Alcohol and Tobacco: The Purchase Price vs the Full Price

I want to spell out in this post why it might be exceedingly difficult to deter the use of harmful drugs. Spotty but useful information about the market prices of illegal drugs exists, along with estimates of total consumption and social costs. But there are two legal drugs that cause enormous social harms, so I will fixate on them. Alcohol and tobacco are legal, so there is good public information about the amounts sold and the social harms attributable to them. I’ll give away the punchline: the purchase price of these substances is a fraction of the full price, considering that people pay in damaged health and lost productivity in addition to forking over the literal dollar amount on the price tag.

Tobacco

 I’m not doing a thorough cost-benefit analysis, just a quick Googling and some back-of-the-envelope order-of-magnitude estimates. I’m perfectly happy to revise any of the figures I use in this post or redo a calculation with more conservative or favorable assumptions. Everything I have about tobacco comes from this short post by the CDC:

http://www.cdc.gov/tobacco/data_statistics/fact_sheets/economics/econ_facts/

About 264 billion cigarettes are sold each year in the US. At 20 per pack and about $7 per pack, that comes to a total of $92.4 billion in revenues from cigarettes. There are other forms of tobacco use, but as cigarette smoking is by far the most common and the most likely to lead to heavy sustained use and serious health issues, I’ll ignore the others. Tobacco related health costs are about $170 billion and productivity loss amounts to $156 billion. These are mere accounting numbers. It’s hard to say what health costs are faced by the smokers themselves. Perhaps the government pays for half of that $170 billion, in which case you might be tempted to say “So the tobacco users are only saddled with $85 billion in health costs!” However, who pays the actual bills isn’t relevant to this discussion. I’m interested in the question: What are the costs *to the smokers* of their bad habit? Even if that $170 billion is paid in full by the government, those medical bills still represent a lot of suffering and disease faced by the smokers. It’s not as if the expenditure magically cures the smokers’ illnesses.

Similarly for the productivity loss of $156 B. It might seem like this is something that happens to someone else. The employer misses out on the work his sick employee would have done. Or society as a whole misses out on the work not done by sick or dead employees. But that’s a mistake. If you have a bad habit that injures your own productivity, you will see that taken out of your own earnings. Think of people who are too sick to work *at all*, or people whose constant absenteeism catches up to them and they get fired. The CDC is presenting these figures as if they are costs imposed by smokers upon the rest of us, but mostly these costs fall on the smokers themselves. Yes, in the very *near* term your boss suffers if you skip a day of work, but a chronic illness will hit the smoker’s personal earnings by making him less employable.

Anyway, I don’t know how to adjust these cost figures to come up with the cost faced by the smokers themselves, so I’ll use the raw numbers. We have $92.4 billion in cigarette sales compared to $326 billion in smoking-related costs (both annual figures). The non-price costs of smoking trump the price costs, and there is a big enough margin that I don’t think any amount of adjustment will flip that result.

Alcohol

Alcohol also has large social costs, but unlike in the case of tobacco many of these costs fall on third parties. So I can’t just add up the costs and say “These fall on the alcohol users” like I can for tobacco. (Yes, I acknowledge that second hand smoke is a potential hazard to third parties, but according to the CDC article above they are a small proportion of the total costs.) I found an interesting breakdown of the costs in this study, “Economic Costs of Excessive Alcohol Consumption in the United States, 2006.” Unfortunately, this also follows a “strict accounting” approach. Where it says Alcohol Abuse and Dependence costs $10.668 billion per year, it’s literally adding up bills for counseling and rehabilitation. It’s not telling me what I’d *like* to know, which is “the cost of the agony of knowing you’re bad habit has damaged your life.” Notice how the vast majority of the costs are productivity losses. I’ll continue with my argument that the bulk of these costs fall on the drinker.

Once again, many of these costs look at first blush like things that happen to other people, but the $20.9 billion spent on “the criminal justice system” isn’t just a drain on taxpayers. It also represents a person languishing in prison or having his life ruined by a (perhaps deserved) encounter with the justice system. That’s not to say none of that $20.9 billion falls on other people, just that the alcohol abuser feels some portion of that.

Once again, I don’t have a clean way to convert these raw numbers into the non-price cost faced by alcohol users, but let’s just say it’s in the $150 billion per year range, including health, lost productivity, and everything else.

Total revenue for alcohol sales is $211.57 billion according to this article. Now, I’m willing to believe that the vast majority of cigarette sales are to smokers with a serious habit, most of whom are *actually* exposed to all those health and productivity loss costs mentioned above. But that’s not going to be true of alcohol. There are a great many casual drinkers who never engage in reckless behavior, and for whom it would be unreasonable to say, “That beer you’re drinking is contributing $1.70 worth of social costs!” It wouldn’t be fair to blandly state that any and all alcohol consumption is contributing to the total social cost. The costs come from a subset of drinkers who are *problem* drinkers. These are the people who binge drink frequently enough to damage their livers, or whose drunk driving occasionally kills another motorist. I’m happy to use someone else’s estimate, but let’s generously say half of the revenue is coming from heavy problem drinkers, the other from wine and craft-beer sippers. Just as an order-of-magnitude estimate, it looks like the money price of alcohol is trumped by the various health and productivity-related costs. Above I’m getting about $150 billion in non-price costs and about $100 billion in monetary costs (again, specifically for those people who are at risk for alcohol-related health and productivity problems). If I drop $5 on a 40 ounce bottle of malt liquor, I’m spending more like $12 when I factor in those other costs. (On the other hand, if I drop $10 on a 4-pack of craft beers, which I sip at the rate of one-per-sitting, those additional health and productivity costs certainly aren’t relevant to me.)

General Lesson

I don’t think my general point is terribly controversial. My above figures are hand-wavy, but if you think in terms of potential harms and opportunity cost then clearly for many kinds of drug consumption the non-price costs trump the actual price paid at the register (or to the dealer). Some psychedelics, for example, essentially put you out of commission for a full day (though most of these are surprisingly non-toxic, also cheap). And many seriously addicted heroin users spend all day scrounging up enough money to get their fix. (I’m remembering from David Simon’s “The Corner” a recovering junkie giving a speech to a group of other recovering junkies: “We all know that nobody works harder than a junkie!”) It would be silly to talk about the dollar price of these substances when the *actual* price is “a day out of my life” or “a full decade of my life” or perhaps even simply “my life.” 

