Lessons in Narconomics

The Economist has a fantastic piece this week discussing one industry that has thrived throughout the Great-Financial-Oppression (or whatever we’re calling it these days). The Mexican narcotics industry.

America cut its [cocaine] habit by about a quarter between 2006 and 2010… But the cartels have been nimbler than legitimate businesses in switching to new markets.

The drug industry’s flexibility is partly due to its exemption from import duties. Whereas legitimate Mexican traders have free access to America and Canada via the North American Free-Trade Agreement (NAFTA), drug smugglers are granted tariff-free entry to every country in the world thanks to the Single Convention on Narcotic Drugs, which prohibits the regulation or taxation of their product.

When free trade prevails, everybody wins

Get it? The invisible hand promotes a self-regulating marketplace. The weaker drug cartels do die off (literally), but the government does not bail them out or provide insurance to their depositors. Only the most flexible and efficiently-run cartels survive, and they are not shy about expressing gratitude to the communities that made their success possible. Drug cartels make huge donations to police and politicians. This church, for example, was donated to the village of Tezontle by the Zetas.

A beautiful chapel in Tezontle, courtesy of the Zetas
Donated by Heriberto Lazcano Lazcano (leader of the Zetas)

Narconomics –The Economist