession. The Comprehensive Drug Control Act in 1970 was sort of a reorganization of the drug war at the time with the idea of Nixon declaring his war on drugs really for the first time using that phraseology and also sort of a way of attacking the hippies who were overrunning America and were in defiance of American values. So all of these laws were based on the idea of outrageous claims against minority groups, basically. And the vast majority of Americans were easily fooled by this propaganda, primarily because it was outside of their experience. They didn't have anything to tell them otherwise because a lot of the use of these drugs was largely restricted to small minority groups. And as a result, the average American was easily fooled and taken in by this propaganda. They had nothing to lose. They didn't like the people that were using these drugs anyways. Now, the average American was using narcotic drugs. 1 quarter of 1% of Americans were addicted to something stronger than marijuana. Most of those people were addicted intentionally. In other words, they had arthritis. They had back issues. They had cancer. And the only thing that would help them would be something like heroin or morphine or cocaine. The marijuana gateway theory is the idea first proposed by Harry Anslinger, who was in charge of the federal government's war on drugs after the passage of the Marijuana Tax Act in 1937. And he went up to testify in front of Congress, repeating the claim that marijuana would make you go insane and then die. And then a doctor got up from the American Medical Association and said, well, Mr. Anslinger, that's not actually true. We've been using this product in the medical profession for hundreds of years. And no one, to this point in time, has either gone insane or died from this product. So Mr. Anslinger got back up and said, well, that may be true. But if you try marijuana, you're going to very soon want something stronger, like cocaine or heroin or morphine or opium. And hence, the gateway theory that marijuana was a gateway to harder drugs was born. Fortunately, social scientists have completely debunked this gateway theory. So on any one of, I think, five different grounds, there's no connection, there's no logical connection of this gateway theory. Physiologically, psychologically, the only thing that does connect marijuana with other drugs is the fact that marijuana is illegal. So once you tried marijuana, that means that you know somebody who sells illegal stuff. That's the only valid connection. OK, so let me look at some of the science of prohibition. OK, and this is a simple, supply and demand chart of a product. It could be marijuana. It could be cocaine. It could be anything. And basically what you have here, the red line reflects the demand for this product. The blue line reflects the supply of the product. The equilibrium price is going to be $30. And this would be the equilibrium quantity. What prohibition does is it makes supplying the product more difficult. So as a result of prohibition, the supply curve shifts, making it more difficult. And the resulting equilibrium shows that the quantity has fallen and the price has risen. That's what the prohibition is saying. That's what actually happens in real life. We should begin by noting this quantity declines. What does that actually mean? Who's actually stopping buying this product because it's prohibited? Is it somebody who's having a hard time addicted to this product? Or is it going to be somebody who is not really addicted, doesn't really consume much of it, and is afraid of getting caught? In other words, a law abiding citizen who's not a drug addict or anything of the kind. Well, that's the people who cut back. The addicts don't cut back. So what prohibition does is it opens up. This is the cost, roughly $25. And this is the new market price, roughly $35. So it cost you to produce the product even less than it did. And now the price is greater than it previously was. And the dealers don't have to pay a tax. There's no extra expense. You just incur the risk of being caught. So this creates extra profits for drug dealers. Prohibition increases the profitability in terms of revenue from dealing drugs. So you've created an incentive for drug dealing. And if you make prohibition even more stringent, you drive the price higher, you drive the cost of production, the basic cost of production lower, and you open up this enormous new profit. It's really revenues because you do face risk. The iron law of prohibition, I'm not really going to go through the mechanics unless we can get to it later. But this is based on what's called the Elchin and Allen effect. You can look that up on Wikipedia. And basically what the Elchin and Allen effect explains, well, it all started with a letter to the editor to the Seattle Times. In the state of Washington, they grow a lot of apples. And this lady in Seattle was mad that there were no good apples in the grocery stores in Seattle. All the good apples had been shipped out. And the only things that were left were gnarly, oversized, undersized, odd-looking apples. Well, Elchin and Allen responded to this claim by this woman by showing exactly why the good apples are shipped out and the bad apples stay where they're produced domestically. And basically it's because of the transportation cost. It's expensive to ship apples from the state of Washington to say the state of Alabama. And so if you're going to incur that transportation charge, you're going to send out your best stuff. This is why the best lobsters from Maine are shipped out and none of the bad lobsters are shipped out. It's why the best potatoes of Idaho are shipped out and the bad ones are consumed locally. I was in Idaho for one night and ordered