Given all this, it is ludicrous to think we can change people’s behavior much via drug prohibition. Drug prohibition probably has a significant effect on the market price of the drugs, and adds significant non-monetary search costs in terms of finding a dealer. But the actual money that changes hands is a small proportion of the full price of drug use. People who are willing to pay the enormous health, productivity-loss, and opportunity costs detailed above are unlikely to be deterred by a slightly higher price or a legal slap on the wrist for a possession charge. And the data bears this out. While there have been some economic studies that attempt to determine the responsiveness of drug demand to price changes (these are trying to measure the elasticity of demand for various drugs), the overall pattern of drug use over the decades doesn’t seem to match any simple “price elasticity” story. There are wildly fluctuating patters of use since we’ve collected data on them, where one drug becomes popular then fades away to be replaced by another. Prices for a pure gram of heroin and cocaine have dropped significantly since the 70s, without a corresponding monotonic rise in use rates. (It appears that the demand curve itself is shifting due to cultural reasons and momentary trends, and this shift is more important than momentary movements along the demand curve. I suspect all these econometric studies measuring the price elasticity of drugs are an exercise of mathematical masturbation, given that the dollar price is often a small piece of the full price.) If drug prohibition has any significant effect on drug use, it’s probably because the illegal market makes the drugs so much deadlier, though adulterants and wildly varying dosage. I’m willing to believe that you could deter the purchase of something by attaching a death penalty to it for a few random buyers. Adding harm to drug use raises the cost, so you get less total drug use. However, if you’re careful about accounting for how much drug use is deterred per unit of added harm, you quickly see that this is a losing game (here and here). The total harm is always going up with increasing drug penalties, and it’s because demand is inelastic.

Most people observe these large social costs and they get the lesson completely backwards. They say, “Look at all these enormous social costs! We need to get people to stop doing this!” They should be taking a step back and saying, “Look at the enormous price people are willing to pay to consume these substances. It’s going to be very difficult to deter such an activity.”

The False Positives / False Negatives Trade-off

I’ll try to illustrate the False-Positive False-Negative Trade-off in this post with a basic example. Suppose you have a test that tells you with what probability you have a disease. Such a test is some composite of your medical history, blood and tissue tests, genetic screening, etc. All this information goes into an algorithm, and out comes a single number: “The chance that you have Disease X is 20.6%.” The test is well-calibrated. Of those people who are told they have a 20.6% chance of having the disease, 20.6% have it. (And likewise for 1, 2, 3, …100%.) Given that you have this test, you now have to decide how to act on it. Basically, you have to set an arbitrary threshold: “Everyone with a probability above Y% should be treated as though they have the disease; everyone with a probability below Y% should be treated as though they are healthy.” Even though the test is very well calibrated, any policy of how to act on the test results will invariably worry some healthy people (false positives) and leave some diseased people untreated (false negatives). All you can do is set the value of Y; your task is essentially to manage the number of false positives and false negatives as wisely as you can.

You might respond, “Well, come up with a better test! Come up with something that neatly segregates the population into “100% healthy” and “100% diseased”!” That would be wonderful, but pretend for the sake of argument that we are using all possible information, and the algorithm that gives you your “diseased probability” is optimized to be as well-calibrated as possible. Often in life, we have to make due with limited information in situations when total omniscience would solve our problem. Maybe a better test for this disease will come along some day, but for the time being, we’ll have to make the best we can of this algorithm.

I’ve made up some data. I created a random set of 1001 people whose “diseased probability” ranges from 0 to 1 in increments of 0.001. I then randomly assign each of these people to be “diseased” or “healthy” based on their probability. The disease probability is known (it’s the output of an algorithm we’ve created), but the actual disease status of the person is not. I need to set a rule such as “treat everyone with a disease probability of Y% or greater as diseased, and everyone else is healthy.” So here’s what happens when you vary Y from 0 to 100%:

On the vertical axis we have false negatives. These are the sick people that our selection criterion is missing. On the horizontal axis we have false positives: these are the healthy people we are misidentifying as diseased. There is fundamentally an inverse relationship between the two types of errors. Following the curve down and to the right, you are decreasing the probability threshold (“Y” above) to identify someone as “diseased.” Following the curve up and to the left, you are increasing the threshold.

The problem arises because uncertainty is inherent in all decision-making. How *should* you treat someone who has a 50% chance of having a disease? Or how about a 40 or 30 or 10% chance? What general policy should apply to this very heterogeneous population, with a full range of disease probabilities? Surely it depends on the relative cost of treating a healthy person vs the cost of ignoring a sick one. Some discussions single-mindedly focus on one kind of error and ignore the possibility of the other kind. This is foolish because both kinds of errors are costly. A mature discussion would acknowledge the trade-off and specify where on the curve is the optimal place to be.

Discussions of public policy often miss this point. Suppose you are deciding what the threshold of “reasonable suspicion” is for a police officer to search a car, a home, or a pedestrian’s pockets. Suppose you are deciding which chronic pain sufferers should get strong prescription opioids and which ones shouldn’t, based perhaps on the severity of their condition or the chance that they are “abusers”. Suppose you are setting the standard for when a police officer can use deadly force. Suppose you are deciding which parolees are likely to re-offend and which ones are likely to stay clean, for the sake of sending them back to prison or keeping them on parole. Suppose we have to dole out society’s limited welfare resources to the needy. What’s the threshold for “needy” and based on what criteria? How many guilty men are you willing to leave unpunished to ensure that an innocent man isn’t imprisoned? Whether you have a fuzzy, judgment-based criterion or a hard-coded algorithmic criterion, all these decisions suffer from the false-positive/false-negative trade-off.  With given resources and given information, “make fewer mistakes” isn’t an option. You have to choose which kind of mistakes you are more comfortable with.

Take opioid prescriptions, for example. Maybe you think a single chronic pain sufferer is worth a thousand opioid addictions; in this case you’d choose a permissive standard. The “false positives” (giving opioids to someone who doesn’t need them) are relatively costless compared to the “false negatives” (denying opioids to a real pain sufferer).

