One of the main reasons I love economics—at least the Austrian or verbal-logical variety—is that it introduces an understanding of cause and effect in a world full of the buzz and hum of seemingly unconnected events.
Austrians don’t believe in the sort of prophecy that the ancient Greeks believed in: divining the future, whether by oracular or econometric means. But they do buy the sort of prophecy that the ancient Israelites believed in: a deeper sense of cause and effect, which allowed the prophet to say, “If you keep doing X, the result will be Y.”
- If you legislate an artificial price ceiling, you will make the artificially priced good scarcer. (Think fuel lines during Hurricane Sandy.)
- If you legislate an artificial price floor, you will create a glut. (Think minimum-wage laws and unemployment rates.)
- If you inflate the money supply, prices will rise wherever the new money’s earliest receivers choose to spend it. (Think dot-com and housing bubbles.)
Here’s one I learned later than the others:
If you prohibit a drug, the potency of that drug on the black market will increase.
In their book Tariffs, Blockades, and Inflation: The Economics of the Civil War, economists Mark Thornton and Robert B. Ekelund, Jr., call the more general version of this law the “Rhett Butler effect” after Margaret Mitchell’s fictional blockade runner in Gone with the Wind (famously played by Clark Gable in the 1939 film version):
As the blockade became more severe and the relative costs of blockade-runners adjusted to the constraint, the price of luxuries relative to necessities fell within the South.
In other words, when a blockade raises the risk and the cost of the movement of goods, the return on transportation has to rise to compensate the transporters (less politely known as smugglers). In peacetime, it might be profitable to carry staples such as wheat, high-bulk commodities like coffee, or heavy industrial goods such as steel. But in the context of the North’s blockades against the South, blockade runners could profit more from delivering smaller and lighter-weight luxuries to Confederate ports. The South thus found itself flush with things like “bonnet ribbon, playing cards, corset stays and . . . all kinds of personal items.”
Thornton applies the Rhett Butler rule to other government prohibitions. When the Eighteenth Amendment outlawed alcohol in the United States, it raised the cost of every truck- or boatload of beer. Smuggling hard liquor delivered more bang for the buck. Thornton claims that Prohibition turned a nation of beer drinkers into a nation of high-octane boozers.
In contrast to the black market—where illegal drugs get ever-more potent—the legal and socially sanctioned drug markets produce ever-softer varieties: light beer, wine spritzers, hard lemonade, decaf and half-caf coffee. I remember 1970s subway ads all over the place for light cigarettes—filtered, milder, lower-tar—back when tobacco was less regulated and more socially acceptable. The market still provides grain alcohol, 101-proof whiskey, espresso, and extra-strength headache pills, but diverse demand prompts producers to offer a full range of potencies to satisfy all types, from hard partiers to weekend socializers to middle-class working parents who just want a gentle pick-me-up or calm-me-down at either end of the day.
The Rhett Butler effect makes sense of the ongoing purification of heroin and cocaine and the soaring strength of marijuana over the years. One irony is that the Just Say No crowd in the 1980s was issuing dire warnings to the Boomer parents of us Gen-X teens: The pot your kids are smoking isn’t the mild herb you remember from the 1960s; this stuff is a real drug!
At the time I didn’t understand that it was the War on Drugs itself that had made the pot more powerful. I assume the drug warriors didn’t appreciate that irony either.
So with Washington and Colorado voters making theirs the first states to legalize marijuana for adults over 21, Rhett Butler would predict a reversal of the pot-potency trend. And indeed, that’s exactly what Slate writer Emma Marris reports in her March 20 article “Not That High”:
My brother is a weed scientist. . . . When I tell people about [his] job—that is, when I tell people who are roughly in my demographic of thirtysomething and fortysomething parents—I nearly always get the same response: “Really? Can he score me some weak weed?”
In an article that is all about how the legal market is about to produce mellower strains of marijuana, the author completely misses the boat on the Rhett Butler effect:
Clearly, there’s a market segment out there that isn’t being catered to by the dope industry. And these relatively affluent customers want something more like a glass of wine at the end of the day.
So why, Marris asks, is dope so strong?
Because plants with big, strong buds maximize the basement grower’s profit.
True enough, but why does that concept only apply to illicit weed farmers? Don’t above-board operations care about maximizing profits?
Plus, the people who grow it and sell it also smoke it, and they’ve got high tolerances and a deep fondness for its effects. They like it strong.
Oh, so it’s cultural!
I once heard an archeologist criticizing his colleagues for attributing “ritual significance” to anything whose purpose they didn’t comprehend. Understanding cultures may be critical to understanding the world, but I think modern subculture is to many armchair social scientists what ritual is to some archeologists.
As soon as you hear that “there’s a market segment out there that isn’t being catered to,” ask yourself what government intervention into the economy is causing the apparent market failure. That approach will serve you well whether you’re talking about gasoline after a hurricane, desperate and willing people who are unable to find honest employment, or people from the PTA who wish they could score some milder stuff.