a steak and baked potato. And the baked potato that they brought out was like this big. And I thought that that's the largest potato I've ever seen in my life. It was also one of the worst potatoes I've had in my life because it's really hard to cook a baked potato that's that big. So Elchin and Allen have established why the good apples are shipped out and why the bad apples stay in the domestic market. But this can be applied to illegal drugs as well. And as a matter of fact, at the lower part of the example here, marijuana in South America, the price of a high-potency version is, say, $10 a pound. The low-potency version is about $5 a pound. And so you can get two pounds of the low-potency for one pound of the high-potency. Now, if you go to marijuana in South Carolina, you have to add about $1,000 to the price of a pound of marijuana. The risk and transportation charge from getting from, say, Columbia, South America to Columbia, South Carolina says roughly $1,000 per pound. Well, if you're going to go to the expense and the risk of running marijuana from South America to South Carolina, the economics dictate that you purchase the high-potency version in South America and bring that version to South Carolina. So the stronger the prohibition, the stronger and more potent drugs become. When I did my dissertation, the data that I had illicitly gotten from the government showed that from the early 1970s, marijuana was about 0.4 of 1% potent. By the mid-'80s, marijuana was 4% potent, or 10 times what it was in the early 70s. Today, the potency of marijuana averages around 10%. But most of the market has turned away from marijuana and has moved on to stronger things like cocaine, crack, heroin, and crystal meth. And in more recent years, they've turned away from those substances to artificial chemical versions of opiates that are much more dangerous. And actually, they are deadly. They're very destructive. So as we've seen, the prosecution of the war on drugs has only led to stronger, more dangerous drugs. So we admit that drugs are, right now, very dangerous. But they're dangerous because they're illegal and that most of the market has been pushed away from drugs that are less addictive and less harmful, like marijuana. And it's been pushed in the direction of things that are highly potent, very small, such as heroin, and such as these synthetic opiates. So prohibitionists say drugs are dangerous. That's why we need to prohibit them. The economics dictate that the drugs are dangerous because they are prohibited. And then when the prohibitionists and the economists look at this market, shifts supply, raise price, decrease quantity, that's price theory. We've raised the price. We've reduced the quantity. The Austrian looks at this situation and says, the price is really important, but it's not the only thing because everything else about this marketplace has changed, and none of it shows up on a supply and demand graph. The way it's produced, where it's produced, who produces it, how is it processed, how is it packaged, what information does it have on it, what are the company's standards and policies, how is it distributed, how is it sold at retail? Everything about a prohibited product changes, and it changes all for the worst. And much of this can be seen here regarding the legal and economic framework. There's no rule of law in a prohibited market. Violence has to be used to enforce contracts in sales territories. That should be addiction, not additions, but people do commit crimes to finance their habits. And when I was over in Oxford, I was talking to one of my team members, and he said that it occurs a lot where people, addicts, will go into a grocery store, fill up their buggy, and then just simply go out, not pay and just run out of the store with a cart full of food. And they're using the food to sell the food, not to eat the food, in order to finance their habit. Causes bribery and corruption. It undermines civil society, which in my view is everything that's non-government, such as organizations, churches, the family, and so on. And it stymies economic development. So when we look at areas where the drug trade is most active, we also find economies which are actually regressing in terms of economic development. And the two most noteworthy of these are urban areas in America and the countries of Central America, where basically civil society and government have broken down into chaos, which is one of the reasons why this past summer, thousands of Central American children, as young as age eight, would make the difficult journey from Central America to Mexico to try to get into the United States, because things were that bad. If you can imagine a parent sending an 11-year-old on a 1,600-mile journey, in many cases, on their own or with a bigger brother or cousin. And also, the war on drugs helps finance terrorist groups and civil wars. So again, it has a tremendous negative effect throughout the economy. And it negatively affects everybody, either directly or as a taxpayer, because this war on drugs is very expensive. The conclusions of the Austrian analysis is that there are no benefits. So economists very often are called on to produce cost-benefit analysis. What are our benefits and what are our costs? In my view, there are no benefits. There's basically no benefits. Admittedly, there are going to be a few people who are discouraged from getting into the illegal drug markets because of their concern about a criminal record, their image, and so on, or that their parents might find out, and so on. But these people are never going to be really troublemakers as drug consumers. So it's all cost and no benefit. And the costs of the war on drugs are much larger than is typically estimated by