For another example that's in recent news, take police shootings. Perhaps you want police officers to be able to defend themselves from an obvious threat, but you also think that police officers assume certain risks by taking the job. There are cases where innocent people are understandably confused about who exactly is bursting into their home in the middle of the night. These can lead to tense stand-offs where an innocent home-owner doesn’t know who’s threatening him and the police don’t know who’s shooting at them. It makes sense that the police should assume *some* portion of that risk, given that sometimes these are completely innocent people (often *not* the target of the raid at all) who the police are charged with protecting. If you force the police to be more restrained in their use of force, it means more cops get shot at but it also means there is more opportunity for the innocent homeowner to realize what’s happening and disarm voluntarily. Less restraint, and you get the opposite. The task here is to set the standard for the use of deadly force, and set it such that you are comfortable with the proportions of both kinds of mistakes. You want to set it high enough that police don’t instantly gun down innocent people at the first sign of a plausible threat, but low enough that people are still willing to endure the risk of becoming police officers. This is a hard problem, and I think many people (probably including my younger self) blow through it without much thought. Of course, “Stop doing no-knock raids” would put an end to most of these volatile encounters, and that’s a perfectly sensible policy solution. Even so, these volatile situations *could* arise during legitimate, routine police work. “Make fewer mistakes” isn’t a policy lever. *Given* the institutions we have, you can only shift the proportion of false positives vs false negatives. Given that both kinds of errors are inevitable, the task, once again, is to figure out which kinds of mistakes you’re more comfortable with (and by how much). All this assumes that we have a policy lever that controls when police fire their weapons during tense encounters. Maybe this sounds implausible, but a liability rule or standardized protocol might do the trick. In the recent discussion of police shootings, much of the commentary proceeds as if all police shootings neatly separate into “plainly 100% justified” and “plainly 100% unnecessary.” Surely no mortal perceives this world with such god-like clarity. Surely borderline cases exist, and the border is probably much broader than a line.

My task here is not to adjudicate any of the policy questions mentioned in the above paragraphs. If it sounds like I’m venturing too strong an opinion, I apologize for the distraction. My much more modest goal with this post is to articulate a trade-off. It’s a trade-off that is crucial to many policy discussions, but often gets completely glossed over. 

Drop Drug Prohibition, Issue Specific Warnings Instead

I’ve looked into the drug poisoning data and the drug use surveys in enormous detail. What jumps out at me is that there are certain risk factors that make an overdose death much more likely. Given this, our policy of general drug prohibition is a mistake. We should instead issue *specific* warnings to people with risk factors, and we should warn against specific risky behaviors.

Age and Health

Age and health are both huge risk-factors in an overdose death. As I mentioned in this previous post (here), older people appear to be dying of drug overdoses *way* out of proportion to their use rates. And the opposite is true of young people; the young, while certainly not immune to drug poisonings, are far more resistant than the older users. There is an alternative explanation for these data, which I explore in the link. It’s possible that many of these “overdose deaths” are misclassified, where the decedent dies of a different cause. It’s just that people with drugs in their system are overwhelmingly labeled “drug poisonings,” even when another cause is responsible. The apparent age-disparity is driven by the higher mortality of older age groups. I think there is something to this alternative explanation, but 1) it implies that there are far fewer drug poisonings than we thought and 2) it stands to reason that as people get older and more infirm they’d be more susceptible to something that would not have killed their younger self. General warnings against drug use (“Just say no!”) are not effective and not informative; specific warnings (“Just because your heart could take it at 20 doesn’t mean your heart can take it at 40!”) might actually prevent some deaths.

In looking at the individual records on these poisoning deaths, it really jumps out at you how unhealthy these people are. It seems like every other record has some non-drug related health issue attached. (See my analysis here.) Sleep apnea and obesity are very commonly represented among these drug poisoning deaths. It’s easy to imagine that someone who has trouble breathing is more susceptible to an overdose from drugs like opioids, benzodiazepines, and alcohol, which all can make you sleepy and suppress respiration. Also, heart conditions are fairly commonly listed on the death records. It’s fair to ask if these people would have died if they’d been in better physical health. Once again, a general warning against drug use misses the point. A specific warning to people in poor health might be more helpful. Very specific drug-illness interactions would be even more helpful. “Don’t use cocaine if you have a heart condition.” “Don’t use more opioids than prescribed if you have sleep apnea.” Etcetera. We could still even issue the general warning, so long as it’s followed up with one of these “especially if…” provisions.

Multi-Drug Interactions

Overwhelmingly, these drug poisonings are multi-drug interactions. I thoroughly explored the interaction issue in this post. For every major category of potentially lethal drug, the vast majority of deaths involve multiple substances. Some of these interactions are well understood. Benzodiazepines, opioids, and alcohol interact to suppress respiration. If someone takes a non-toxic dose of several of these substances, the combination can be deadly even though each substance alone would not have been. Once again, a specific warning not to combine certain drugs would be extremely helpful and could save a lot of these lives. A ham-fisted “Drugs are bad. Don’t do drugs” doesn’t accomplish much. The problem is that people start ignoring such warnings as soon as they survive an encounter with drugs. They might start assuming that everything the government tells them is a lie, and then they won’t believe anything else they hear. Well, here’s a quantifiable risk, with easy-to-cite data sources. We don’t even have to wait for a big policy change to implement this warning. People can unilaterally change their behavior once they know the *specific* risks of drug use. Such a behavior change doesn’t require a big congressional battle over drug policy, just accurate information about risks.

One caveat here is that sometimes there are combinations of drugs on the death record that don’t seem to have a dangerous pharmacological interaction. To name a couple of dubious combinations: Does cocaine really negatively interact with benzodiazepines? Do opioids interact dangerously with cannabis? (For that matter, did cannabis actually *cause* any of the deaths in which it’s listed on the certificate?) Or are the medical examiners promiscuously listing everything they find on the toxicology screening? It’s possible that some of these truly are single-drug poisonings and irrelevant factors are listed on the death certificate. But if we admit that irrelevant factors are listed on the death certificate, that once again opens up the possibility that many of these deaths aren’t really drug poisonings in the first place. I suspect that the opioid-benzodiazepine-alcohol interactions are real and really are driving some of these death numbers. A specific warning against using any of these in combination would spare us a large fraction of the total drug poisonings.

