Mexican marijuana traffickers: More puny than you think

Several contributors here just attended APPAM, the annual meeting of public policy researchers. I was a discussant for a series of RAND corporation papers by my long-time colleagues Jonathan Caulkins, Beau Kilmer, Rosalie Pacula, Brittany Bond, and Peter Reuter.

It’s never a good sign for a discussant when each paper arrives individually delineated into many chapters. I can’t do justice to their richness. You should check out the original sources here and here.

These voluminous papers ostensibly concerned California’s Proposition 19. They really provide a fantastic account of what we know about the American marijuana market, and the role of Mexican drug traffickers in serving it.

If you want to get a reasonable ballpark estimate of California marijuana consumption (maybe 500 tons/yr) or the feasibility of imposing a $50/oz tax across jurisdictions, these are the papers to read. These papers are not without humor, as when the authors seek to guesstimate the weight of a typical joint.

Such back-of-the envelope calculations are as inherently limited as they are unavoidable. Proposition 19 might plausibly have lowered marijuana’s market price by 75 or 80 percent. Equally plausible mathematical accounts of market demand derived from our current circumstances yield very different predictions of what such a large price drop would actually do to the number of users, the social harms associated with marijuana use, and the potential to raise money through taxing the product.In many areas, there are simply no data.

Richard Zeckhauser has said that the best tool of policy analysis is long division. The RAND team has taken that to heart. For example:

We calculated the risk a marijuana user faces of being arrested for possession. If calculated per joint consumed, the figure nationally is … one arrest for every 11,000–12,000 joints.

Other calculations are pretty amusing. Many of the numbers you hear from public officials or from partisans on both sides of the isle are clearly wrong. For example, supporters of Proposition 19 have* claimed that Mexican drug trafficking organizations (DTOs) earn 60% of their gross revenue from marijuana, and that these organizations obtain $20 billion in gross revenues from these activities.

The RAND team efficiently disposes of both numbers, and of closely-linked inflated estimates of U.S. marijuana consumption. The inflated consumption estimates are so large that they would require the identified group of past-month users to consume “one joint every two hours for every waking hour of the year.”

Maybe that’s what Democratic staffers have been doing since Tuesday. Generalized, it loses some plausibility. I’m baffled that such numbers are so readily promulgated and repeated by reputable media outlets. It turns out that Mexican marijuana traffickers have gross revenues of $1.5-2 billion, and that marijuana accounts for maybe one-quarter of these organizations’ gross revenues.

For those who are not marinated in such numbers, these are rather astonishing. From an economic perspective, the Mexican marijuana industry is much smaller than the hype on all sides might lead you to believe. An American firm with gross revenue of $2 billion would find itself alongside such titans as Fleetwood Enterprises, Boyd Gaming, and Alliance One International, around number 899 on the Fortune 1000 list. These are perfectly respectable companies. None to my knowledge has required a bailout. They are closer to “too small to notice” than “too big to fail” in the national scene. The entire world of Mexican heroin, cocaine, marijuana, and methamphetamine trafficking, if treated as a single firm, is hard-pressed to match the gross revenue of Wrigley’s gum and Dollar General.

*I should note that these supporters were relying on an official–but dicy–government figure here. h/t Matthew Meyer.

I’m struck that partisans on all sides (not to mention the news media) tend to hype the numbers, to make the marijuana industry seem bigger than it actually is. I don’t mean to underplay the large human consequences of Mexican drug trafficking and drug violence. In dollar terms, this industry is puny by American standards. It’s small by the standards of Mexico’s $1.5 trillion economy, as well.

These basic economic facts provide one reason for optimism in viewing that country’s awful current drug violence. Mexico is not Afghanistan—a country whose economy is genuinely drug-dependent. Eventually, these battles will settle down. Mexican drug smugglers won’t go away. There will always be Mexican drug smuggling into the United States. To survive, these smugglers will learn to behave more like the American Mafia and less like the narco-terrorists further south. Their mayhem is just too costly given what is at stake.