MALAYBALAY CITY (MindaNews / 14 Sep) – We saw how drug addiction affected our country in terms of its effect on the youth, ruined relationships of families and divided communities. The threat of illegal drugs is a menace to development. It is counter-productive for most of us. It has to stop.
Yet, apparently, a few are amassing billions at our collective expense. While we see, feel and hear the misery brought by drug addiction, we also know that somewhere, somehow some people are earning from their illegal and criminal acts.
In the lens of economics, the illegal and criminal are minimally included in national product accounting like the Gross Domestic Product (GNP). They form part of the underground economy. Yet, governments from the national to the local, spend precious public funds to try to address the consequences of this underground economic phenomenon.
Consequently, however, the drug problem causes government spending on enforcement via the Dangerous Drugs Board and the lead enforcement agency, the Philippine Drug Enforcement Agency, over the years, and recently through the Philippine National Police.
They call it a national and multi-partite effort with the provisions of the Comprehensive Dangerous Drugs Act of 2002.
The law orders that “the government shall pursue an intensive and unrelenting campaign against drugs …through an integrated system of planning, implementation and enforcement of anti-drug abuse policies, programs, and projects.”
PDEA alone in 2012 got an allotment of P754.2 million. That’s billions in years.
Probably, millions of intelligence funds have been allotted for the complicated effort to stop drug trade and drug use.
Over the years, government administrations have tried to stop the problem. Yet, it appears that only the political will of the present administration has shown so much form and noise.
Because of the forceful policy on drug traders and users, there is so much threat, fear, if not gore, around. There is so much perception that the horror produced by enforcement will cut the drug supply – decrease drug use – increase personal and national productivity, so we all have a happy day.
This reasoning has popular appeal. People gravitate to the growing count – from number of “surrenderors,” to how much total value of drugs seized, and many other counts of sorts. We can’t forget the count, 2,000 so far, of those slain through extra-judicial killings (EJK), which is also one of the arguments against the government’s campaign.
I tried to integrate this social reality in the Microeconomics class.
I have used a simplistic supply and demand analysis of the situation, as used by economist N. Gregory Mankiw. This emerged from our lesson on effect of price elasticity of demand to revenue.
For illustration’s sake and to touch base with social realities, we used the anti-drug campaign policy of the government to assess its impact to the economy at micro level, revenue of producers of drugs.
The analysis is basic: revenue is assumed to be a product of the quantity sold of the commodity and the unit price of the commodity. So if a producer sold 30 units of a commodity that will cost P200 each, the revenue is P6,000.
There can be two possible options of political decisions that can be used to analyze the situation. (Just to clarify, however, all political decisions are economic.)
One policy is to increase effort in drug prohibition, the option for enforcement targeting the supply-side of our “supply and demand” analysis. The other is to increase budget for education, so that consumption for drugs will go down, the option targeting the demand-side of the equation.
In both options, government will have to shell out funds to achieve the same goal of solving the drug problem.
In increasing effort and budget for enforcement, the result is cutting supply for drugs. With more checkpoints and raids (and killings?), the flux of drugs in the market will be cut down. But using basic law of supply and demand assumptions, one of them “holding other factors constant”, this also means increased price of illegal drugs. With stricter enforcement, assuming demand will not go down because of addition, contraband can still be delivered – with additional cost for, say, bribe and more security measures.
So there are two effects of the policy: one is a cut in the spending for drugs or revenue of suppliers as a result of the decrease in quantity they are willing to sell due to intensified enforcement.
The second result is an increase in spending or revenue as a result of an increase in the price.
Mankiw suggested that the demand for drugs is not affected by increase in price in contrast to the basic law of demand that says: quantity demanded of a commodity decreases if price of the commodity will increase, holding all other factors constant.
Why? Use of drugs is assumed “addictive” so people who are hooked to it will do everything (including committing crimes) to get the substance.
The next question is which of the two effects produce greater revenue for traders (or greater spending for consumers)?
Mankiw’s illustration showed that because of addiction, increases in price will not affect demand for illegal drugs. Economics call it price inelastic demand.
So the effect of greater effort/budget in the supply side through intensified enforcement is greater spending for illegal drugs.
This is not a popular outcome. Most people expect that “less supply” means less spending. Of course this does not mean we don’t want to stop drug criminals.
The other policy that government can take is on the demand side – reducing the demand by increased effort and budget for education against illegal drugs. Education is expected to reduce the demand for drugs and as a result will decrease total spending on drugs.
An informed and educated consumer, who knows that drugs can destroy the body, relationships, productivity at the personal and the social levels, is assumed to have lesser likelihood to buy drugs. Thus, the decrease in demand.
If we were to take-off from this simplistic discussion on the anti-drug campaign of the government, economically the sound policy to pursue is to intensify efforts to educate citizens. This will address the demand side – the illegal drugs market – the youth and all. This also appears to be a peaceful way.
The present dominant action to suppress the supply side, ironically could work otherwise. It could mean making drugs more in-demand and so greater revenue for producers and traders and more spending by the citizens and the government.
I’m sure not everyone will agree. What we see is that people seemed convinced the supply side action is working. So far, we have not heard of any sign of the demand side option being taken.
(MindaViews is the opinion section of MindaNews. Walter I. Balane teaches journalism and economics at the Bukidnon State University and manages the university’s radio station.)