The really sad thing here is that we’re missing an opportunity to meaningfully inform people of risks. We’re missing a chance to save lives. And it’s all because the US government has insisted on a puritanical “thou shalt not” policy regarding all questionable substances.

Someone else came to a similar conclusion after doing their own research. See this excellent article, including the comments section (Less Wrong tends to have excellent comments):

http://lesswrong.com/lw/45u/a_rationalists_guide_to_psychoactive_drugs/

The very first comment makes the following point:

“Even the worst drugs that legitimately screw people up do so because those people are taking them in ridiculously stupid ways. These drugs can often be useful tools to have when used responsibly.”

This is consistent with what I’ve seen in the CDC data. Infirm people, often using multiple substances, are driving the death counts. 

Self-Insure For Routine Expenses Whenever Possible

People really don’t like paying their bills out-of-pocket. This observation was brought home to me recently through several examples. I had suggested that somebody drop their physical damage coverages on a 5+ year old car. Someone who overheard objected that a cracked windshield (covered under the Comprehensive coverage) could cost perhaps a few hundred dollars to replace. I thought, “Yeah, a couple years’ premium for something that you’ll do maybe once or twice in your lifetime.” In another case, I was being shuttled back-and-forth between the garage and work while my car was being worked on. My co-passenger was complaining that the extended warranty he’d purchased on his car didn’t cover any of his repair costs that day. (In this case I was thinking, “Who buys the extended warranties? Doesn’t everybody know these are overpriced ‘insurance’ policies?”) In another case, someone was trying to ensure that a series of medical costs all fell in the same year, so that they would count toward her deductible. If they were billed the following year, her deductible would “refresh” and she’d have to pay those costs out of pocket. In another case, a parent with several children was arguing with a dentist who didn’t deal with insurance; the parent insisted that the dentist bill the insurer, rather than the parent having to deal with the hassle of claims-handling himself. This parent was a doctor, and I was thinking at the time, “Wow, even at the highest levels of education, people don’t get it.” Finally, policy fights frequently flare up in the news cycle over which trivial expenses should or should not be covered by health insurance.

So far this is a pretty banal observation. “Duh. People like to get free stuff more than they like to pay for stuff.” The problem is that getting something paid for by insurance isn’t at all like getting “free stuff.” When your insurer suddenly has to cover a cost that used to be paid by the customer, it has to increase the premium charged to its customers to cover that cost. In a sense the customer still pays, it’s just that they pay ahead of time and the insurance company later gives them their money back. It’s actually a little worse than this. The insurance customer *also* has to pay for the costs of having someone handle his money for him: bank transaction costs, actuaries setting cash reserves and pricing policy provisions, claims handlers who negotiate with the hospitals, etc. As a one-off, it might feel like a quick win to get your insurance to pay a bill that you were going to have to eat, but in the long run it’s a losing game to make your insurer pay your bills for you. It’s cheaper in the long run to self-insure for the small stuff.

You should never buy the extended warranty. These are always priced to make a big profit, and suppliers generally make big margins on these contracts. They may “pay off big” on rare occasions, but those are so uncommon that you’re better off saving up for those rare mechanical failures. If you own your car, you should either get a high ($1,000 or more) deductible on your Collision and Comprehensive coverages or do away with them entirely. Yes, you are exposing yourself to a larger share of repair costs if you get into an accident, but the savings are substantial. If you have the discipline to save aside those saved premium dollars rather than spend every penny you come across, you can easily self-insure for that once- or twice-in-a-lifetime collision requiring a lot of body work. I am *not* talking about liability coverages, which cover expenses to third parties when you are liable for the accident. You should always have a policy with high limits on liability coverages.  I’m also not talking about uninsured motorist coverage, which covers your medical bills if an uninsured (or inadequately insured) driver hits you. Don’t skimp on that, either. Buy lots of coverage, 250k/500k if you can afford it. If you have a lot of assets, buy an umbrella policy on top of your auto policy. When I say “self-insure”, I am only talking about the stuff that won’t wipe you out, as a massive at-fault auto accident might.

The general principle here is that you should self-insure as much as is feasible. Insurance is about protecting assets. It’s not about paying your expected, routine bills. That’s what a budget is for. There really are those big hits that can wipe out your savings: a house fire, an auto accident in which you seriously injure someone, a gigantic medical bill for tens of thousands of dollars. Those are events that you should be insured against. Insurance is for these low-frequency high-severity events, which are so rare they might never happen to you in your lifetime and so expensive they wipe out most or all of your net worth. But you shouldn’t be dipping into an insurance policy for every piece of routine auto maintenance, and you shouldn’t require a lifetime warranty to cover an appliance failure, which you should expect to happen every few years or so. If you have the self-discipline to actually save back the money you waste on these insurance policies, you will save money in the long run by self-insuring.

Even for those expenses that are large but *expected*, you should consider the possibility of self-insuring if it’s not too painful. Say, “I know I’ll have to pay this expense three times in my life, so I’m going to save up for it.” Think replacing a roof after hail damage (you should be replacing your roof every decade or two anyway) or replacing a car after a minor accident (once again, you should expect to replace a car a few times in your life). If you’re in a position where your cash savings can cover these kinds of expenses, you should consider getting a really high deductible on your home and auto policy (or do away with comprehensive and collision coverages on auto altogether if your car is old enough).

There are caveats to this. Of course if you are incapable of saving money, you should pick the low deductibles because a sudden unplanned for expense really will wipe out your savings. But this is a self-control issue that I think people can voluntarily avoid if they wished to. Most people, if they *really* thought about it and really showed some self-discipline, could curtail their household spending and save more, perhaps even earn more. Once a cushion of a few thousand dollars is built up, you can start doing away with those expensive insurance policies that cover trivial expenses. In terms of health insurance, you are extremely limited in what you can purchase. You can’t choose to buy a no-frills catastrophic-expense-only policy. You choice of deductible options is limited, and your choice of coverage options is probably completely inflexible. You can’t buy a policy that excludes routine stuff like birth control or office visits. So with health insurance there is probably no way to actually follow my “self-insure” advice until there are significant reforms in health insurance regulation. Finally, perhaps you think that you are especially skilled at extracting money from your insurance policies. *Other* people buy the protection plan and just forget about it, but*I’m* going to use it. Or: This insurance product is overpriced for the *average* customer, but it’s an especially good deal for me. More power to you, but I suspect that in the long run you will fail. Insurance companies are pretty good at setting the price to the risk. So unless you have some very specific knowledge that your insurer doesn’t have, you’re going to lose this fight.