social scientists. The good thing, as I pointed out in the demographics issue, is that more and more people are coming to understand the fact that the war on drugs doesn't have any benefits. It's systematically destroying people's lives and it's not helping anybody. And it's creating new drugs every day that are more dangerous than previously existed. And people are coming to understand that. Most people, I think, have had direct negative experiences either themselves or someone in their family or someone in their friend groups who have experienced severe negative consequences as a result of the war on drugs. And more importantly, they understand that legalization would not be an utter disaster. Because, and this is something I've been working on lately and continue to do so, in the absence of the war on drugs, that doesn't mean there are no constraints. There are still lots of constraints that the free society imposes on drug abuse. So it's not like we get rid of the war on drugs and there's no constraints on people's behavior. If we legalized marijuana in Alabama, that does not mean that Lou Rockwell is going to let you light up a joint during my lecture. So that's not going to happen. So churches can prohibit certain types of behavior on their property. Lou Rockwell can prohibit certain types of behavior on his property. If you go into a convenience store and it says no shirt, no shoes, no service, they can enforce that on their customers. And they basically have to. Because if people start not wearing shoes and cutting their feet and suing the convenience store, the convenience store's insurance company is going to come down hard on them. So it's not just like there's no constraints and, oh, I can impose constraints if I want to. No, there's systematic reasons why there are going to be systematic constraints on people's behavior. Drug users, alcoholics, typically don't progress in the job market. They tend not to get the opportunities to advance and get promoted. So there's an economic cost to bad behavior systematically throughout the free society. So that's a very important point to remember and to make is that prohibition is not the only constraint. And in a free society with no prohibitions on consumption, there would be a whole host of existing and new constraints on people's behavior. OK, we've got a few minutes for questions. Yes, sir? Do you feel like the rave act should be amended? The rave act, you know, is the reducing Americans' vulnerability tax. The C Act has led to such new designer drugs, such as ethylone, ethylone, PMA, PMMA, has led to more overdoses in what has been sold as molly or ecstasy. Instead of pure MDMA, which has been shown in other tests to be much cleaner and safer to many users. Oh, yeah, I mean, I definitely think that that should be amended. And actually, there's been a lot of evidence to suggest that pharmaceutical ecstasy is a highly valuable drug and can be used to address a whole number of different issues. And that's exactly the type of thing that I'm talking about when you prohibit something that black market will find its way around those prohibitions and the results will be much more costly. So that's one of the first things that's going to fall after marijuana, maybe even in the process of it. Because a lot of people who used to be opposed to legalized ecstasy have now found that, wow, there's a lot of really important uses for it and medical uses. And the effect of the prohibition has been entirely negative because of these substitutes. Yes? Is there a reason why in many states where there's a legalization going that's saying that there's an abstainment, there's still a black market anyway taking their path of proxy, basically taking their own proxy? Yeah, the question is about why is there still a black market in places where the drugs are somewhat legalized? This is really happening systematically. In Colorado, drug legalization has not shut down the black market. And most of the black market is still there. And a lot of it has to do with the fact that, well, you've got all these rules and regulations and taxes and licensing that you have to comply with. And plus the fact that under these restricted conditions, the price that legal marijuana is being sold at is still pretty high. And so there's still that profit margin there for the illegal growers. And so a lot of it has to do with the fact that we haven't legalized fully enough. And as a result, the black market continues. Just to make sure I agree with everything you said, I'm a libertarian, but I don't mind saying that if we legalize the drugs, the queen knows what you'll do with the drugs today. We won't do other types of real crimes like rape, but how would you address this question? Yeah, what if the black marketeers turn to property crimes and violence and things of that nature? That's a distinct possibility in the short run. We have seen evidence that the bootleggers of the 1920s and 1930s, when they were forced out of those bootlegging jobs, that they did turn to robbing banks and things like that. But it was transitory. It was only temporary. And so if we truly legalize a marketplace and drive out all the black market people, there is going to be that transitory problem that they'll turn to other forms of crime because they've learned to be good at crime. They've learned how to use a weapon. They've learned how to be secretive. And so we should expect some of that to happen. But the overwhelming factor is going to be that if we cut law enforcement loose from having to prosecute the war on drugs and we instead prioritize them to protect property and to protect people, that that type of transitory crime should be quickly suppressed. One more? Oh, no, we're out of time. Thank you very much.