Should the government invest more in combatting supply of illicit drugs or the demand for illicit drugs? The answer lies in price elasticity of demand.
A. Introduction: What has price elasticity got to do with defeating drug consumption?
Have you considered why governmental efforts to restrict supply of drugs are sometimes less effective than reducing demand for drugs?
Every year, the U.S. government spends $10 billion or more to intervene in the market for illegal drugs like cocaine, heroin, and marijuana. Most of this money is spent on efforts to restrict the supply of drugs. However, many economists argue that society would be better off if antidrug efforts were shifted from the supply side to the demand side of the market.
Why? The answer hinges on the price elasticity of demand for illegal drugs.
For students who do not take economics as an academic subject, the price elasticity of demand can be loosely defined as the sensitivity of demand in response to changes in price. So, if the price elasticity demand of a particular good is low, it means that the market's demand for the aforementioned good is rather insensitive to changes in price. Specifically, a one percent change in price will result in less than a one percent change in quantity demanded.
B. Explaining price elasticity of demand and supply in the drug market
As demand for addictive drugs are inelastic, that is a demand insensitive to price changes, a decrease in supply will raise prices of the drugs (thus raising revenue of drug sellers) whilst decreasing quantity of drugs demanded marginally.
In contrast, the effects of reducing the consumer's/market's demand for drugs whilst leaving supply of drugs constant are much more pronounced. Not only does reducing the demand for drugs decrease drug prices (thus reducing revenue of drug sellers), but it also reduces quantity of drugs demanded to a much greater level.
The same logic, based on the inelastic demand for illegal drugs, has led many economists to advocate the controlled legalisation of most currently illegal drugs. Others advocate a shift of emphasis, away from decreasing supply and toward decreasing demand. This decrease in demand can be achieved with anti-drug campaigns, or higher quality education and a wider, cheaper access to quality rehabilitation services.
C. Qualifying this economic observation with a political/governmental perspective.
Does our discussion above then suggest that legal and political/governmental efforts at reducing drug consumption are completely ineffective, OR always more effective than governmental investments in reducing consumer demand for drugs? Not necessarily.
Let's consider some statistics from Singapore's top-down approach at combating drug consumption: Singapore’s anti-drug strategy has worked phenomenally where it has one of the lowest rates of drug abuse in the world: 30 opiates abusers per 100,000 people, compared with 600 in the United States. In the 1990s, Singapore arrested more than 6,000 drug abusers annually. By 2016, this number had gone down to about 3,000. Singapore's extraordinary ability to restrict the supply of drugs to the local populace is unparalleled in the world thanks to its good governance, strict drug laws (or rather, draconian drug laws, depends on who's perspective you're taking), and effective law enforcement. That is to say, with high degrees of effective law enforcement and state control over borders, restricting supply to counter drug use remains a viable option for countries with good governance.
However, such an extraordinary ability to restrict supply of drugs is not possible or impractical for most countries. This is especially so in considering governments which have to deal with a larger territorial space, where larger borders and a large populace requires a large policing force, and thus, large budgets. As such, these limitations inhibit a country’s ability to provide such extreme efficiencies of law enforcement as in Singapore, where smaller borders can be controlled much more effectively and tightly.
Closing words
Fundamentally, each country's governmental decisions and stances in their drug-use policies/laws are informed by their understanding of their domestic illegal drug markets, and their priorities of governance. Do the benefits of investing in reducing consumer demand for drugs outweigh the benefits on allocating more funds towards law enforcement, and which option is more feasible/realisable for the state?
References:
Hall, Robert Ernest, and Marc Lieberman. Microeconomics: Principles and Applications. 5th ed, South-Western, Cengage Learning, 2010.
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