Quite generally I wish people would get more comfortable with the concept paying their bills out-of-pocket. A little price-consciousness would almost surely bring down the very high cost of medicine in the western world; that price-consciousness is totally absent when someone else is footing the bill. People want unlimited medical care, paid for by someone else, and they want the total cost to be affordable to society as a whole. At most maybe two of these conditions can be met (as Arnold Kling points out in his book on the economics of medicine, Crisis of Abundance.) If people get more comfortable with paying their own routine (even some of their unexpected-but-not-too-severe) medical expenses, we can move into a space where people manage these trade-offs for themselves. “Self-insure whenever possible” is good private advice; you don’t have to swallow anything I say about public policy to follow it, nor do you have to wait for a major policy change to benefit from it. But I do believe it would lead to some public benefits if we all got better at managing our own expenses.

Fentanyl and Other Super-Opioids

I’ve seen media reports of big heroin shipment seizures. There are pictures of wooden pallets holding several kilograms, even a ton or so, of pure heroin.  Police dressed like soldiers, with assault rifles and armored vests, stand guarding it. And I think, this is why the drug war is unwinnable:

https://en.wikipedia.org/wiki/Fentanyl

“Fentanyl is estimated to have 50 times the potency as pure, pharmacy-grade heroin and about 100 times the potency of morphine.”

Fentanyl isn’t even the most potent opioid. Sufentanil is 5- to 10-times stronger still (yes, the stuff that Jessica Jones used to knock out Purple Man), and there are even more powerful opioids than that:

 

https://en.wikipedia.org/wiki/Ohmefentanyl

“In mouse studies, the most active isomer 3R,4S,βS-ohmefentanyl was 28 times more powerful as a painkiller than fentanyl, the chemical from which it is derived, and 6300 times more effective than morphine.

…

The 4"-fluoro analogue (i.e. substituted on the phenethyl ring) of the 3R,4S,βS isomer of ohmefentanyl is one of the most potent opioid agonists yet discovered, possessing an analgesic potency approximately 18,000-fold greater than morphine.[9] Other analogues with potency higher than that of ohmefentanyl itself include the 2'-fluoro derivative (i.e. substituted on the aniline phenyl ring), and derivatives where the N-propionyl group was replaced by N-methoxyacetyl or 2-furamide groups, or a carboethoxy group is added to the 4-position of the piperidine ring. The latter is listed as being up to 30,000 times more potent than morphine.”

Emphasis added. By which I mean, "I read this and said to myself 'Holy shit!'" Reduce that giant shipment spread out across all those wooden pallets to a 1-pound package, which can easily hide in some dark corner of a shipping container or carry-on luggage on an airplane or trunk of an automobile. Before it’s sold to the user it gets cut by amateurs who don’t know what they’re doing, and a bad batch might poison a dozen people. This is already becoming a huge problem, and it’s showing up in the drug poisoning statistics. Notice how the Heroin and Fentanyl deaths (the fat red and blue lines) are spiking in very recent years. I actually suspect there’s some cross-over. Some “heroin” overdoses are really bad batches mixed with fentanyl, but not every locality is super diligent about checking what exact substance killed a person. (Caveat: There isn’t actually a “fentanyl” code for drug overdoses in ICD-10; there’s one for “other synthetic narcotics” which covers fentanyl and a few others.)

There are ways to reduce the number of overdoses and there are ways to reduce the harm caused by opioid abuse, but none of them are possible in the midst of a drug war. We need to legalize drugs if we ever want to achieve any degree of real harm reduction. Keep hammering dealers, and someone will invent something 1000 times as strong as fentanyl and will smuggle the nation’s annual supply into the country in a single briefcase. OR we could just give addicts legal access to safe, pharmaceutical-quality heroin, free of adulterants and in a known dosage with a clean needle. Opioid addiction doesn’t cause the kind of cumulative organ damage that, say, alcohol or cocaine use does to your body, and most addicts eventually “mature out” of their addiction in a decade or so. If we can keep these people from overdosing, they will mature out of their addictions without any long-term serious health issues. That’s what drug policy should strive for: reduce overdose deaths and mitigate harms to health. The United States has chosen a drug policy that does the opposite. Take a look at those spiking overdose deaths in the chart above. If you favor drug prohibition, if you oppose legalization, you've effectively asked for this. 

Don’t Vote for Me!

I almost wish Gary Johnson and other libertarian politicians would adopt an ironic “Don’t vote for me” stance in their political speeches. Something like the following:

If you want someone who is going to tell you that all your problems are someone else’s fault, don’t vote for me!
If there is a tax or subsidy, a tariff or quota, that treats you differently from your fellow citizens and you want to keep that privilege, don’t vote for me!
If you want immediate action every time something emotionally compelling hits the news, don’t vote for me!
If you want a strong leader who will re-shape the world to his exact specifications, don’t vote for me!
If you want a leader who discounts the value of non-American lives all the way to zero, don’t vote for me!

I won’t let you keep your special privileges. I won’t tell you that everything wrong with your life is someone else’s fault. In crafting policy I won’t react emotionally, or bend to the emotions of a populist mob. When crafting foreign and immigration policy, I won’t treat the lives of non-Americans, who comprise most of the human race, as completely valueless. And I won’t assert that my vision of what’s best for humanity is the one true vision. I won’t interfere in market activities between consenting adults. I will not treat this nation as a singular mass of humanity, like an ant farm, as something to be manage and perfected by my own hand. I will allow free people to make their own decisions, including their own mistakes. I will show restraint and humility in wielding the tremendous power you trust me with, knowing that a misstep would ruin or perhaps even end countless lives. I will interfere *only* when there is violence, theft, or fraud, and only then when a lower level of government is not addressing the crime in question. If you think these are good ideas, if you think these are moral policy positions, if you think that initiating violence requires some kind of justification, then I’ll humbly accept your vote. But I wouldn’t recommend it!

I’m half joking here. Libertarian candidates aren’t exactly winning elections right now, so people hardly need to be told not to vote for them. Still I think the sarcasm makes a good point. Yes, by voting libertarian you would be voting against your narrow self-interest in the sense that you’d be losing one or two special privileges. But, for one thing, everyone else is losing *their* special privileges, too, so it’s at worst a wash and probably a net benefit to do away with everyone’s special treatment. More importantly, it’s the right thing to do. I wonder how successful this approach would be. It worked for Cartmanland.

Drug Legalization by Modus Ponens

1)      If drug prohibition doesn’t reduce drug-related harms, we should legalize drugs.

2)      Drug prohibition doesn’t reduce drug-related harms.
3)      Therefore we should legalize drugs.

This simple argument is an example of modus ponens. State a conditional, then state that the condition is true, which implies that the consequent is true.

You can deny 1 and/or 2, but if you accept 1 and 2 there is no logical way to reject 3. In the debate over drug legalization, it might be fruitful to have skeptics of drug legalization state exactly which part of this argument they disagree with and why.

My guess is that most people who favor drug prohibition (“drug warriors”) reject 2. They believe that there would be a huge demand response if we legalized drugs, a lot more people would use the currently illegal drugs, and therefore we’d have a lot more drug-related social problems. As plausible as this story is at first blush, it falls apart when you scrutinize it in any detail. If someone is willing to pay the very high price of ruining their life with drug use, why would they be deterred by a legal penalty? And does anyone really think *total* intoxication would increase? If you legalized cocaine, it’s not as though all the new cocaine users would be people who were previously squeaky-clean. Presumably most of the new users would be people who are currently getting their high some other way, like drinking alcohol or perhaps using some other illegal drug. Legalization might change the mix of drugs that people are using, but it’s doubtful that it would change the overall amount of drug-induced intoxication. You’d likely see some new light users who will never use the high-concentration versions of these substances; there would be some coca tea drinkers (who presumably would then drink less caffeine) but very few crack smokers. When a new drug comes on the scene, you see a lot of “substitution”; people stop using one substance in lieu of another. But you don’t see many new users. (Example: states with legal or medical marijuana see less use of alcohol and lower rates of painkiller overdose deaths.)

Rejecting step 2 is very problematic. There are enough policy experiments to reject the notion that legalization (or any kind of liberalization) leads to a big demand response. And there is little evidence that a policy change of stricter drug prohibition leads to a decline in drug use. Drug warriors can at best claim that there is a modest demand response, but one that has been difficult to detect in any kind of historical data.

It seems silly, but some people reject step 1). It would seem that if drug prohibition fails in its primary objective, really its only sensible objective, we should declare it a failed policy and legalize. But I’ve seen a couple of different reasons for rejecting the conditional.

I was arguing with a very committed drug warrior once, and I was trying to have a discussion about drug-related harms and how prohibition makes the problem worse. He played the moral trump card: “Morality beats cost-benefit analysis every time in a civilized country.” I found this statement to be incredibly foolish. In no sense can you even paint drugs as “evil” without reference to drug-related harms. If cocaine didn’t cause behavioral or health issues, there would be no “evil” to discuss in the first place. And if those harms are exacerbated by prohibition (as they surely are), then the moral implications of drug prohibition are the opposite of the ones he had in mind. I think he was really saying, “I’m going to be thick-headed about this, and I won’t be reasoned with.” But it was an example of someone rejecting the conditional. With this person (and presumably he has company), I wouldn’t have gotten past step 1).

Just a general point of advice: don’t play the moral trump card. It’s a bad-faith move if you’re trying to have a real discussion. And if anyone has the right to play the moral trump card, it’s the person who *isn’t* advocating the initiation of violence.  

I’ve seen another reason for rejecting 1), which has to do with the other “benefits” of drug prohibition that aren’t related to drug-induced harms. Police supposedly know who is and who isn’t a criminal, and they can bust someone for drug possession a lot more easily than proving an assault or a burglary. All they have to do is spot the target individual and frisk him, find a pipe or some drugs, and arrest him for that offense. There are several obvious problems with this. For one, as a rationale this would seem to justify outlawing certain modes of dress or speech patterns, or frankly ethnicity. If the goal is to let the cops bust whoever they want, there are other ways to do it; it’s just that the moral outrage at such policies would be far more obvious. Also, keep in mind that the police often explicitly look for drugs even when they aren’t looking for other kinds of crimes (like assault, robbery, or other crimes that involve actual victims). They put a great deal of work into “proving” that someone is a drug dealer, and after an outrageous no-knock entry of their residence, it often comes to light that the evidence was flimsy in the first place. The drug war isn’t just a tool for arresting real criminals, similar to catching Al Capone for tax evasion. Police resources are being diverted to serve this one goal, and innocent people are getting caught in the crossfire.

Probably some other people reject 1) for reasons of bald self-interest. Associations of prosecutors, prison guards, police, and alcohol producers raise hell whenever there is talk of drug liberalization. It should be easy enough to see this special pleading for what it is. We should ignore this kind of blatantly selfish special-interest lobbying.  

I’m guessing there aren’t that many people who would really deny step 1). The real crux of the disagreement is step 2), so that’s probably where most of the discussion should be focused. Is there a big demand response? How big? Is the deterrent effect worth all the social costs of prohibition (black market violence, tainted drugs of wildly fluctuating dosage, blood-borne pathogens for IV drug users, alienation of minority communities to law enforcement, etc)? The drug warriors are on extremely shaky ground here. They have to justify all these prohibition-related social costs, in return for a completely speculative demand-response (reduction in drug use) that utterly fails to show up in the real world.   

A simple request. Suppose you don’t have the patience for all of this logical argument and policy analysis. If that’s the case, please do the decent thing and set your default position to “pro-legalization.” If you aren’t thinking through these issues, then you don’t in any meaningful sense have an opinion on the relevant policy questions. Many people incorrectly default to “status quo”, but that’s wrong. There is no sense granting a presumption in favor of existing policy, knowing that policy is wrong in so many ways at any given time. The default ought to be “favor the policy that doesn’t initiate violence against non-violent offenders.” I’m not trying to claim that initiating violence is always wrong, just that it requires justification. And for something you haven’t thought through for yourself, you should default to the position that violence *isn’t* justified. The alternative is “violence is justified until proven otherwise,” and I’m not sure anyone really wants to go there.

The Social Value of a Billionaire Entrepreneur, a back-of-the-envelope calculation

What is the value of an entrepreneur to society? Here is a useful way of thinking about this question. Suppose Steve Jobs didn’t really give us the smart phone. All he did was to get us there faster. Other people were working on the technology already. Apple’s employees and Apple’s competitors would have come up with the smart phone. But for Steve Jobs, we would have had smart phones of similar quality; it’s just that we would have gotten them a month later. That makes Steve Jobs’ contribution seem pretty trivial, right?

 Not so fast. Say the average smartphone plan is $40 a month, and market coverage is about half the population of the US. (A bit of Googling tells me that both of these assumptions are conservative, but you can change them however you like.) 330 million people divided by 2, multiplied by $40, gets you $6.6 billion (as the value of 1 months’ worth of smartphone coverage). That’s a very low-bar estimate of Steve Jobs’ contribution to the world, assuming he made this one innovation happen just a single month early. This $6.6 billion figure is low for several reasons. You also have to consider consumer surplus (the difference between what the consumer actually pays and the subjective value she places on the product); someone who spends $40 on a phone plan values the use of the phone at *at least* $40 per month. You also have to consider the value that Steve Jobs’ innovations add to his competitor’s products. (And at this point I’m running the risk of double-counting some of Mr. Jobs’ contributions with my imprecise language.) Apple came out with a product that does a bunch of stuff, and his competitors realize, “Oh, people want that? Okay.” Entrepreneurs don’t just create a product and sell it; they often create innovations that can be copied by competitors. Also, the change to smart phones created a lot of now-useless dumb phones, which the poorest people in the world were eager to purchase. This effect, the spread of technology to poor people, may be the most important contribution of entrepreneurs to society, but it’s a benefit that the entrepreneurs don’t capture in their personal earnings. By and large, entrepreneurs capture a small portion of their contribution to society. For society to purchase the contributions of these folks for a few billion dollars is often an absolute steal.  

(BTW, it doesn’t matter that the market penetration of ½ the population lags the release of the smart phone by a few years. I can simply stipulate that Steve Jobs’ contribution is “everyone with a smart-phone got it a month or so earlier than otherwise, thanks to Steve Jobs.” And it doesn’t meaningfully change the example to point out that a competitor beat him to the market with a similar product. For whatever reason people didn’t want that other thing but *did* want the iPhone, or a Samsung phone or some other similar phone. Don’t put too much stock in the $6.6 billion figure I came up with above; it’s the order of magnitude, not the exact value of the figure, that matters for the sake of my point.)

Moral Outrage is Appropriate, but It Doesn't Solve the Problem

Moral outrage is a perfectly human response to many situations. The problem with moral outrage is that it’s not really a solution. Declarations such as “This has to stop!” and “This is totally unacceptable!” need to be accompanied by substantive policy recommendations. How do you reduce the number of police shootings of innocent civilians?

You can’t just say “Stop making mistakes!” Any encounter between police and civilians has a non-zero chance of becoming one of these fatal escalations. So adding up the millions and millions of encounters, most of which are peaceful, will inevitably lead to a few horrific mistakes. A substantive discussion would include some policy changes that fix the problem. Notice that even a slightly more specific framing of the problem still isn’t helpful: “These shootings happen because too many police officers are racist, and their fear of black people causes them to be trigger-happy.” This may or may not be a correct diagnosis, but it raises the question of what policy tweaks can we implement to make people less racist? It’s very hard to change culture, and it’s very hard to change the nature of people. We don’t have a policy lever that turns bad people into good people. We need to tweak our institutions so that we get the best possible result out of the crooked timber we’re working with.

We could implement a policy that bluntly leads to fewer interactions between police and civilians. You *could* require stricter criteria for making a traffic stop so that there are fewer of them, but this would mean that it’s harder to make traffic stops for legitimate reasons and catching fewer real criminals. There’s a false positive/false negative trade-off. Do you want to harass fewer innocents and let more criminals off the hook, or do you want to catch more real criminals and harass more innocent people? There’s an inverse relationship between the two kinds of errors (taking everything else as a given: fixed resources, a given level of law enforcement experience, our institutions as they currently exist, etc.). I picture an ideal world where everybody understands this principle and sees the same inverse curve (with false positives on the X-axis and false negatives on the Y-axis) and the substantive argument is about *where* on that curve we want to be.

Or perhaps we can reduce both kinds of errors by throwing more resources at the problem. Some kind of sensitivity training or tactical training for police officers might work, but it needs to be established that such a training program *actually* works or the officers will resent and ridicule it. There could even be a backlash, where police officers resent the treatment so much it has the opposite of the intended effect. Not to mention it would be a waste of money and a distraction of our scarce law enforcement resources. Any high-sounding solution needs to be tested for effectiveness.

Maybe you can do better screening for problematic police officers, but this will raise the cost of hiring law enforcement personnel by limiting the pool of applicants. It may be a cost worth paying, but we should face it with our eyes wide open. Also, this once again presents the false-positive/false-negative trade-off. If you raise the bar, you will exclude more problem officers, but you will also exclude more perfectly good candidates who happen to score low on your imperfect selection criteria. This should be evaluated in cost-benefit terms *and* in terms of fairness to the individuals.

(A minor, slightly technical aside here. There is no test that tells you with certainty “This is a problem officer” and “This is a good officer.” But you could come up with a test that says, “Given this person’s background and test score, this person has a 5% (or 10% or 15%) chance of becoming a problem officer.” You can work on making the test as accurate a discriminator as possible, but you will never separate your population cleanly into 100% good and 100% bad police officers. Wherever you set the bar, you are always running the risk of turning away good officers and accepting bad ones. Both kinds of errors will always happen. The choice you face is the relative proportions of these kinds of errors.)

There are other questions. What level of government should respond to the problem? Is there even a “lever” to pull here? As in, a policy change that affects the problem? Should a higher level of government step in if a local government is intransigent in implementing a solution? Does such an intervention raise concerns about democracy and voter sovereignty? “Stop being so racist” might be good advice, but is there a policy lever to address it? (As in, “The more money and resources we throw into this machine, the less racism we have in law enforcement.”)

It reminds me of when my kids are fighting over a toy, and my lazy response is to just say, “Stop fighting, guys.” And they both still have their hands on the toy. This isn’t a solution; I have to get in there and adjudicate the dispute. I have to decide which one of them gets the toy, which means I have to break the other one’s grip. Possibly, I also need to set a policy, such as “These toys are yours, these toys are his. Don’t play with your brother’s toys without permission.” Or “The toys are collectively owned and anyone can play with any toy, so long as your brother isn’t playing with it at the moment.” Unfocused moral outrage accomplishes about as much as me telling my kids to “stop fighting.” When I hear things like, “Let’s all just get along” and “This should never happen” or “Can’t people just stop being shitty to each other?”, I think the speakers are really dodging the important questions. For some reason it’s considered cynical to talk about politics when something tragic occurs, but I think it’s necessary to have a serious discussion about which policies lead to fewer tragedies. (I am in no way backing down from my previous position, that we shouldn't react to individual tragedies.)  Policy setting *is* politics. I understand why many people want to be non-combatants in this fight over policy-setting. It does get ugly. It ruins friendships. But it’s a fight that has to happen. Unless we have that discussion (no, that heated argument) about which policy fix to implement, we won’t solve the problem. Denouncing bad behavior while bowing out of the policy fight is like telling your brats to “just stop fighting” while leaving both of them still grasping the toy. You’ve expressed your wish that a problem would go away, but haven’t really done anything about it.

With all that said, it’s possible that unfocused moral outrage actually *does* accomplish something. Police forces are surely scared to death that the wrath of society will come down upon them if they make the wrong mistake, and this surely has some effect on their level of caution. And some policy fixes have been implemented already. There are more body cameras, and maybe my perception is wrong but I’ve seen more instances of officers being punished or fired for shameful behavior on social media. Body cameras and personnel vetting are real policy fixes, and I could think of a few others. Legalizing drugs would eliminate the need for many police-citizen interactions, as I’ve said before. “Stop and frisk” policies, where the police randomly search (mostly young minority) pedestrians, could be eliminated. “Community policing” initiatives, where the police try to promote a good relationship with the public they serve, would give police officers a lot of non-violent tools for dealing with problem individuals or potential suspects. Angry protests, even if they don’t specifically ask for any of these fixes, might accomplish some of them anyway. Community leaders (like the mayor, city council, or police leadership) facing the choice, “Do *something* or face more angry traffic-snarling, commerce-choking mobs” might get their collective shit together and implement some of these solutions, which is great. “Moral outrage” is an important mode of the human experience and it can initiate real change. But it’s more constructive sometimes to shut it off and think about how to fix the problem. 

Legalize Drugs to Minimize Fatal Police Encounters

I’m in favor of drug legalization. Not just marijuana, and not just “decriminalization.” I’m talking full legalization of the production, transport, and sale of all currently illegal drugs, with or without a strict regulatory/tax regime. This would surely lead to fewer unnecessary confrontations with police officers. There would be fewer bullshit traffic stops and fewer stop-and-frisk encounters with pedestrians by cops looking for bogus reasons to bust people. I’m not claiming it will end all fatal encounters between police and civilians. There would still be plenty of *legitimate* reasons to bust people, so obviously potentially volatile police encounters wouldn’t drop to zero. But they would surely fall. Much of the low-level harassment can be blamed on the war on drugs: Cops find bogus reasons to search people for drugs (especially young minorities), which foments resentment in minority communities, where people quite reasonably suspect they are being singled out for harassment. That’s a recipe for escalation if there ever was one.

Most of the outrageous police shootings that make the news involve unnecessary escalations of routine traffic stops or other impromptu police encounters. But there is another class of fatal shootings in which the confrontation is planned by the police. I’m talking about SWAT-style no-knock raids on residential properties. A team of soldiers storms into a home, kills the dog as a matter of course, and handcuffs the family and holds them at gunpoint. This is almost always to serve a drug warrant, and at any rate this vile practice historically arose for the purpose of enforcing drug laws, even if it’s occasionally used to enforce other types of laws. It’s completely disgusting and completely avoidable, but it’s done something like 50,000 times each year (last I checked). We can’t do all that much about the first kind of police encounter; there will always be that initially reasonable and legally defensible traffic stop that unnecessarily escalates into a fatal encounter. But there are 50,000 extremely violent (if not often fatal) encounters every year that don’t need to happen at all. We could and should stop this practice immediately, whether accompanied by full drug legalization or not.

Under legalization the black market would go away, too, along with all the associated crime. That means fewer gang-related murders, beatings, and property crimes to investigate, which means fewer encounters between police officers and young men (the demographic most likely to escalate into pointless violence). The market price for drugs would decrease enough that addicts would not have to resort to property crimes to support their habit, so there is another class of crimes that could disappear. It’s likely that the use of currently illegal drugs would increase slightly if we legalized them, but it’s very unlikely that *total intoxication* would increase by much. The kinds of people who are willing to take serious risks with their health are the kinds of people who aren’t deterred by legal penalties. People who have a very high need to get intoxicated either use illegal drugs anyway or drink alcohol. We’d probably see some substitution away from alcohol toward other drugs, but there wouldn’t likely be a net increase in problematic drug use. So we should give very little credibility to the notion that drug prohibition is holding back a hoard of criminal drug-zombies, as if legalization would open the gates. This belief, that drug use *causes* criminal behavior, is on shaky legs anyway. Legalization would, in sum, eliminate several major drivers of crime that currently exist and wouldn’t likely add any new drivers, for a net decrease. That means fewer confrontations between police and citizens, which in turn means fewer fatal confrontations.

All this has little to do with the particular news stories that people are upset about this week. I’ll reiterate a point I’ve made before: Stop reacting too strongly to the “outrage of the week.” Substantive policies are based on statistical evidence, not individual data points. No single story, no matter how emotionally compelling, “proves” or “debunks” your worldview. Everything I said above could be 100% correct, and these recent specific killings might still have taken place under a regime of my preferred drug policy. We shouldn’t craft policy in response to specific tragedies; we should craft policy that does the most good for the lowest cost. Drug legalization passes this test.